Confused About Title Insurance

Question: We are purchasing for $140,000 cash a one-half acre lot in the New River area. Although we are buying the lot as an investment, we are confused about title insurance. My father is a broker in Utah and he says that, even if we don’t plan to build a home on the lot, we need at least a title commitment. Our real estate agent says that we only need a condition of title report, which is much cheaper. We are so confused. What should we get?

Answer: A title commitment says that a national title insurance company, e.g., First American Title Insurance Company, will issue a title insurance policy, subject to any Exceptions and Requirements in the title commitment. The cost of the title insurance policy is then paid, usually by the seller, at close of escrow, but the actual title insurance policy, with a big seal, may not be received by the buyer until weeks after close of escrow. Note: the cost of a title insurance policy is based on the value of the property, e.g., a title insurance policy for your $140,000 lot should be in the $1,200-$1,500 range. On the other hand, a condition of title report is basically, after a “quick look”, the title company’s “best guess” as to the condition of title. If the title company is wrong in its “best guess,” the title company has no liability. The cost of a condition of title report is normally $300-$350.

Note: Our law firm’s standard procedure when representing a client regarding a home or other real estate is to pay $300-$350 and immediately order a condition of title report. We can then see if there could be a major problem in the beginning, e.g., dispute over ownership of a $400,000 home and the condition of title report shows a recorded $450,000 mortgage.

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