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Why in the heck would I buy a policy from an insurance company on a real estate transaction? What the heck is that even for? I’m closing on this deal. A mobile notary is coming to my house today, I’m gonna go through those documents, all that kind of stuff. Why in the heck would I buy a policy from an insurance company on a real estate transaction? What the heck is that even for? Well, it’s to ensure that there are no hidden liens. There are no hidden errors.
There’s no breaks in the chain of title or clouds in the title, and that someone can’t come back after you’ve purchased this property, put money into it, if you’re gonna turn it into Airbnb and say, hey, that’s actually mine. You don’t actually own it. Okay, great. So a common question I get all the time about Title policies is people will say, Well, if the escrow company that I paid to do the paperwork is pulling a title report, verifying there’s no liens, why would I go above and beyond and pay for an insurance policy to make sure that somebody already had done their job? By the way, I always buy title insurance.
I love title insurance. It’s my fate. I am so grateful when I buy it. Because I’ve had one transaction, I did not buy it. And you can guess that’s the one transaction in my life that went wrong? Well, the short answer is, it’s a one time fee. It’s not something you have to pay annually. It follows you for as long as you own the property, and it covers you for as long as you own the property. It covers you up to your purchase price amount. In all honesty, if you’re closing with a title insurance company, we can’t close you unless you get title insurance. So your other option is to close with an attorney.
And chances are that attorney is going to charge you more in closing fees and junk fees than you would have paid for the title insurance anyway. Cool. So for anybody that’s watching, I want you to understand what can go wrong in a transaction. There’s probably been eight title insurance payouts that I’ve been part of that have by far paid out more money to me than I ever spent in title insurance policies across the board. And here’s a couple of things that can go wrong. I had a property in downtown Phoenix historic house, it was a fixin flip, we go put $150,000 into this thing.
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And we put it on the market to sell and an owner five owners prior comes back and says he was illegally foreclosed on six years ago. Okay, and I’m like, Whatever, dude, like, we’re good, we’re good, we’re good, we’re good. And I was good. Because I bought an extended Alta policy. I don’t know what this is, it looked like there was an auto policy. This is an autoauto policy. There’s no such thing as extension and extended one. Now you can purchase a policy in excess of your purchase price, if you would like to just pay a higher premium. I think that’s what I did, because I had like private capital.
And we were putting improvements or something on the deal. I don’t remember. But we spent more money to make it more robust. And the bad thing is, I was in litigation with this prior owner for five or six months. And it all worked out. My title company came in, they paid for all the things and took care of the thing. And they hired their own attorney, so I didn’t have to do the thing. And it saved my butt. It was great. But there’s no way the title company, there’s no way the title company would have ever known about that issue five owners prior.
And so what will happen is when you pull the title report, the escrow agent says yeah, everything’s clear. There’s no liens. There’s no encumbrances other than the mortgage, we’re gonna pay the mortgage off. We’re good. This is amazing. But that doesn’t insure you against some weird thing that comes up three years prior that somebody might have done or maybe even some frivolous potential lawsuit claiming that they had ownership of the property. So I always and I can tell you 25 other horror stories that I’m grateful that I had a title policy, I’ve had so many bad things happen that I feel as if this is a I tell all my students it is a requirement when you do a real estate transaction to buy a title policy.