Learn me title insurance (home buying)

We are looking at a house, and the sellers have struck out wanting [to pay for] title insurance.  This strikes (heh) me as them being cheap, but the other half of the "we" is worried that they are trying to hide something.

My gut feeling is that the insurance isn't to reveal anything being hid, it's to make the current parties whole if someone else lays claim to the property.  Thus having the insurance would actually be a good thing if something came up.

I guess I'm just wondering, what possible benefit could there be for the seller to not have this insurance aside from just not wanting to spend the money?

Note, the insurance will be had regardless because it's mandatory here.  We just are wondering what benefit someone might think there is to not having it.

Edit in brackets for clarification

Yeah, that would tingle my spidey sense as well. There's no reason IMHO to not have title insurance unless you know there's a potential issue with the title that might show up when you try to get it.

Strikes me as odd at the very least, especially given how comparatively cheap it is.

Or is it just a matter of them not wanting to pay for your title insurance?

That's the thing, without going too deeply into things, we are learning that im some areas the seller pays for it, in some areas the buyer pays for it, in some areas both parties share the expense, and the sellers own properties in multiple states so they may not even remember that this is an area where the seller has to spend money.

It's my understanding that getting insurance won't uncover an issue, it's for the possibility that in five years XYZ Brokering comes forward and claims that they have an outstanding lien that nobody previously knew about.

Sounds like a polite reminder might be in order then. Hard to argue if they're required to pay for it. 

I would think the seller has no need to insure something they will no longer own?

TRoglodyte said:

I would think the seller has no need to insure something they will no longer own?

In this area, they are expected to spend money for it as part of the process.

I've edited the OP in brackets for clarification.

Like you typed, it is required and the money is not trivial but not an option to get more cash on settlement day.  I would try to find out if there were offers in the past that didn't pan out for the same reason.  Their realtor may disclose that.  But in the end it is a requirement and even if it wasn't I would walk away from any deal over it.  

Here are the tasks involved:

• Responsibilities:

  • Review and Complete Applications: They review and complete title applications, ensuring they are accurate and comply with legal requirements. 
  • Document Management: They organize and manage title documents, ensuring they are complete and up-to-date. 
  • Title Research: They research and analyze property records, identifying potential title issues or discrepancies. 
  • Coordination and Communication: They coordinate with lenders, real estate agents, and other parties to resolve title issues and ensure a smooth closing process. 
  • Data Entry: They perform data entry to update records and track the status of applications. 
  • Preparing Documents: They prepare deeds, grants and leases 

I forced the realtors to split last minute costs and pay from their comission when the seller tried some shenanigans.  Yes he is a lawyer.  You could try this tactic or if the deal is too good to walk away from offer to split the cost.  But my gut says they are hiding something, but could just be stupid about this stuff.

In reply to porschenut :

This is a split cost area and they want to cover none of it.

The house isn't "too good to be true" but it does check a lot of our boxes in a price range we can afford without adding an hour to commute times.  For sure it could be better, but the market here is nuts and people are making cash offers without even having an inspection done.  Maybe nobody else is willing to deal with their shenanigans.

For clarification, it's not required here for the seller to pay half the title insurance, but it's standard practice, and our realtor has never had a seller refuse.

(Our sellers are in real estate themselves btw and currently own the house as a rental property, fwiw. This is part of what throws up red flags for me.)

If we decide to buy the house, we would buy our own title insurance, as yeah, it is relatively cheap. We would not go without it. But it just seems weird the sellers would dig their heels in over $500 especially since we offered asking price and the house has been on the market comparatively long for the area, unless they know something we don't.

--the other half of Pete's "we"

This isn't the first weird thing we had - the sellers of the "ni sankyu" house (Patrick and EvanB have seen it) required us to be pre-approved for a mortgage before they would let us even look at the house.  There was enough weird with that house and the sellers and the way it sold at a certain time that made me think some other game was being played and we were interfering with that as an outsider.

The sellers of this house also dug their heels in on some other expenses that make me optimistically see that they are just being frugal but also, that could be a plausible-deniability play if something hinky was going on.  It could just be outside speculators being outside speculators unfamiliar with local expectations or it could be buck-passing.

If the process of getting the insurance will have a discovery phase as porschenut describes that uncovers any hinkiness then that makes me feel better but we'd still be out the fee, which is small enough compared to the potential risks but also a large enough sum to not want to throw it away.

This house and the "ni sankyu" house reminds me of a certain GRM'ers purchase of an Evolution IX from an eccentric elderly couple...

Sounds like a good plan.  Title insurance is required, and just paying it is not kosher but acceptable.  The pre approval thing is not too weird, we got preapproved before shopping decades ago and advised the kids to do the same.  Good luck, hope it works out.

Lots of these things are negotiable in the home buying process. To my amateur ear, it sounds like the seller feels they have bargaining power and can dictate terms to you without spending any more money than necessary. Common mentality for a landlord/RE investor type. They're not going to spend anything to diminish their return unless they have to. Especially if they feel (correctly or not) that the market is hot, and the property is priced fairly.

In reply to STM317 :

The general area is heating up but the specific area isn't, in that things haven't appreciated 200% there in the last 15 years like they have in other parts of the city.

Part of the appeal of this house is that the facilities have been modernized in the last ten years (modern windows, modern electricals) but the interior hasn't been remodeled to the same bland housing-development feel with those awful white and gray faux-wood floors.  I'd like, we both would like, more backyard and a larger kitchen, but it has three finished levels and an amazing walk-up attic that can be finished with a little bit of work.  Checking off those boxes would double our mortgage and property taxes and more than double commute times.

In reply to Pete. (l33t FS) :

Do you have a realtor? I would grill them about the sellers reluctance on title insurance and overall sketchiness. Realtors are licensed and should follow a code of ethics.

I work in the title insurance industry and would be happy to chat offline if of interest. 

No title insurance underwriter is going to issue a policy without all of the standard research regarding the sellers and the property. If the seller paid cash for the property, they could have decided not to buy title insurance. I wouldn't take that as indication that something is wrong with the property or the sellers. And i would *guess* their refusal to pay for your title insurance costs is simply because they don't want to spend the money - not because they're hiding something. 

But, as noted, if you decide you are willing to pay for the title insurance, all of the normal efforts will occur prior to closing. Your lender won't let the closing occur without the title commitment being completed. So, if there is something found, it will be found before you buy the property. 

My understanding is that title insurance protects the buyer, not the seller. So besides following 'local norms', what is the motivation for them to easily agree to paying it, especially if they have no say in which one you choose to make them pay for? Perhaps it's about the principle more than the money. Also, everybody wants to make the most money possible, so they may just be testing you instead. Either way, offering to pay it yourself for an equivalently reduced purchase price could vet those out. Alternatively paying for it all yourself could be used as leverage to get them to bend on something else you want instead.

Are your sellers in the middle of a divorce?  I ask because their price squabbling has the illogic-ness of divorce times.

BTW, we were going over all this by ourselves this morning and not sure how to approach things, and all the usual FUD fun that comes with an unexpected twist.  

Then I thought, let's submit this to The Hive and see what they say. 

Thanks for all you guys' help so far and in the future.  Really, thank you.

Driven5 said:

My understanding is that title insurance protects the buyer, not the seller.

Title insurance protects everyone.  If a seller sells a house without title insurance and a title issue comes up a couple years down the line, that's a lawsuit waiting to happen.  Even if the seller was truly ignorant of the issue and made the disclosures in good faith, they do not want to have to try to prove that in court.

John Welsh said:

Are your sellers in the middle of a divorce?  I ask because their price squabbling has the illogic-ness of divorce times.

I'll second this. Seems like the sellers don't want to budge because then their "profit from the sale" goes down. I'll also add that you should or could see when the last transaction on the property exists. I have a feeling the "meat on the bone" for the sellers is not very much hence the no.

When did the sellers purchase the house ?

Maybe they "Just" paid for title insurance just a few years ago and think nothing has changed.

And what is the average cost for title insurance in your area , its been decades since I bought it last time.

Good luck

californiamilleghia said:

When did the sellers purchase the house ?

Maybe they "Just" paid for title insurance just a few years ago and think nothing has changed.

And what is the average cost for title insurance in your area , its been decades since I bought it last time.

Good luck

Pete,

Go to https://www.zillow.com/, put in the address of the house.  Toward the end of the page the website will show you when they house changed hands and for what price.  

Anecdote- when we were buying our home in the early 2000s, the sellers (a couple)  showed up at closing with a title document with a third person's name on it.  We're like "uh, who is that guy?" "Oh, he disappeared in the '60s."  Our agent looked at us and said "this is EXACTLY what title insurance is for." My thinking is that if the title ins co is willing to insure it, they're basically betting big money that there are no impediments to the title. Good enough for the tiltle ins co and the mortgage lender= good enough for me. 

For what it's worth I'm a fl lawyer, in Florida we sell and issue title insurance. If you get title insurance which if you get a mortgage will be required any issues  you fear will come up. In central Florida by custom the sellers pays for the title insurance but it's negotiable . so my guess is the seller is just cheap. The legal theory for those who have questioned is why the seller cares is if seller if the provider a warranty deed , which is typically required, the seller is warranting the quality of the title. What that means is subject  to litigation . But but title insurance provides money to resolve issues. So that is the sellers interest in having title insurance because he has warranties he has provided. Sorry writing from my iPhone 

flat4_5spd said:

Good enough for the tiltle ins co and the mortgage lender= good enough for me. 

...maybe.

A friend of mine discovered that what had been considered the property line between his and his neighbors' houses for decades turned out to be in the wrong place according to the deeds/original plans/etc.  This was a pretty big problem, since there was a structure (I don't remember if it was the house or an outbuilding) built across that line.  IIRC both parties were pretty reasonable about dealing with it, but the ultimate resolution was that he had to pay a bunch of money (fair market price per square foot) to his neighbor to buy the slice of land that they'd both thought was his all along.  Title insurance didn't really help, for some reason.