Topics Covered This Quarter:

Don’t Cut Corners with Title Insurance, Jackie Carosa, Esq.
Lingering Wire Fraud Scam Issues, Jackie Carosa, Esq.

Don’t Cut Corners with Title Insurance

Many buyers find themselves caught up in Monroe County’s competitive real estate market. In this seller’s market, buyer’s agents are writing multiple offers for their clients, particularly depending on the price point. Sale prices that exceed the listing price remain more the norm than the exception. Nancy Rogers, a seasoned real estate agent with Keller Williams, had a property that generated 28 offers and sold for $52,000.00 over asking. “The property appraised, so no issues there. We are still seeing activity at that level in certain areas,” she said.

To compensate for the increased purchase price, some buyers may be tempted to cut corners by waiving off on anything that’s not a required closing cost.  An Owner’s Title Policy may be at the top of that list. While there are ways your clients can save money on their purchase, waiving off on the optional Owner’s Title Policy shouldn’t be one of them. Here’s why.

Title insurance protects the insured against loss resulting from title defects. Lenders require a buyer to purchase a Lender’s policy, but that policy doesn’t protect the buyer against challenges to his or her ownership interest. An Owner’s policy is needed for losses sustained by the owner. An Owner’s policy will provide the legal representation necessary to defend the owner’s fee interest should a party comes forward with a claim to title. If there’s a complete failure of title, the insured is protected up to the face value of the policy, unless the buyer also purchases a market value rider and then the buyer would be compensated the appreciated value of the premises over and above the purchase price.

There are dozens of good reasons to purchase an owner’s policy. Here is a short list of several situations in which an owner could benefit from the coverage of his or her owner’s policy:

• Forgery of a Prior Deed
• Execution of Prior Deed by a Minor, Person of Unsound Mind, or Person Under Duress or Undue Influence
• Prior Deed Not Executed by All Parties Holding an Interest
• Prior Deed or Mortgage Improperly Indexed
• Prior Deed or Mortgage Executed under Improper or Expired Power of Attorney
• Disputed Property Description
• Forged Satisfaction of a prior mortgage
• Prior home equity line of credit paid down but erroneously not closed

The bundling discount is another good reason to purchase an Owner’s policy at the time of closing. When a buyer purchases an Owner’s policy and Lender’s policy together, he will receive a discount for bundling the purchase. For example, on a $100,000.00 purchase price with a mortgage of $80,000.00 mortgage, the buyer would save about $345.00 by purchasing both policies. Title insurance rates are set by The Title Insurance Rate Service Association (TIRSA), which is licensed by the State, so there’s no need to shop around for the best rate, which can give your buyers peace of mind in knowing that they wouldn’t find a less expensive premium somewhere else.

Finally, the Owner’s policy will typically be written for the purchase price of the property. Your buyers will have an opportunity at closing to purchase additional title insurance commonly referred to as a Future Market Value Rider policy. It works like this: Imagine your buyer pays $150,000.00 for a house. They make substantial improvements to it and over time the market value is $250,000.00. Someone challenges title and proves that a prior deed was forged. The owner is divested of title and the insurer issues payment up to the face value of the policy, which is $150,000.00. Without the additional FMV coverage, the owner loses out on the $100,000.00 increase in market value. To protect the owner’s future value in the property, the buyer can purchase additional coverage at closing for a one-time fee that costs 10% of the underlying Owner’s policy. I advise my clients to consider purchasing the policy if they feel they underpaid for the property, will be making substantial improvements to the property, purchased property in an area that boasts a high appreciation, or plan to remain in the property for a period of time. Even more simply, your clients may want the peace of mind that comes from knowing they are fully covered!

As an aside, if your client purchases an Owner’s policy on vacant land and later builds a house on the land, their Owner’s policy would have to be updated based on the value of the property after the house is built.

We strongly counsel our clients to purchase an Owner’s title policy. An attorney’s hourly rate can quickly exceed the cost of insurance should an owner have to retain counsel to defend a challenge to title. For buyers that are cost conscious or trying to cut corners, skipping the Owner’s policy could cost them more than they bargained for. If your client is looking for places to cut corners, have them look elsewhere!

Lingering Wire Fraud Scam Issues

We are still seeing problems related to wiring fraud scams.  Buyers are being contacted by email and provided with a hyperlink to wire closing funds. The emails purport to be coming from an attorney and look completely legitimate but they are not. The emails may play on your clients fear of COVID and might instruct your buyer to wire funds because it is safer than going to the bank for a certified check. Or, the email might simply emphasize the convenience of wiring funds rather than making a trip to the bank or the necessity of complying with bank regulations in order to close. One of our sources in the banking industry had this to say:

“Over the last few years, there has been a substantial increase in wire fraud. Social engineering has played a large role and email domains are frequently hacked by the perpetrators. No money should ever be sent via wire unless the instructions have been confirmed with the recipient verbally. Contact information and instructions contained in email correspondence should not be considered reliable. Buyers should contact their attorney directly by phone to confirm wiring instructions.”

If the funds are wired using the fraudulent link, they could be lost forever. Our banking source cautioned: “Time is critical if your client falls victim to the wiring fraud scam. The more time that passes, the less likely it is that the funds will be recovered. We’re talking hours. Any attempt to stop the wire needs to happen right away. Your clients should immediately contact their banking institution by phone or walk into a branch location for help.”

Avoid this kind of issue on the eve of closing. Please continue to caution your clients against wiring funds without first verbally speaking to their attorney’s office to verify the wiring instructions.

If you have a topic you’d like to see discussed in a future Newsletter, please send your ideas to us at: RelinQuarterly@rgcattys.com

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