Say Hello to My Little Friend

by Stan Czaja, Member of ILTA Board of Directors

Why do I need title insurance? What is title insurance? Unfortunately, these are questions that we hear way too often from consumers when they are purchasing a home. In 2019, there were approximately 5.25 million residential real estate transactions in the United States, yet, the vast majority of home purchasers have no idea what title insurance is and why they need it.

In most cases, title insurance policies protect purchasers, post-closing, in the event that the purchaser suffers a loss caused by fraud or due to some lien or encumbrance that was missed either when the initial title search was completed or because said lien or encumbrance was discovered in the gap period.

Sometimes, however, title insurance can prevent a disaster from occurring by stopping a transaction from ever closing. For example, Wanda has a beautiful golden retriever named Sparky; Sparky is Wanda’s baby. Wanda is looking for the perfect property for her and Sparky to call home. Wanda finds an amazing condominium in downtown Chicago and she enters into a contract to purchase it. Wanda just assumes that the condominium building allows pets, so she never tells her Realtor or her attorney that she has Sparky. The title commitment is issued and commitment raises an exception indicating that the title commitment is subject to the covenants, conditions, and restrictions set forth in the declaration of condominium ownership.

This exception peaks Wanda’s curiosity, so she asks her Realtor if she can review a copy of the declaration of condominium ownership. To Wanda’s horror, she discovers that the condominium association has a prohibition against dogs and that if she were to close and to move in with Sparky, the association would fine her $1,000 per day until she removed Sparky from her condominium. Could you imagine moving into your dream home only to find out that your “best-friend” can’t live there with you? Wanda cancels the transaction based on this discovery and prevents a disaster from occurring.

So, title insurance not only protects consumers post-closing, it also alerts consumers about potential issues prior to closing that the consumer may not be aware of and it can prevent situations where the consumer has to say good-bye to their “best friend.”