Published 7 March 2021
A home is usually the largest single investment any of us will ever make. Whether purchasing with cash or financing with a mortgage, title insurance is an important part of the process.
For New Mexico property buyers who finance the purchase of a property, the $120.00 or so they customarily pay for their portion of the title insurance policy seldom raises an eyebrow. On the other hand, the hundreds and sometimes thousands of dollars sellers pay to ensure that the title they’re passing on to their buyers is clean and clear not only raises eyebrows, it often raises blood pressure and in some cases a person’s ire. Whatever the situation, the answer to the question of whether title insurance is necessary is a resounding “yes”.
Unlike “regular” insurance that anticipates some future event, such as an automobile accident or sickness, title insurance insures past events, such as the transfer of titles to properties. The worst-case nightmare is when someone knocks on the door of the home you just purchased and tells you that your deed is a forgery and that they’re the actual owners of the home. Title insurance protects your interest should something like that ever occur.
Locally, an excellent example of the genesis of a “chain of title” began with the signing of the Gadsden Purchase in 1853. The purchase of land from Mexico by the U.S. was made to resolve a boundary dispute that resulted at the termination of the Mexican-American War.
It was at that time that the 29,670 square miles of Mexican land that was the subject of the treaty became part of the United States. In essence, the treaty created a brand new parcel of U.S. land covering parts of Southern New Mexico and Southern Arizona. Over time the land was divided and sold, re-divided and willed, subdivided, forfeited and, in some cases, gifted to family members. While large sections of desert still belong to the Federal Government, large swaths have been subdivided numerous times and are now being sold as individual home lots.
So, who ensures that the chain of title to the property you’re purchasing is unbroken and that all of the owners who came before you — all the way back to the Gadsden Purchase — truly had the right to pass the property title along to the next owner? That responsibility falls on the shoulders of the title insurance company. Title companies can ensure that a title is “clear” because they search the public records to make sure that it is. The process is pretty straightforward.
When a title company initiates a title search, they check for liens, judgments and other legal filings posted against the buyer, the seller and the property being sold. The title searcher (yep, that’s his or her title) searches both the court records and the public records of the county recorder’s office in which the property is located. At the conclusion of the search, the title company will issue a title commitment outlining any requirements the parties have to meet in order for the company to insure a clean transfer of title.
Requirements can range from the simple execution and recording of a release of an old paid-off mortgage to the disposition of legal matters that can only be resolved in court. Once all of the conditions have been met, the title company is prepared to issue a Policy of Title Insurance.
What does the title insurance policy cover? The American Land Title Association estimates that twenty-five percent of title searches find a title problem that is fixed before the insurance is issued. Occasionally — and in spite of an exhaustive title search — hidden hazards can emerge after closing. Issues such as mistakes in the public record, previously undisclosed heirs claiming to own the property, forged deeds and unrecorded easements could all cloud the title. If any of these or other similar problems were to arise, the owner’s title insurance policy offers financial protection against them by negotiating with third-parties and paying the legal claims and fees involved in defending the title.
What does title insurance cost? Not much, according to buyers. Their charge for the portion of the coverage protecting the lender’s interest is in the $120 range. Sellers, however, find the cost of the owner’s coverage difficult to reconcile against the intangible nature of the product. According to the New Mexico Land Title Association, owners customarily pay $752 at a sale price of $100,000, $1,199 on the sale of a $200,000 property, and $2,540 to insure a $500,000 property.
So, is title insurance really necessary? As I said before, the answer is yes. While the cost of the insurance may seem high, the risk of purchasing without it could be significantly higher.
See you at closing!
Gary Sandler is a full-time Realtor and president of Gary Sandler Inc., Realtors in Las Cruces. He loves to answer questions and can be reached at 575-642-2292 or Gary@GarySandler.com.