Beware of Title Insurance

So here in California, you buy a house and a title insurance company guarantees that you receive clear title, free of past liens and claims.  First American, Lawyers, Chicago, some of the largest companies in the country "protect" buyers.

Well, guess what.  Buyer beware.  I am now witnessing a what really happens when a problem comes up.  And I am sickened by the response of this company who pretends to guarantee clear title to a trusting buyer.  Thankfully this is not my client, but watching from the sidelines is painful enough.  Careers and lives are at stake.  How the title company executive sleeps at night is beyond me.

One of San Diego's largest "flippers" sold a redone home to a buyer who was excited to find the perfect home.  Three months later, the buyer is surprised to receive foreclosure notices on his new house.  Come to find out, the "flippers" bought the house on the courthouse steps at foreclosure, but they didn't know it was the 2nd lienholder foreclosing.  So they bought the house, fixed it up, and sold it to the buyer with a title company guaranteeing clear title. 

Guess what, the title company didn't notice the existing 1st lien of $250,000.  Whoopsie.  The flipper didn't know about it.  Which begs the question, how can a professional flipper or a legitimate title company not find a public document, but I digress.

The title company who warranted title when the home was sold just DENIED the claim.  Since the owner put the house into the name of a trust, the title insurance coverage stopped.  Mind you, that has nothing to do with the prior issues as of the date of transfer. 

Our beloved title companies have legions of attorneys who write policies that prevent any claims.  Imagine if your house burnt down and you discovered that because you did a refinance, you don't have fire insurance.  Here we have the same thing.  The new homeowner recorded a new deed putting the property into the family trust so as to protect his family.  That's what America is all about, isn't it?  Providing for our familes?

WRONG!  Beloved title insurance companies have a clause that voids the policy if title is changed in the future, be it a refinance or a marriage or a name change or a correction of spelling.  Guess what, they don't have to pay damages to the unsuspecting buyer who simply wanted to but a nice house.  Now that poor lad is faced with a bill from $250,000 from the prior bank, and myriad legal fees.  And the title executive who denied the claim goes home to his family and watches Fox news, says his prayers, and has sweet dreams. 

Maybe Mr. Issa should investigate abuse like this.  But oh, that's right, he voted against the Consumer Financial Protection Board.  Never mind.  Better to spend all his time looking for smoking guns as another blogger writes.

Real estate professionals, buyers, and sellers all need to beware of the scams regularly put forth by title companies.  There are ways around this issue which offer more protection for buyers.  But you better read the fine print before you buy.  Safe to say most agents never read the Preliminary Title Report to verify what type of policy will be in place come close of escrow.

My first blog post and it turned into a rant.  Oh well.  Title companies should be ashamed.  As for the homeowner here, he has hired attorneys and hopefully the title company will be found liable for damages and fraud.  The executives should be jailed.  This is unacceptable.