When you acquire property from a seller and simultaneously sell it to a third-party buyer, as a briefly intervening title holder, you may think you don’t need an owner’s title insurance policy. After all, you’re only holding onto the property for a few seconds and not even taking possession of it. So, what’s your risk if an eventual title issue arises?
Even if you own the property for only a few seconds, hours, or days, you’re entering the “chain of title,” or the ownership record. If any title issues arise later, you could be dragged into legal disputes. Some problems are not discoverable through a standard title search, and don’t surface until later:
- Errors in the public records
- Forged documents
- Omitted signers required for effective transfer from an LLC or other entity
- Undisclosed purchase agreements or other contracts
- Undisclosed heirs
As long as the end buyer has an owner’s title insurance policy, they can file a claim for any covered issues that arise. They can also, however, make a claim against their seller to enforce warranties provided in the deed that was recorded to transfer title. If the end buyer did not get an owner’s title insurance policy, then seeking recovery from their seller may be their only option. And even if a title insurer accepts the claim and pays the insured, the title insurer may seek recoupment from the seller or a previous title holder, depending on the circumstances. The only way to protect yourself from these types of risks is by having your own title insurance policy.
Policy coverage under an owner’s title insurance policy also includes a duty to defend, meaning the insurer is responsible for the cost of an attorney to defend you in litigation in the event the end-buyer sues you for a covered risk. These legal fees can, and often do, run into the thousands of dollars.
Unlike property insurance with an annual premium to cover things like storm damage, owner’s title insurance is a one-time fee paid at closing. It provides you with protection for all time from covered liabilities arising in the chain of title, which liabilities may not surface for months or years. Even if you do not take possession of the property, and transfer title to an end buyer immediately upon acquiring it, you have lasting risk and potential liability. The cost of an owner’s title insurance policy is always much less than the property value, and typically much less than the related risk. It can also provide peace of mind, which is worth the investment.