Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

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MikeG62
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Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by MikeG62 »

DW and I are considering the purchase of a to be constructed townhouse in a 55+ community in NJ. We are NOT purchasing the land, only the four walls and contents within the four walls of the town home.

There are approximately 200 town home units, most of which are already constructed and occupied. Site was former campus for a very large company that has long ago moved away. Builder purchased the site and I would fully expect have done their diligence as part of their purchase. No doubt most (maybe all) people who have purchased a town home in this community already have done a title search and purchased title insurance (certainly would be required if they were taking out a mortgage to finance the purchase). We would be cash buyers.

So here is my question.

I am having trouble understanding the necessity of purchasing title insurance in this case. What is it I am insuring since it's not that I have ownership of the land?

By the way, we've gotten an estimate and it's around $4,500. Seems like a lot of money to spend when considering:

1) The company that previously owned this site (for a good 1/2 century) I am sure did a title search when they bought it
2) The builder (nationally known high end builder) also did the same when purchasing the property some 6 years ago,
3) Many/Most (maybe all) of the folks who have bought a town home in this development have also done a search and purchased insurance.

What risk am I assuming here that has not already been run to ground over and over and over again by many others?

Again, keep in mind because it is a town home we aren't buying the land, just the four walls and contents within the four walls of our unit.
Last edited by MikeG62 on Sat Jul 17, 2021 6:20 am, edited 1 time in total.
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Normchad
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by Normchad »

I always buy title insurance *for myself* in addition to any I’m required to buy for the lending company.

In your case, I would buy it.

It will never lay out. That’s not the point. The fact that you can get a policy means that you won’t have problems. They will do a very thorough title search, and won’t issue the policy if something comes up.

The risk to you is this. The property might be fine, but your builder may end up stiffing some of the subcontractors or suppliers he used during construction. Then they will put a lien on your property. And it’s your obligation to make them whole. So maybe a plumber puts a $10K lien on your property. If that happens, the title insurance policy will take care of it….. if your builder goes bankrupt and doesn’t pay anybody, that can be a very big number.

So,I’d buy it. You can shop around though and see if you can get a better price.
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Harry Livermore
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by Harry Livermore »

I have always purchased an "owner's policy", even for a property I paid cash for.
What if some long-lost heir with a title to the property, from the dark ages before it was sub-divided over and over again, shows up?
In my opinion it's one of the darkest corners of the insurance business... an opaque product that rarely, if ever, pays out. Shopping around may yield a better price. But boy, talk about an ill-defined "product" that is like a black box.
Normchad, that's interesting about the mechanic's lien being covered. Is that just for new builds? I have always looked for liens on properties I have purchased, but none have been a new build...
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Normchad
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by Normchad »

Harry Livermore wrote: Fri Jul 16, 2021 4:59 pm I have always purchased an "owner's policy", even for a property I paid cash for.
What if some long-lost heir with a title to the property, from the dark ages before it was sub-divided over and over again, shows up?
In my opinion it's one of the darkest corners of the insurance business... an opaque product that rarely, if ever, pays out. Shopping around may yield a better price. But boy, talk about an ill-defined "product" that is like a black box.
Normchad, that's interesting about the mechanic's lien being covered. Is that just for new builds? I have always looked for liens on properties I have purchased, but none have been a new build...
Cheers
I am not a lawyer, nor a title insurance expert. But that is how it was explained to me. The mechanics lien might get filed after closing for work that was done prior to closing, and the policy would protect me.

I was also counseled to not ever throw the policy away, even after selling the property. The policy covers you forever I guess, and in some cases you might need that. Again, i can’t imagine what that would be, but that’s what I was told.

And as with everything in real estate, this probably varies from state to state.
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Harry Livermore
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by Harry Livermore »

Normchad wrote: Fri Jul 16, 2021 5:04 pm
Harry Livermore wrote: Fri Jul 16, 2021 4:59 pm I have always purchased an "owner's policy", even for a property I paid cash for.
What if some long-lost heir with a title to the property, from the dark ages before it was sub-divided over and over again, shows up?
In my opinion it's one of the darkest corners of the insurance business... an opaque product that rarely, if ever, pays out. Shopping around may yield a better price. But boy, talk about an ill-defined "product" that is like a black box.
Normchad, that's interesting about the mechanic's lien being covered. Is that just for new builds? I have always looked for liens on properties I have purchased, but none have been a new build...
Cheers
I am not a lawyer, nor a title insurance expert. But that is how it was explained to me. The mechanics lien might get filed after closing for work that was done prior to closing, and the policy would protect me.

I was also counseled to not ever throw the policy away, even after selling the property. The policy covers you forever I guess, and in some cases you might need that. Again, i can’t imagine what that would be, but that’s what I was told.

And as with everything in real estate, this probably varies from state to state.
Excellent info, many thanks.
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mw1739
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by mw1739 »

I agree to purchase the insurance, but if you insist on skipping it, you should be able to pay a lower fee for a title search disclosing all the information and any easements on the property.
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MikeG62
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by MikeG62 »

Normchad wrote: Fri Jul 16, 2021 4:34 pm I always buy title insurance *for myself* in addition to any I’m required to buy for the lending company.

In your case, I would buy it.

It will never lay out. That’s not the point. The fact that you can get a policy means that you won’t have problems. They will do a very thorough title search, and won’t issue the policy if something comes up.
If there are existing issue that would turn up in the search, they would have long been discovered by now as probably 125 of the ~200 units have already sold and are occupied. Having said that, I have no issue paying for the search as the quote I got was only around $325. I am taking some pause over $4,500 for the insurance piece, when so many others have already plowed this path before me.

What is it that would be unique to my unit (and turn up on my search) that would not also affect others (and have not turned up on their search)? Remember, these are multi-unit town homes.
Normchad wrote: Fri Jul 16, 2021 4:34 pm
The risk to you is this. The property might be fine, but your builder may end up stiffing some of the subcontractors or suppliers he used during construction. Then they will put a lien on your property. And it’s your obligation to make them whole. So maybe a plumber puts a $10K lien on your property. If that happens, the title insurance policy will take care of it….. if your builder goes bankrupt and doesn’t pay anybody, that can be a very big number.

So,I’d buy it. You can shop around though and see if you can get a better price.
Builder stiffing contractors/subcontractors or going bankrupt seems highly unlikely as builder is a well known builder of high end properties (been around for 50 years).

I've owned four homes in my life and always had the title search done and bought the insurance. This case just seems different to me for the reasons I enumerated in my OP.
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Northern Flicker
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by Northern Flicker »

Ask the developer to pay for your title insurance-- they should be selling a clean title to you. What if an old mining/mineral rights claim someday shows up from before the land was platted into separate lots for development? Something like that could be missed in the title search (don't ask where that "hypothetical" example came from).
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MikeG62
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by MikeG62 »

Harry Livermore wrote: Fri Jul 16, 2021 4:59 pm I have always purchased an "owner's policy", even for a property I paid cash for.
What if some long-lost heir with a title to the property, from the dark ages before it was sub-divided over and over again, shows up?
Let's play this out. Long lost heir to the property comes along. Wouldn't the huge corporation that owned the property for over 50 years who sold it to the large well known builder and the builder themselves be on the hook for selling a property they did not own? What about the other 200 town home owners? Where are they in this process? And I (assume I'm the only one or one of very few who passed on the insurance) am somehow on the hook for a big exposure with all these other deep pockets folks (as well as the many title insurance companies that are also in the mix)?

Wonder if my large umbrella policy would provide any protection here? Perhaps I should call and inquire with them.

I get it if this were a one off parcel of land or a small subdivision built on former farm land. In this case, however, there seem many very deep-pocketed large corporations that would be the key targets for an aggressive attorney before I had any material financial risk.
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MikeG62
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by MikeG62 »

Northern Flicker wrote: Fri Jul 16, 2021 7:50 pm Ask the developer to pay for your title insurance-- they should be selling a clean title to you. What if an old mining/mineral rights claim someday shows up from before the land was platted into separate lots for development? Something like that could be missed in the title search (don't ask where that "hypothetical" example came from).
Builder won't pay for the insurance. However, I am planning to ask them if they are willing to provide me with a "warranty of title" (which basically states that they are the sole party with a right to sell the town home). That feels like it would provide me with some protection. Somehow think they will just point me to the title insurance company. Big company not likely to do anything on a one-off basis. Although it's worth the ask.
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Luckywon
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by Luckywon »

In my opinion, title insurance is basically a racketeering scheme where most of the money is siphoned off in the form of kickbacks. I would never buy it if not required and certainly not in this case. Obviously, many disagree. Just my opinion.
Normchad
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by Normchad »

MikeG62 wrote: Fri Jul 16, 2021 7:54 pm
Harry Livermore wrote: Fri Jul 16, 2021 4:59 pm I have always purchased an "owner's policy", even for a property I paid cash for.
What if some long-lost heir with a title to the property, from the dark ages before it was sub-divided over and over again, shows up?
Let's play this out. Long lost heir to the property comes along. Wouldn't the huge corporation that owned the property for over 50 years who sold it to the large well known builder and the builder themselves be on the hook for selling a property they did not own? What about the other 200 town home owners? Where are they in this process? And I (assume I'm the only one or one of very few who passed on the insurance) am somehow on the hook for a big exposure with all these other deep pockets folks (as well as the many title insurance companies that are also in the mix)?

Wonder if my large umbrella policy would provide any protection here? Perhaps I should call and inquire with them.

I get it if this were a one off parcel of land or a small subdivision built on former farm land. In this case, however, there seem many very deep-pocketed large corporations that would be the key targets for an aggressive attorney before I had any material financial risk.
There would be a long ugly court case, and you’d need to participate in that. Do you want to pay for that? There is a reason that mortgage lenders require you to buy a policy to protect them.

All of this is very unlikely to happen. That is why title insurance is so cheap. But it happens sometimes.

Also, most large national home builders setup a new development LLC for each community they build. They do this because sometimes things go sideways. So the LLC will go bankrupt, but not the national builder. They do this for a reason, to protect themselves from weird stuff.

You are basically right, this is basically guaranteed to not be a problem for you. But it’s still a risk. A small one, but it’s there….

I don’t have to have homeowners insurance anymore. But I do. I don’t expect to ever need it. Home fires and tornados are relatively rare statistically. That is why the policies are cheap. But I still buy them.
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by 123 »

Buying real estate only on the representation of the seller would be like buying a car only on the representation of the seller and not having the pink slip. Title insurance guarantees your title of ownership.
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by Northern Flicker »

MikeG62 wrote: Let's play this out. Long lost heir to the property comes along. Wouldn't the huge corporation that owned the property for over 50 years who sold it to the large well known builder and the builder themselves be on the hook for selling a property they did not own?
It is not just heirs or ownership claims but also liens for unpaid liabilities of past owners.
Last edited by Northern Flicker on Fri Jul 16, 2021 11:13 pm, edited 1 time in total.
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by cchrissyy »

title companies will also fix problems with how the deed got recorded, such as an error in the property's legal description. they won't pay you in that case but they will take responsibility for the work and stress involved in fixing it.
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by anon_investor »

MikeG62 wrote: Fri Jul 16, 2021 7:59 pm
Northern Flicker wrote: Fri Jul 16, 2021 7:50 pm Ask the developer to pay for your title insurance-- they should be selling a clean title to you. What if an old mining/mineral rights claim someday shows up from before the land was platted into separate lots for development? Something like that could be missed in the title search (don't ask where that "hypothetical" example came from).
Builder won't pay for the insurance. However, I am planning to ask them if they are willing to provide me with a "warranty of title" (which basically states that they are the sole party with a right to sell the town home). That feels like it would provide me with some protection. Somehow think they will just point me to the title insurance company. Big company not likely to do anything on a one-off basis. Although it's worth the ask.
How much is the house and how much is the title insurance? It is probably a tiny % of the house cost, and it is a 1 time cost. Just get it.
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by Eric76 »

Luckywon wrote: Fri Jul 16, 2021 8:09 pm In my opinion, title insurance is basically a racketeering scheme where most of the money is siphoned off in the form of kickbacks. I would never buy it if not required and certainly not in this case. Obviously, many disagree. Just my opinion.
That is my understanding as well. Has anyone here ever made a title insurance claim, or even know someone who has?
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MikeG62
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by MikeG62 »

Normchad wrote: Fri Jul 16, 2021 8:10 pm
MikeG62 wrote: Fri Jul 16, 2021 7:54 pm
Harry Livermore wrote: Fri Jul 16, 2021 4:59 pm I have always purchased an "owner's policy", even for a property I paid cash for.
What if some long-lost heir with a title to the property, from the dark ages before it was sub-divided over and over again, shows up?
Let's play this out. Long lost heir to the property comes along. Wouldn't the huge corporation that owned the property for over 50 years who sold it to the large well known builder and the builder themselves be on the hook for selling a property they did not own? What about the other 200 town home owners? Where are they in this process? And I (assume I'm the only one or one of very few who passed on the insurance) am somehow on the hook for a big exposure with all these other deep pockets folks (as well as the many title insurance companies that are also in the mix)?

Wonder if my large umbrella policy would provide any protection here? Perhaps I should call and inquire with them.

I get it if this were a one off parcel of land or a small subdivision built on former farm land. In this case, however, there seem many very deep-pocketed large corporations that would be the key targets for an aggressive attorney before I had any material financial risk.
There would be a long ugly court case, and you’d need to participate in that. Do you want to pay for that? There is a reason that mortgage lenders require you to buy a policy to protect them.

All of this is very unlikely to happen. That is why title insurance is so cheap. But it happens sometimes.

Also, most large national home builders setup a new development LLC for each community they build. They do this because sometimes things go sideways. So the LLC will go bankrupt, but not the national builder. They do this for a reason, to protect themselves from weird stuff.

You are basically right, this is basically guaranteed to not be a problem for you. But it’s still a risk. A small one, but it’s there….

I don’t have to have homeowners insurance anymore. But I do. I don’t expect to ever need it. Home fires and tornados are relatively rare statistically. That is why the policies are cheap. But I still buy them.
First, let me thank you for continuing to push back. I am looking exactly for the opposite view here and to pressure test my thinking. So keep coming.

Keep in mind I won't be owning the land the unit sits on. I am only purchasing the walls and interior of my unit. So any claims against the owners of the land aren't claims against me. Does that make you feel any differently?

Good point on the LLC by the way, but again this is a very large well known builder who has been building high end homes for over 50 years. Never happened with them before. Hasn't happened in this development yet and it's somehow going to happen to my unit (1 of 200)?

WRT homeowners insurance, I see this very differently than carrying homeowners insurance which I do carry and would carry on the new place. I can understand the risk I am trying to insure with HO - it's not zero. Stuff happens.

Again, what real risk (based upon the facts and circumstances specific to this situation) is the title insurance company insuring?
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Tavistock1
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by Tavistock1 »

MikeG62 wrote: Fri Jul 16, 2021 4:21 pm DW and I are considering the purchase of a to be constructed townhouse in a 55+ community in NJ. We are NOT purchasing the land, only the four walls and contents within the four walls of the town home.

There are approximately 200 town home units, most of which are already constructed and occupied. Site was former campus for a very large company that has long ago moved away. Builder purchased the site and I would fully expect have done their diligence as part of their purchase. No doubt most (maybe all) people who have purchased a town home in this community already have done a title search and purchased title insurance (certainly would be required if they were taking out a mortgage to finance the purchase). We would be cash buyers.

So here is my question.

I am having trouble understanding the necessity of purchasing title insurance in this case. What is it I am insuring since it's not that I have ownership of the land?

By the way, we've gotten an estimate and it's around $4,500. Seems like a lot of money to spend when considering:

1) The company that previously owned this site (for a good 1/2 century) I am sure did a title search when they bought it
2) The builder (nationally known high end builder) also did the same when purchasing the property some 6 years ago,
3) Many/Most (maybe all) of the folks who have bought a town home in this development have also done a search and purchased insurance.

What risk am I assuming here that has not already been run to ground over and over and over again by many others?

Again, keep in mind because it is a town home we aren't buying the land, just the four walls and contents within the four walls of our unit.
Yes! I’m a very experienced realtor. One example- client is an attorney . Client purchases, cash, a spec. home from a builder. Client and I are adamant that title insurance be purchased. Client buys title insurance- not cheap, as I recall perhaps mid 3k. Property settles. Months later client calls noting he’d been sued for 1.1 million- the builder failed to pay excavator for the development that sum. Client had lost/ misplaced title contact info. I provided that, he made the call, about a week later client calls noting he was removed from the suit. Case closed. Get it!!!!!
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MikeG62
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by MikeG62 »

anon_investor wrote: Fri Jul 16, 2021 11:17 pm
MikeG62 wrote: Fri Jul 16, 2021 7:59 pm
Northern Flicker wrote: Fri Jul 16, 2021 7:50 pm Ask the developer to pay for your title insurance-- they should be selling a clean title to you. What if an old mining/mineral rights claim someday shows up from before the land was platted into separate lots for development? Something like that could be missed in the title search (don't ask where that "hypothetical" example came from).
Builder won't pay for the insurance. However, I am planning to ask them if they are willing to provide me with a "warranty of title" (which basically states that they are the sole party with a right to sell the town home). That feels like it would provide me with some protection. Somehow think they will just point me to the title insurance company. Big company not likely to do anything on a one-off basis. Although it's worth the ask.
How much is the house and how much is the title insurance? It is probably a tiny % of the house cost, and it is a 1 time cost. Just get it.
It is a tiny % of the cost of the town home, but that doesn't mean I need it.

I am discovering lots of not insignificant one-time and other (higher) costs coming out of the woodwork as I begin to do my diligence.

BTW, so far we've only put a small refundable deposit on the town home. DW and I would sign contract next weekend (and give them a much larger deposit) and even after that we'd have 7 additional days to back out and get our money back. So, we are early in the process, but it's only now that I am getting the a copy of the paperwork and seeing the fine print.

So far, examples of the costs I am referring to which are surfacing from my diligence:

1. Title insurance ~$4,500
2. Mansions Tax in NJ ~$13,000
3. Higher rate of home owners insurance +$2,500/yr. above our existing home (my insurance company has stated this is because its located closer to the Jersey shore - not on the shore, but maybe 10-15 minutes east of the shore, whereas I am ~50 minutes east of the shore now).

Again, these are all small amounts of money, but they are adding to the list of growing costs - the much larger coming from the cost of the additions and upgrades. As a point of comparison, the builder put ~$600,000 into upgrades into the model! We love the model, but most certainly don't want nor expect to put nearly as much into upgrades (in part because there are super expensive things they done in the model that we don't need or would not do - unless money were no object and that's not the case). Doing what the builder has done would put the total cost of the town home not all that much less than the 5,000-6,000+ sq. foot single family homes the builder typically builds on 1.5-3.0 acre lots. There is one such development right off the access road to this development. Keep in mind, this is a town home in an age-restricted community with all the rules and restrictions that come with that. We won't own the land. I want to careful in pushing the price so high as to be not that far away from what someone would pay for a very substantial home. Although we are going in with the intent of being there for a long time, you never know what the future brings. Also, we can't be sure we will like the town home style of living or the restrictions that come with living in a 55+ community.

Circling back to the additions and upgrades, we've been told the average buyer has put 12%-13% of the base home cost into interior upgrades (call it roughly $130K). Not lot premium or structural upgrades, just the interior stuff. We hope to get in and have the place the way we want it at no more than $175K to $200K for interior upgrades. However, we are now wondering if that is even possible as we learn more and more about the cost of things. On a positive note, the seller is happy for us to go to their design center now (during the next week or two) and work with the designers to rough out the cost of things we'd like to do. So, I fully expect we will be able to get a ballpark estimate as to whether it's possible to get the place the way we want it with upgrades running $150K-$200K or it is going to be $300K-$400K. Those are the really big rocks.

The above one-off items are small potatoes in the overall scheme of things. Nonetheless, I want to know what my costs are going to be before I find myself irreversibly committed to a purchase. And I don't want to buy things I do not need or don't add any value. This title insurance seems like one of them.

As I stated in my OP, I am not buying the land so it's hard for me to understand what real risk I am buying down with a payment of $4,500. I get that a lender would require it - why not they aren't paying for it. That doesn't mean it is necessary or even a wise purchase.

I don't want to be pig-headed though. I value the thought process of folks like you and others on this forum. Thus the reason I posted the question in the first place. If I can be convinced there is something of real value here or can even be helped to see the worst case scenario (how much potential risk is there and for what) that would be immensely helpful to me.

So keep pushing back. I value this - A LOT.
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MikeG62
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by MikeG62 »

Tavistock1 wrote: Sat Jul 17, 2021 6:56 am
MikeG62 wrote: Fri Jul 16, 2021 4:21 pm DW and I are considering the purchase of a to be constructed townhouse in a 55+ community in NJ. We are NOT purchasing the land, only the four walls and contents within the four walls of the town home.

There are approximately 200 town home units, most of which are already constructed and occupied. Site was former campus for a very large company that has long ago moved away. Builder purchased the site and I would fully expect have done their diligence as part of their purchase. No doubt most (maybe all) people who have purchased a town home in this community already have done a title search and purchased title insurance (certainly would be required if they were taking out a mortgage to finance the purchase). We would be cash buyers.

So here is my question.

I am having trouble understanding the necessity of purchasing title insurance in this case. What is it I am insuring since it's not that I have ownership of the land?

By the way, we've gotten an estimate and it's around $4,500. Seems like a lot of money to spend when considering:

1) The company that previously owned this site (for a good 1/2 century) I am sure did a title search when they bought it
2) The builder (nationally known high end builder) also did the same when purchasing the property some 6 years ago,
3) Many/Most (maybe all) of the folks who have bought a town home in this development have also done a search and purchased insurance.

What risk am I assuming here that has not already been run to ground over and over and over again by many others?

Again, keep in mind because it is a town home we aren't buying the land, just the four walls and contents within the four walls of our unit.
Yes! I’m a very experienced realtor. One example- client is an attorney . Client purchases, cash, a spec. home from a builder. Client and I are adamant that title insurance be purchased. Client buys title insurance- not cheap, as I recall perhaps mid 3k. Property settles. Months later client calls noting he’d been sued for 1.1 million- the builder failed to pay excavator for the development that sum. Client had lost/ misplaced title contact info. I provided that, he made the call, about a week later client calls noting he was removed from the suit. Case closed. Get it!!!!!
Again, in this case I am NOT buying the land. I'm buying the four walls and interior of one of 200 town homes. Your client purchased the land and home. Feels very different to me. If something similar happened here they would go to the owners of the land - and that's not me. Please take another run at convincing me that is not different from the scenario you are outlining.

Edited to add:

From the offering memorandum, "title of each unit will be conveyed to each purchaser by the developer by bargain and sale deed with covenants against grantor's acts free and clear of all liens and encumbrances". Doesn't this put the developer right in the middle of any future liens that could arise from the past (and provide something comparable to title insurance)?

Also, found this in a quick google search on the meaning of "bargain and sale deed with covenants against grantor's acts":

In New Jersey, a bargain and sale deed with covenant against grantor's acts provides the grantee with a covenant that the grantor has not committed any act that would encumber title to the real property being conveyed.
Last edited by MikeG62 on Sat Jul 17, 2021 7:25 am, edited 1 time in total.
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UpperNwGuy
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by UpperNwGuy »

If you are not purchasing the land, who will own the land?
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grogu
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by grogu »

Normchad wrote: Fri Jul 16, 2021 8:10 pm That is why title insurance is so cheap.
Title insurance isn't cheap. OP said his was going to cost $4500. I assume that is a tiny fraction of the house's cost, but it's still not cheap. Especially when you consider title insurance pays out in claims like 0.1% of what they collect in premiums. Absolutely agree that it's a racket. That said, I still pay the extortion money for "protection."
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by Jack FFR1846 »

I don't know, but expect that title searches in NJ are probably similar to Mass. If it is, the search part, you can do yourself. When we bought our first house, our attorney invited us to come with him to the county courthouse and search the title back to King George. It was somewhat fun to see the progression of title and not at all difficult. Took maybe 45 minutes, including reading all of the titles. We learned of the protective covenants like prohibition of any out buildings (sheds) which was comical because the house we were buying was one of the only ones in the development (from the early 60's) without a shed.

Beyond this, has an official survey been done? Not just a paper survey....guys out in the field with equipment and markers to determine that the lot was really where the developer thought it was. A co-worker of mine bought a house and later found that a significant part of the house was over the line on a neighbor's property. Neighbor demanded a huge amount of money to sell a piece of land. I have a neighbor who I sold a small part of my property so he could put in a pool. In the process, he had to survey his property and found that his neighbor had built their garage on his land. This happens more often than you might think. Land owners "think" that the tree line is the property line but in reality, the line is 50 yards farther into their property. This happened with my parents' house where I grew up. Upon putting their home up for sale, they offered the neighbor the opportunity to purchase the property to that tree line. The neighbor grudgingly purchased it, feeling he was entitled to the land for some reason bouncing around in his head.

Several posters have stated reasons why you might be protected in the future including contractors who were not paid. What if the original developer hasn't paid some huge bill and the contractor takes the property through court hearing. Is there some reason why you would think he would not now charge you rent for your unit on his land? Maybe its $1000 a month. Maybe it's $10,000 a month. How are you protected if you didn't even bother to look?

$4500 is peanuts.
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by Tavistock1 »

MikeG62 wrote: Sat Jul 17, 2021 7:06 am
Tavistock1 wrote: Sat Jul 17, 2021 6:56 am
MikeG62 wrote: Fri Jul 16, 2021 4:21 pm DW and I are considering the purchase of a to be constructed townhouse in a 55+ community in NJ. We are NOT purchasing the land, only the four walls and contents within the four walls of the town home.

There are approximately 200 town home units, most of which are already constructed and occupied. Site was former campus for a very large company that has long ago moved away. Builder purchased the site and I would fully expect have done their diligence as part of their purchase. No doubt most (maybe all) people who have purchased a town home in this community already have done a title search and purchased title insurance (certainly would be required if they were taking out a mortgage to finance the purchase). We would be cash buyers.

So here is my question.

I am having trouble understanding the necessity of purchasing title insurance in this case. What is it I am insuring since it's not that I have ownership of the land?

By the way, we've gotten an estimate and it's around $4,500. Seems like a lot of money to spend when considering:

1) The company that previously owned this site (for a good 1/2 century) I am sure did a title search when they bought it
2) The builder (nationally known high end builder) also did the same when purchasing the property some 6 years ago,
3) Many/Most (maybe all) of the folks who have bought a town home in this development have also done a search and purchased insurance.

What risk am I assuming here that has not already been run to ground over and over and over again by many others?

Again, keep in mind because it is a town home we aren't buying the land, just the four walls and contents within the four walls of our unit.
Yes! I’m a very experienced realtor. One example- client is an attorney . Client purchases, cash, a spec. home from a builder. Client and I are adamant that title insurance be purchased. Client buys title insurance- not cheap, as I recall perhaps mid 3k. Property settles. Months later client calls noting he’d been sued for 1.1 million- the builder failed to pay excavator for the development that sum. Client had lost/ misplaced title contact info. I provided that, he made the call, about a week later client calls noting he was removed from the suit. Case closed. Get it!!!!!
Again, in this case I am NOT buying the land. I'm buying the four walls and interior of one of 200 town homes. Your client purchased the land and home. Feels very different to me. If something similar happened here they would go to the owners of the land - and that's not me. Please take another run at convincing me that is not different from the scenario you are outlining.

Edited to add:

From the offering memorandum, "title of each unit will be conveyed to each purchaser by the developer by bargain and sale deed with covenants against grantor's acts free and clear of all liens and encumbrances". Doesn't this put the developer right in the middle of any future liens that could arise from the past (and provide something comparable to title insurance)?

Also, found this in a quick google search on the meaning of "bargain and sale deed with covenants against grantor's acts":

In New Jersey, a bargain and sale deed with covenant against grantor's acts provides the grantee with a covenant that the grantor has not committed any act that would encumber title to the real property being conveyed.
Thats a twist- I’d advise contacting a good real estate attorney and get that opinion
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by adam1712 »

MikeG62 wrote: Sat Jul 17, 2021 7:06 am
Tavistock1 wrote: Sat Jul 17, 2021 6:56 am
MikeG62 wrote: Fri Jul 16, 2021 4:21 pm DW and I are considering the purchase of a to be constructed townhouse in a 55+ community in NJ. We are NOT purchasing the land, only the four walls and contents within the four walls of the town home.

There are approximately 200 town home units, most of which are already constructed and occupied. Site was former campus for a very large company that has long ago moved away. Builder purchased the site and I would fully expect have done their diligence as part of their purchase. No doubt most (maybe all) people who have purchased a town home in this community already have done a title search and purchased title insurance (certainly would be required if they were taking out a mortgage to finance the purchase). We would be cash buyers.

So here is my question.

I am having trouble understanding the necessity of purchasing title insurance in this case. What is it I am insuring since it's not that I have ownership of the land?

By the way, we've gotten an estimate and it's around $4,500. Seems like a lot of money to spend when considering:

1) The company that previously owned this site (for a good 1/2 century) I am sure did a title search when they bought it
2) The builder (nationally known high end builder) also did the same when purchasing the property some 6 years ago,
3) Many/Most (maybe all) of the folks who have bought a town home in this development have also done a search and purchased insurance.

What risk am I assuming here that has not already been run to ground over and over and over again by many others?

Again, keep in mind because it is a town home we aren't buying the land, just the four walls and contents within the four walls of our unit.
Yes! I’m a very experienced realtor. One example- client is an attorney . Client purchases, cash, a spec. home from a builder. Client and I are adamant that title insurance be purchased. Client buys title insurance- not cheap, as I recall perhaps mid 3k. Property settles. Months later client calls noting he’d been sued for 1.1 million- the builder failed to pay excavator for the development that sum. Client had lost/ misplaced title contact info. I provided that, he made the call, about a week later client calls noting he was removed from the suit. Case closed. Get it!!!!!
Again, in this case I am NOT buying the land. I'm buying the four walls and interior of one of 200 town homes. Your client purchased the land and home. Feels very different to me. If something similar happened here they would go to the owners of the land - and that's not me. Please take another run at convincing me that is not different from the scenario you are outlining.

Edited to add:

From the offering memorandum, "title of each unit will be conveyed to each purchaser by the developer by bargain and sale deed with covenants against grantor's acts free and clear of all liens and encumbrances". Doesn't this put the developer right in the middle of any future liens that could arise from the past (and provide something comparable to title insurance)?

Also, found this in a quick google search on the meaning of "bargain and sale deed with covenants against grantor's acts":

In New Jersey, a bargain and sale deed with covenant against grantor's acts provides the grantee with a covenant that the grantor has not committed any act that would encumber title to the real property being conveyed.
Do you understand the difference between a General warranty deed and a Bargain and sale deed? Your bargain and sale deed has covenants but I still would be very hesitant to forgo title insurance with only a Bargain and sale deed.

https://www.legalzoom.com/articles/gett ... -sale-deed

Also, how well do you understand the ownership structure of townhouse? You say your aren't buying the land but haven't said who will have ownership, is the builder retaining ownership?

I wouldn't feel comfortable forgoing title insurance without consulting with a real estate attorney.
learntoinvest123
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by learntoinvest123 »

Can someone explain how a lien can be placed on a property by a subcontractor after it has been sold? I can understand other liens being placed due to improper ownership, but this one seems far fetched.

By this extension, pretty much everything we buy should need title insurance. How about the car or TV? Any contractor in the supply chain would be able to place lien on a car right?
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by Normchad »

learntoinvest123 wrote: Sat Jul 17, 2021 10:07 am Can someone explain how a lien can be placed on a property by a subcontractor after it has been sold? I can understand other liens being placed due to improper ownership, but this one seems far fetched.

By this extension, pretty much everything we buy should need title insurance. How about the car or TV?
It is trivially easy. A contractor just files paperwork for the lien and it’s done. Doesn’t have to prove anything to file it. Then you have to somehow resolve that before you can sell or refinance it.

And eventually, the lien holder can take you to court and sue you.

HOAs can put a lien on your property for not paying your dues. So it’s not hard to do…..
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by learntoinvest123 »

Normchad wrote: Sat Jul 17, 2021 10:10 am
learntoinvest123 wrote: Sat Jul 17, 2021 10:07 am Can someone explain how a lien can be placed on a property by a subcontractor after it has been sold? I can understand other liens being placed due to improper ownership, but this one seems far fetched.

By this extension, pretty much everything we buy should need title insurance. How about the car or TV?
It is trivially easy. A contractor just files paperwork for the lien and it’s done. Doesn’t have to prove anything to file it. Then you have to somehow resolve that before you can sell or refinance it.

And eventually, the lien holder can take you to court and sue you.

HOAs can put a lien on your property for not paying your dues. So it’s not hard to do…..
Does this extend to everything we buy? How about a car? Lot of contractors could be working to build a car. I am trying to determine if there is any merit in a case like this. I understand anyone can file a case for anything to cause trouble.

HOA putting a lien makes sense, since the home owner owes HOA money. A contractor that did work on the house for the home owner can put a lien. But how does a contractor that works for a builder put a lien on something the builder does not own?
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by Normchad »

learntoinvest123 wrote: Sat Jul 17, 2021 10:11 am
Normchad wrote: Sat Jul 17, 2021 10:10 am
learntoinvest123 wrote: Sat Jul 17, 2021 10:07 am Can someone explain how a lien can be placed on a property by a subcontractor after it has been sold? I can understand other liens being placed due to improper ownership, but this one seems far fetched.

By this extension, pretty much everything we buy should need title insurance. How about the car or TV?
It is trivially easy. A contractor just files paperwork for the lien and it’s done. Doesn’t have to prove anything to file it. Then you have to somehow resolve that before you can sell or refinance it.

And eventually, the lien holder can take you to court and sue you.

HOAs can put a lien on your property for not paying your dues. So it’s not hard to do…..
Does this extend to everything we buy? How about a car? Lot of contractors could be working to build a car. I am trying to determine if there is any merit in a case like this. I understand anyone can file a case for anything to cause trouble.

HOA putting a lien makes sense, since the home owner owes HOA money. A contractor that did work on the house for the home owner can put a lien. But how does a contractor that works for a builder put a lien on something the builder does not own?
I can’t explain it, but that’s the way it is. A lawyer could probably all educate us here.

For the HOA,in some cases the homeowners truly believe that they are not in an HOA. And they sincerely believe that they don’t owe money. And they were told at closing that an HOA didn’t exist etc. so all of this comes at them from out if left field, and they believe it is pure BS. But the lien still happens, they still go to court, and they still lose. AND THEY NEVER DID ANYTHziNG WRONG.

Owners Title insurance helps to protect you against bizarre, unfair, things coming out of left field. As with most insurance, you will never use it. There is a great post up thread about a 1.1M lawsuit and an excavator. That’s what it’s for.

If this comes up, it won’t matter who you think owns the land. Somebody is going to point the finger at you and say “ you owe me money “ or “that is my house now”. You can insure against that risk, or you can self insure.

I’d buy the policy. But I totally get why people say it’s a ripoff.

And I say it’s cheap, because it’s 4500. And that is about what I’m spending right now for a root canal and a crown. It’s about 2 years of cable bills for me. It’s 3 years of life insurance premiums that I’ll never collect on. To me, it’s cheap for the amount of protection it provides.
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MikeG62
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by MikeG62 »

UpperNwGuy wrote: Sat Jul 17, 2021 7:13 am If you are not purchasing the land, who will own the land?
Great question and one I am working through now in reading the very large offering statement.

Here are some of the relevant terms from the offering statement:

1. Each purchaser acquires both the title to his unit and automatic membership in the Condominium Association ("CA"),
2. The responsibility for administration, operation and maintenance of the Common Elements lies with the CA...each unit owners will be responsible to pay a proportionate share of the expenses incurred by the CA,
3. Membership in the CA affords each unit owner a beneficial interest in the Common Elements and to the services provided by the CA,
4. The Common Elements include detention basins, common parking areas, lawn and landscape areas, roadways, common driveways and sidewalks along then street,
4. The owner of each unit will have an approximate 1/2 of 1% interest in all Common Elements.

This suggests we will have some form of ownership in things beyond just the four walls and interior of my unit. It seems reasonable to conclude that through my proportional beneficial interest in the Common Elements, I have some form of ownership in the land (along with 200 other unit owners). So more murky than I even thought.

Looks like I need to talk to an experienced real estate lawyer to walk through this.
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adam1712
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by adam1712 »

learntoinvest123 wrote: Sat Jul 17, 2021 10:11 am
Normchad wrote: Sat Jul 17, 2021 10:10 am
learntoinvest123 wrote: Sat Jul 17, 2021 10:07 am Can someone explain how a lien can be placed on a property by a subcontractor after it has been sold? I can understand other liens being placed due to improper ownership, but this one seems far fetched.

By this extension, pretty much everything we buy should need title insurance. How about the car or TV?
It is trivially easy. A contractor just files paperwork for the lien and it’s done. Doesn’t have to prove anything to file it. Then you have to somehow resolve that before you can sell or refinance it.

And eventually, the lien holder can take you to court and sue you.

HOAs can put a lien on your property for not paying your dues. So it’s not hard to do…..
Does this extend to everything we buy? How about a car? Lot of contractors could be working to build a car. I am trying to determine if there is any merit in a case like this. I understand anyone can file a case for anything to cause trouble.

HOA putting a lien makes sense, since the home owner owes HOA money. A contractor that did work on the house for the home owner can put a lien. But how does a contractor that works for a builder put a lien on something the builder does not own?
I'm not a lawyer but my generally understanding is real estate law and commercial law are treated quite differently in the United States (and this can also vary by state).

In general there are various ways to transfer real estate with a warranty deed and a quitclaim deed being the two extremes:
https://en.wikipedia.org/wiki/Warranty_deed
https://en.wikipedia.org/wiki/Quitclaim_deed

A quitclaim basically says you don't own it but won't guarentee that there won't be liens or other people who claim to own it. A sale of any other property with this type of arrangement would be very unusual.
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by chazas »

learntoinvest123 wrote: Sat Jul 17, 2021 10:11 am Does this extend to everything we buy? How about a car? Lot of contractors could be working to build a car. I am trying to determine if there is any merit in a case like this. I understand anyone can file a case for anything to cause trouble.

HOA putting a lien makes sense, since the home owner owes HOA money. A contractor that did work on the house for the home owner can put a lien. But how does a contractor that works for a builder put a lien on something the builder does not own?
It's just whatever the law is. Real estate has mechanics' liens. Cars have mechanics' liens.
MikeG62 wrote: Fri Jul 16, 2021 7:59 pm Builder won't pay for the insurance. However, I am planning to ask them if they are willing to provide me with a "warranty of title" (which basically states that they are the sole party with a right to sell the town home). That feels like it would provide me with some protection. Somehow think they will just point me to the title insurance company. Big company not likely to do anything on a one-off basis. Although it's worth the ask.
You should stop fussing around about this, in my view. Your deed may or may not have particular warranties of title embedded in it, custom depends on where you are and the developer is not going to veer from custom. But the "developer" is likely to be a limited purpose entity that will be long gone if there's a serious problem.

We deal with title issues in the US via title insurance. That's just the way it works. It's a very small risk of a problem but the magnitude could be enormous if it occurs. Is the insurance priced right for the risk? Probably not, at least in states where it's not negotiable. But I wouldn't go without it. Feel free too (and some do) but recognize that you're self insuring for the risk and if it comes to pass, you may be toast.
adam1712 wrote: Sat Jul 17, 2021 10:31 am A quitclaim basically says you don't own it but won't guarentee that there won't be liens or other people who claim to own it. A sale of any other property with this type of arrangement would be very unusual.
Not necessarily. A quitclaim deed with a title insurance policy would be fine.
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by 59Gibson »

Sounds like its prob a Toll Bros community. I cannot imagine they haven't done their due diligence thousand times over. Personally I'd pass on it in a new community with 200 THs.
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by adam1712 »

chazas wrote: Sat Jul 17, 2021 11:31 am
adam1712 wrote: Sat Jul 17, 2021 10:31 am A quitclaim basically says you don't own it but won't guarentee that there won't be liens or other people who claim to own it. A sale of any other property with this type of arrangement would be very unusual.
Not necessarily. A quitclaim deed with a title insurance policy would be fine.
Sorry if I wasn't clear, but that's exactly what I was saying. The seller isn't guaranteeing the title, just saying they don't own it anymore. It's on the buyer to complete the title search and have title insurance.
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by Allan »

As a long time builder and buyer and seller of real estate, I would absolutely positively without a doubt have a title policy for any real estate you purchase, no matter who the seller is. Yes, the risk might be low without it, but the magnitude of the loss, if there is a problem, is just too great to take that chance. Buy the insurance.
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by talzara »

Harry Livermore wrote: Fri Jul 16, 2021 4:59 pm In my opinion it's one of the darkest corners of the insurance business... an opaque product that rarely, if ever, pays out. Shopping around may yield a better price. But boy, talk about an ill-defined "product" that is like a black box.
New Jersey is a rate bureau state. All title insurers in the state charge the same rates.

New Jersey allows title insurers to deviate from the rate bureau. However, Radian Title is not licensed to sell insurance in New Jersey. In most states, Radian is the first company to challenge the cartel.
Title insurance is provided and underwritten by Radian Title Insurance Inc. (not licensed in AK, HI, ID, IA, ME, MI, NH, NJ, VT and WY), with a home office in Independence, OH.

https://www.radian.com/our-underwriting-companies
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by Northern Flicker »

Eric76 wrote: Sat Jul 17, 2021 3:34 am
Luckywon wrote: Fri Jul 16, 2021 8:09 pm In my opinion, title insurance is basically a racketeering scheme where most of the money is siphoned off in the form of kickbacks. I would never buy it if not required and certainly not in this case. Obviously, many disagree. Just my opinion.
That is my understanding as well. Has anyone here ever made a title insurance claim, or even know someone who has?
Yes. I know someone who has. Title insurance unquestionably is overpriced. I would not go without it.

In a newly built collection of townhomes, some examples of risks I can think of without going back further than the developer's ownership:

1. Surveys done by developer were in error, and a future survey finds some improvements you own are not fully on your property or you have less land than you thought, compromising value.

2. The developer goes into bankruptcy, and some unpaid subcontractors attached liens on properties on which they did work.
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by talzara »

Normchad wrote: Fri Jul 16, 2021 4:34 pm It will never lay out. That’s not the point. The fact that you can get a policy means that you won’t have problems. They will do a very thorough title search, and won’t issue the policy if something comes up.
Title insurers do not do a "very thorough title search." They do a perfunctory title search and then write over the residual risk.

Iowa has cleaner titles than the surrounding Great Plains states because it has a government monopoly on title insurance. Iowa Title Guaranty insists on a good title search, which the private title insurers do not do in neighboring states.

Iowa Title Guaranty charges only $175 for a title insurance policy on a $750k house, and it still makes a profit. Here's the Iowa Title Guaranty rate sheet: https://iowatitleguaranty.org/Public/ITGRateSheet.pdf
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by talzara »

MikeG62 wrote: Fri Jul 16, 2021 7:44 pm What is it that would be unique to my unit (and turn up on my search) that would not also affect others (and have not turned up on their search)? Remember, these are multi-unit town homes.
Title defects are highly unlikely in your case.

If there is a title defect, it will be something that gets missed on all 200 units. The title insurers are running the same searches on the same database. They'll just find what you already know about the title history: a single owner for 50 years.

A typo in the database could get missed on all 200 units. Nobody can find it because nobody is searching for the typo.

An ancient title defect could also get missed. Nobody can find it because nobody is going to the paper deeds. They're all searching the computerized database.

I know of a case where a development was built on reclaimed land that actually belonged to the government. If you traced the title back far enough on the paper deeds, you would've discovered that the land just appeared out of nowhere. If you looked at old maps, you would've found that the land used to be underwater. However, none of the title insurers discovered the title defect because they were all searching the computerized database.
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by talzara »

Luckywon wrote: Fri Jul 16, 2021 8:09 pm In my opinion, title insurance is basically a racketeering scheme where most of the money is siphoned off in the form of kickbacks. I would never buy it if not required and certainly not in this case. Obviously, many disagree. Just my opinion.
Bogleheads are very risk averse. You should see the umbrella insurance threads. Actually, umbrella insurance provides a useful point of reference.

Umbrella insurance is a much better deal than title insurance. Umbrella insurance has a much higher loss ratio, a much higher claim frequency, and a much higher claim severity! It even costs less than title insurance over the average ownership period of a house.

The average umbrella claim is $500k. The average title insurance claim on a $1 million property is less than $50k. It is very rare to lose your entire property to a title defect. Small disputes are much more likely.

Umbrella insurance is protecting you against more risk at a lower cost. Do not even consider buying title insurance unless you already carry umbrella insurance.
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by cchrissyy »

That is my understanding as well. Has anyone here ever made a title insurance claim, or even know someone who has?
yes i had a claim - it was something fixable and no money paid out, but i was very glad to have their admin and legal team obligated to do free work.
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by anon_investor »

talzara wrote: Sat Jul 17, 2021 1:55 pm
Luckywon wrote: Fri Jul 16, 2021 8:09 pm In my opinion, title insurance is basically a racketeering scheme where most of the money is siphoned off in the form of kickbacks. I would never buy it if not required and certainly not in this case. Obviously, many disagree. Just my opinion.
Bogleheads are very risk averse. You should see the umbrella insurance threads. Actually, umbrella insurance provides a useful point of reference.

Umbrella insurance is a much better deal than title insurance. Umbrella insurance has a much higher loss ratio, a much higher claim frequency, and a much higher claim severity! It even costs less than title insurance over the average ownership period of a house.

The average umbrella claim is $500k. The average title insurance claim on a $1 million property is less than $50k. It is very rare to lose your entire property to a title defect. Small disputes are much more likely.

Umbrella insurance is protecting you against more risk at a lower cost. Do not even consider buying title insurance unless you already carry umbrella insurance.
But since everyone SHOULD have umbrella insurance, the title insurance is a necessary evil.
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by randomguy »

talzara wrote: Sat Jul 17, 2021 1:55 pm
Luckywon wrote: Fri Jul 16, 2021 8:09 pm In my opinion, title insurance is basically a racketeering scheme where most of the money is siphoned off in the form of kickbacks. I would never buy it if not required and certainly not in this case. Obviously, many disagree. Just my opinion.
Bogleheads are very risk averse. You should see the umbrella insurance threads. Actually, umbrella insurance provides a useful point of reference.

Umbrella insurance is a much better deal than title insurance. Umbrella insurance has a much higher loss ratio, a much higher claim frequency, and a much higher claim severity! It even costs less than title insurance over the average ownership period of a house.

The average umbrella claim is $500k. The average title insurance claim on a $1 million property is less than $50k. It is very rare to lose your entire property to a title defect. Small disputes are much more likely.

Umbrella insurance is protecting you against more risk at a lower cost. Do not even consider buying title insurance unless you already carry umbrella insurance.
When I looked into this years ago, title insurance had the worst payout rate (like 5%) of any common insurance product (most were up in that 85-90% rate). And most of the judgements were not disputes about property lines (they did show up) and the like but things like a contractor having a lien on the house.

Title insurance always sort of feels like a necessary evil. You would think that the house that had been sold a dozen times and the like wouldn't have issues but there is always a chance of some weird stuff coming up and you can end up liable for stuff that you might not feel makes any sense. The missing heir cases was the one that gave me nightmares:)
simplextableau
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by simplextableau »

I've worked on numerous title insurance matters including ones where the buyer would have lost their entire equity in the property if it weren't for the title insurance. I can go around my town and point out parcels where title insurance was involved. Obviously, the vast majority of buyers never have a problem. Title insurance is both way way overpriced AND very necessary. Suck it up and buy it.
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Beachey
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by Beachey »

It might have been when I was refinancing but I was asked once for the previous title insurance so they only had to do a title search from the date of purchase at a reduced price. IANAL but I wonder if a gap in the title insurance record could cause issues when reselling? It most likely would be unusual for a property to have a title insurance gap.
DrCheese
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by DrCheese »

Beachey wrote: Sat Jul 17, 2021 3:53 pm It might have been when I was refinancing but I was asked once for the previous title insurance so they only had to do a title search from the date of purchase at a reduced price. IANAL but I wonder if a gap in the title insurance record could cause issues when reselling? It most likely would be unusual for a property to have a title insurance gap.
How do you propose finding this "gap"? Contact every title insurance company and ask them if they ever insured the property and build a spreadsheet???
simplextableau
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by simplextableau »

Title insurance gap doesn't matter. What would matter is a gap in the warranties - if in the chain of past conveyances, someone didn't use a warranty deed to convey title. That breaks the chain of warranties going back to the prior owners if an issue arises and it turns out the warranty was breached. This is why I cringe every time someone suggests on this forum using a "quit claim" deed to transfer an interest in property to a kid, spouse, etc. There are almost zero circumstances in which a quit claim deed is appropriate. But the internet is full of armchair experts, I suppose...
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anon_investor
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by anon_investor »

Beachey wrote: Sat Jul 17, 2021 3:53 pm It might have been when I was refinancing but I was asked once for the previous title insurance so they only had to do a title search from the date of purchase at a reduced price. IANAL but I wonder if a gap in the title insurance record could cause issues when reselling? It most likely would be unusual for a property to have a title insurance gap.
I don't think you need to get a new owners title insurance policy if you are only doing a refi. You do usually have to pay for the lenders own title insurance policy though.
59Gibson
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Re: Is title insurance needed for new construction townhome in NJ purchased for cash (no mortgage)

Post by 59Gibson »

Beachey wrote: Sat Jul 17, 2021 3:53 pm It might have been when I was refinancing but I was asked once for the previous title insurance so they only had to do a title search from the date of purchase at a reduced price. IANAL but I wonder if a gap in the title insurance record could cause issues when reselling? It most likely would be unusual for a property to have a title insurance gap.
This is called a reissue policy credit for refi or purchase.. in a purchase a good RE agent will attempt to get policy from current owners, and some title agents will voluntarily offer this, most won't. They want full commission on new policy.
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