Title Insurance Under TRID

Submitted by guest blogger Chris Hyman, public relations chair, Land Title Association of Arizona

There has been a great deal of discussion within the real estate community about provisions in the new consumer finance laws regarding the optional purchase of owner’s title insurance in the closing of a transaction.

Pursuant to the Arizona Association of REALTORS® (AAR) Residential Resale Real Estate Purchase Contract, the buyer and seller agree that an owner’s policy of title insurance will be provided to the buyer at the seller’s expense at closing.

In addition, the Purchase Contract calls for the buyer’s approval of a title commitment which contains all matters of record a buyer may need to know including any Covenants, Conditions and Restrictions, easements, or items that might restrict the buyer’s use and enjoyment of their new property.

A title insurance commitment calls attention to any items that need to be paid off or released prior to closing. The items that could affect the buyer’s title include, but are not limited to, liens, loans, back taxes, or assessments.

The commitment will also show the requirements that need to be fulfilled in order for the seller to deliver clear title to the buyer. There are many items that fall into this category such as unreleased prior loans, issues with prior deeds and transfers, contested ownership, prior acts of fraud, etc.

The matters contained in the commitment become the backbone of the owner’s title policy.

Some buyers have said, “The lender’s title policy also covers the buyer, therefore, I am not going to purchase an owner’s title policy.” A lender’s policy provides no coverage for a property purchaser regarding title, and in the event of a claim, would only pay the lender’s loan off or take care of the issue as it pertains to the lender’s ability to market their loan. The buyer would not be afforded any coverage and any funds they expended or improvements they have made would be subject to loss.

Any additional stress on the buyer due to a title claim would be alleviated by the purchase of an owner’s title policy. There are many practical items that would not affect marketability of the lender’s loan, but would severely hinder the buyer’s potential use and enjoyment of the property such as encroachments, easements, violations of setbacks, or unpermitted structures that could trigger a neighbor dispute.

Despite the best efforts of seasoned escrow officers and title examiners, all of these items can and do happen. In the absence of an owner’s title policy, a buyer is going to have to deal with them on their own.

Although there is some consumer protection provided under the new law, the language suggesting that owner’s title insurance is optional is, in my opinion, not in the best interest of a new homebuyer. The protection and peace of mind the policy provides far outweighs the cost, if any, to the buyer at closing.

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