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Jeff Stein

Jeff Stein

Florida Board Certified Real Estate Lawyer Regional Counsel Florida/Southeast and Senior Vice President Alliant National Title Insurance Company
Confused young woman in a red striped sweater with cash on a yellow background.

Cash Offers: Title Implications and Questions

In a hot housing market, many buyers have turned to cash offers to get a leg up on the competition. Cash offers are often much more attractive to a seller, and it is not difficult to understand why. Cash can provide a pathway to a faster closing process. It frequently gives sellers more confidence. These offers even waive the requirement of having to conduct an appraisal.

Cash offers can also generate a bit of a confusion. For instance, how does eschewing a lender affect other parts of the closing process like a title search and insurance? Does it eliminate the need for insurance? If not, how and when should a cash buyer pursue title work? In this blog post, we will examine these questions.


Is Title Insurance Necessary for Cash Buyers?

          Title insurance is critical for a buyer to have regardless of whether there is a mortgage. Without a title search and resultant policy, no one is looking into who owns the property and what its issue may be. When a buyer obtains a mortgage, a title search is routine. But the contract and the obligation exist only between a lender and the title company – the buyer has no direct protection. If a defect exists, the title company is not duty-bound to fix it; instead, the buyer/owner could be liable for a lien or another defect.

          For example, consider a scenario where a home seller has a first mortgage for $100,000. A new buyer has obtained a loan for $125,000, and the property is worth $200,000 (in other words the buyer has invested $75,000 of their money). Meanwhile, there is a second valid but unknown mortgage of $50,000 against the property.

The lender uses this to assert their right to foreclosure and to take the property away. In such a scenario, the title company is required to defend the lender and protect their lien. The same can not be said for their relationship with the buyer. Instead, the buyer/owner must pay the unknown mortgage because they gave warranties of title to their lender.

Failing to do so could trigger a default. The lender, however, will not suffer losses. Under their title policy, there is enough equity to pay the newly discovered $50,000 mortgage and the lender’s debt. Without an insurance policy, the purchaser of the property could lose the title and, ultimately, their equity. They would be forced to pay the $50,000 to maintain ownership.

In each case, the seller is likely liable to the buyer for the $50,000, but when title insurance comes into play, the insurer will not only pay the loss but sue or pursue the seller for recoupment. But when there is no title insurance to speak off, all the costs fall on the buyer if they decide to sue the seller – who may not be able to pay even if the suit is successful. The same situation can develop in the case of a scam. If the seller is a bad actor and does not own the property, a buyer can wind up with nothing if no record search is conducted.  

What should be clear from that example is that, for just a nominal cost, title insurance can offer an easy remedy if there is something wrong. More importantly, it allows the buyer to know of any issues before investing money in the property. Title insurance also does not impede the advantages inherent in making a cash offer. As noted, one clear advantage of a cash offer is that it can speed up the closing process. Conducting a thorough title search does not disrupt this accelerated timeline. Typically, title work can be completed in 2-4 days and, depending on what is found, a commitment can be issued shortly afterward.

How and When Should Cash Buyers Procure Title Insurance?

When considering title insurance, an interesting question emerges regarding who gets to select the title insurance provider: broker, buyer or seller? To some extent, who does the referral and who pays for it is a matter of local practice. Typically, the party that pays makes the choice, but not always.

If possible, purchasers should maintain control over the issuer of the insurance. The buyer should want to know everything they can about the title’s status. Additionally, if the insurance provider is selected by the seller, there is the possibility that they may try to show that the title has few to no problems.

When searching for an agency, a buyer or realtor should vet the agency issuing the title commitment and verify that they are in good standing by obtaining that verification from the insurer. There is a universal ID that the American Land Title Association (ALTA) maintains and will verify an agency’s legitimacy. The insurer can also be contacted directly to verify their legitimacy. Phone numbers for the insurer are typically on the commitments or an online verification may be available at the insurer’s website. 

During a cash transaction, it is important to obtain a commitment to issue a policy from a reputable title agency or insurer as soon as possible. Receipt should provide an opportunity under the contract for purchase and sale to review and make objections – although there is usually a time limit. However, obtaining it right before closing does not allow time to object to an unacceptable defect.  

To Buy or Not to Buy Title Insurance

                It is not a requirement under the law that a cash buyer procures title insurance, so they can choose not to obtain it. However, there is no circumstance where skipping title insurance would be a good idea. Plus, with it being a relatively minor investment in the most expensive of jurisdictions, having the security that a thorough title review provides is more than worth the cost. You simply cannot put a price on peace of mind, and having a valid title policy is a great way to protect your all-cash investment.

Metal survey peg with red flag on construction site

Land Surveys: Why You Need One (Part 1 of a Series)

The information provided by a land survey can make all the difference in ownership and use.

A land survey provides a visual reference to what your property looks like on the ground and who might make a claim to your ownership based upon their use or possession of part of your property.

There are many types of surveys, but to provide title insurance coverage, a  “Boundary Survey” is required.

The Boundary Survey locates the property on the globe and in relation to the property surrounding it. It also shows the improvements located on the property including fences and evidence of occupation or use.

The survey determines what is physically present on the land to be insured and locates that land in relation to other properties in the area.

Why should you care?

Because who is in possession of all or part of the land you’re buying, determines who may have a claim to it.

Possession may not be nine-tenths of the law, but it is very important. If someone possesses part of the land you’re buying, they may have a claim to ownership of that area.

Choosing a quality surveyor is a challenge just like choosing any other professional to do work for you. Possession may not be nine-tenths of the law, but it is very important. If someone possesses part of the land you’re buying, they may have a claim to ownership of that area.

There is no magic formula, but pay attention to his or her credentials,  reputation or even better, referrals from those you already know and trust.

The cost of a typical residential survey is minimal when compared with the investment in your home or property and cost ranges from a few hundred dollars to much more if dealing with commercial or large tracts.

I’ve personally spent $1,500 for a survey of ten acres by an excellent surveyor, and as little as $300 for a residential lot by an okay surveyor.

To better understand why a survey is important, there are two elements that affect ownership:

  1. The land records maintained by the local government; and
  2. The actual occupation of the property

For a title insurance policy to be issued, the insurer searches the land records. We don’t see the actual property, just paper describing it.

That search is examined to determine who owns the property and who has claims to it.

Since we cannot see the actual land, the title commitment and policy take exception for anything that would have been discovered with a visit to the property or with a proper survey done by a surveyor.

So, if you want coverage for what might not be in the records that could affect your ownership or rights, a survey is needed.

Parts II and III of our continuing discussion of land surveys will get further down in the weeds on land survey trip-ups and issues.

But a simple look-see at what a land survey can avoid is in this simple (yet very complicated) dilemma: A buyer agrees to buy Lot 3 – a 100-foot lot.  Research of the records shows the seller owns it. No survey was done.

Later it is discovered that the lot is only 90 feet to the neighbor’s fence.  The neighbor says that 10 feet is theirs. The exception in the title policy may prevent any claim under the policy.

(If a survey was done before closing, this issue could have been dealt with ahead of spending the money for the lot.)

Or you buy Lot 3 without a survey, but the house you were shown is really on Lot 2!  No survey, maybe no loss paid under the policy since you do own Lot 3.

Stay tuned for Parts II and III – where reliability, defendability and who owes whom what gets sorted out.

This blog contains general information only, not intended to be relied upon as, nor a substitute for, specific professional advice. We accept no responsibility for loss occasioned to any purpose acting on or refraining from action as a result of any material on this blog.

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