Whenever property is sold, whether a residence or a skyscraper, title insurance is involved. Most people do not even notice. Typically, one of the seller's expenses in the sale of real property (land or buildings) is the cost of a policy of title insurance that insures the buyer against a number of title problems, including liens and encumbrances of record not disclosed to the buyer. The coverage under the policy is usually equal to the purchase price. This is called an owner's policy. Most people, when borrowing money, also do not notice that their lenders require their borrowers pay the cost of a policy that insures a lender's priority. This is called a lender's policy.
Between the title policy purchased by the seller for the buyer and the warranties contained in the deed from the seller to the buyer, a buyer has significant protections if a problem later develops with the title to the property. What protection does a seller have? Usually not much. The seller probably has an old title policy from when the property was purchased, but the amount of coverage is limited to the original purchase price. That coverage is often much less than the current selling price. The seller may even have warranties from the original deed, but often the original seller is gone or the warranties have expired. What to do?
Sellers, for a nominal fee (usually $50), can at the time of the sale and at the same time they are paying for a buyer's title policy buy a policy for themselves. This is called a seller's policy or joint protection policy. It will give the seller additional protection if the buyer sues for a title defect covered under the policy. It also helps to protect a seller from a suit by the title company itself. If a title company were to pay the buyer because of a title defect, the title company could subrogate (or step into the shoes of the buyer) and look to the seller to repay it. A seller's policy will generally eliminate those subrogation rights.
When you sell a piece of property, ask about obtaining a seller's policy of title insurance. For $50, it is inexpensive insurance that can help later. If you would like to know whether a seller's policy would benefit you, ask us.
