Title Insurance Essentials — PART 1
GRIFFITH LAW GROUP represents a large number of landlords, real estate investors and property managers. In our real estate law practice, we get asked a wide range of questions. In this article, we address a couple of important topics raised in questions posed to us:
Question #1: We are doing a short sale in Indianapolis and need an attorney that can do a simultaneous closing – can you help?
Answer: Frankly, it is not a good idea to use an attorney as a closing agent to close a real estate transaction in which title is exchanged. In Indiana, we use title companies backed by national insurers. In other states, attorneys handle closings and perform a range of services as closing agents. In Texas, for example, attorneys close deals and have special insurance to cover title defects. This is NOT Texas. Use a title company. We have many, many horror stories about investors doing deals like yours without title insurance.
Unlike law offices, title companies specialize in closing real estate transactions. Title companies have forms, procedures and systems to handle the deal properly, and those systems ensure consistency. You can rest assured that your deed, for example, will get filed at the Recorder’s Office. If not, there is an insurance company that insures you against losses associated with any such error.
Additionally, good lawyers are not cheap. Title companies have fair and reasonable fees. So, if you elect to use an attorney, you must hire a good attorney at a higher billable rate or use a lesser attorney to save a few bucks. Why would anyone retain a “lesser” lawyer to save money, when you can get better service for the same cost by using a title company?
If you are trying to “kill two birds with one stone” and have the attorney both approve the deal and serve as the closing agent, then resist that urge. The role of a good attorney, particularly a real estate attorney, is to review, analyze and advise you on the legal and business aspects of a proposed transaction. As to closing “tasks,” hire a title company to perform those tasks. It is still wise and prudent to utilize an attorney skilled, experienced and trained in the types of deals you do. Have your attorney prepare and review documents, and educate you on how best to structure the deal itself. It simply makes no sense, however, to hire an attorney to paint a house, lay flooring or perform closing services.
Question #2: What title insurance should I get?
Answer: That depends on the size and nature of your deal. There is a wide range of title insurance products. For example, if you are a seller, you might want to purchase an owner’s policy, or the terms of the deal might require it. If you are a hard money lender, you might want a mortgagee’s policy. Or, if you are purchasing a property and giving a mortgage, you might want a mortgagor’s policy. Understand that the mortgagee’s policy covers your lender, not you.
Then there are endorsements to cover title matters more often applicable in a commercial deal. For example, there are endorsements to cover ingress and egress, easements, signage, zoning, etc. These endorsements are usually not provided without an opinion letter from a real estate attorney or some other form of investigation, proof, or documentation. A simple title search will not be enough to get a title company to make additional endorsements. And, these endorsements cost more than a simple American Land Title Association (ALTA) policy.
Question #3: Why are there different ALTA policies? ALTA 92’, 98’, 06’ etc.
Answer: ALTA policies are updated from time to time. Generally speaking, the most current version of the ALTA policy contains the most title insurance protection, and the parties should reference the most updated version of the ALTA policy available in their purchase agreement.