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Is Title Ins. Necessary?

dryden

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Someone I know bought a resale Marriott in Florida for $6k and is in the process of closing. They received an email from the closing company that said: "I would also like to offer you a title insurance policy on your new property; the policy will ensure that there are no liens, loans or mortgages against the property. The policy will cost $235.00 and can be added to your total owed on statement. If you do not wish to purchase this policy please sign the attached waiver and fax back along with the other documents." The ad from which this TS was purchased states "You will receive this deed FREE & CLEAR". Is the offered title insurance necessary or a way to make more money?
 
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Dave M

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The decision as to whether to buy title insurance for a timeshare purchase is not as clear as when buying an expensive piece of real estate, such as your personal residence. The purpose of the insurance, just like any other insurance, is to protect against a major loss of your investment. Thus, some observations:

When buying resale, the purchase price is often nominal. Thus, a $235 insurance premium to guard against most problems that aren't likely to occur might be wasting money. Since your investment is typically low, you don't lose much if there is a problem.

Liens against individual timeshares by contractors who haven't been paid, a common occurrence with most real estate, are extremely rare.

An undisclosed mortgage is also extremely rare and you can protect against it. Both of the resale timeshare lenders (Tammac Financial and FirstAgain) write their loans as consumer loans and, thus, the timeshare is not security for the loan. Some developers write secured mortgages, but you or the broker or closing company can almost always determine whether such a loan exists by contacting the resort (with the seller's written permission) during the closing process and asking about unpaid amounts.

There might be unpaid maintenance fees that attach to the timeshare, but the same process as in the preceding paragraph can uncover those unpaid fees, if any exist.

So why would you want title insurance? Most of us wouldn't. But if your purchase price is significant (e.g., $10,000) or if you are concerned about clear title because the timeshare you are buying wasn't purchased directly from the developer by the person selling to you or or if you just want the comfort of knowing you'll get reimbursed up to the amount of your purchase price if something goes wrong with the title, go for it.
 

sernow

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If I was spending $6k, I would consider obtaining title insurance costing $235. I sold a week for $2750 where the buyer bought title insurance and it cost her almost as much as what your friend would pay. In that instance, I din't see as much value in it. The cost of the insurance in proportion to the cost of the property was too great.
 

Dave H

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Title Insurance

One thing on resales that you have to remember. Yes, the closing company and many times the broker if there is one get estoppel letters from the resort or Owner Services.

What the estoppels will tell us is the maintenance fees that are due or paid and generally if there is a loan form the developer on the unit that needs to be paid off.

These are things the developer knows about as they are under their control. What it does not tell me is if a taxing entity like the IRS or the State have attached a lien against the owner or past owners or if there is a creditor judgment or other matters.

Most people say, go look in the public records of the county and all is well.... sometimes that is true often times it is not. Not all Recorders Offices record the same documents.

In Florida the Clerk of the Court or the Comptroller record all documents, land records, court paper etc. Now go to South Carolina, the Register of Mesne Conveyances or the Register of Deeds, only record Deeds and Mortgages. If you want to know about possible judgments, you have to check both the Summary Court and Circuit Court. What they don't tell me is Probate matters, different court or Tax issues.

Then what do you do if the County is not online with records, still happens in many areas. A title search and policy properly done, I can not speak for how every company does there searches, would look at all those records. For counties that have to be hand searched, the title company should be hiring a local abstractor to do the work. In some states, an attorney has to be consulted to render proper opinions of title.

Dave M is right on the value issue. I always ask people, what is your risk tolerence. If it is low, then buy it. If your buying for 500 or a couple of thousand and a lien pops up, can you afford to lose the money. If you can, you really do not need title insurance.

What you need to consider is what can YOU afford to lose or risk.

You do not say what state the $235 was for, or the purchase price of the property. It might be high it might not.

I can tell you in Florida, if a title company is not issuing title insurance they are not legally allowed to prepare the closing documents as the Bar has determined that to be the practice of law.

Dave
 

Dave M

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What it does not tell me is if a taxing entity like the IRS or the State have attached a lien against the owner or past owners or if there is a creditor judgment or other matters.
I should have covered that in my earlier post. Liens of any kind against a timeshare (mechanics, IRS, state, etc.) are extremely rare, with the possible exception for a mortgage loan and maintenance fees. It's partly a value issue. And partly that an entity seeking to record a lien probably knows where you live (and can easily file a lien against your home), but almost certainly doesn't know what timeshares you own (often in another state or country from where you live) to file a lien. And as you stated, the estoppel process can uncover the fees and mortgage amounts, if any.
 

dryden

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if i'm understanding this correctly...

title insurance would be advantageous for a higher end purchase to protect the buyer in the unlikely event there is a lean against the TS. if there is, the buyer would be able to recoup money paid, as opposed to not having title ins. and being responsible for additional costs. i'm an example guy, so if i put it into a scenario: i recently bought an annual 3bd/3bth massanutten unit for $1. the someone i know, bought an EOY 3bd/ba lockout marriott at grande vista for $6k. if i understand the above responses, while it would be wise for both of us to safeguard ourselves with title ins., it would be more practical for title ins. on the 6K purchase than the $1 due to the cost involved?
 

Dave M

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That's correct. If there is a problem with the title, the insurance fully protects you should a problem arise with the title that was not uncovered during the title search, and pays for any legal fees involved in defending a claim to your title.
 

Dave H

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if i understand the above responses, while it would be wise for both of us to safeguard ourselves with title ins., it would be more practical for title ins. on the 6K purchase than the $1 due to the cost involved?

Yes, however, you would only be covered for the $1 you paid for it.... It would not say units sell for 10k so here you go.

Thats what I meant on the risk tolerance... I can afford to lose a Dollar, 6k on the other hand....

Dave
 

dioxide45

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In my opinion, title insurance on any marginal TS is really a waste of money. I would put marginal at the $25K mark. With true realestate, there is a true underlying value there that someone can make a claim of ownership against. Who really wants to say "hey, that is my TS, I want to take over the $1K annual MF payments".

Sure, title errors can happen, but what are the chances that someone is going to care enough to go back and claim the fractional ownership is theirs. The people selling their timeshares want to get rid of them, not pick up one.
 

dryden

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i get...

what you are explaining. thank you. both these units were purchased on ebay and like most ads, this is written in the body of the ad- "You will receive this deed FREE & CLEAR- 100% GUARANTEED". hypothetically, let's say title insurance is not purchased and a debt is found. is the seller then "on the hook" since they cannot provide and free and clear deed and therefore must return the money to the buyer?
 

Dave M

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Yes, in theory the seller is on the hook. But would it really be worth it to spend many $$$ thousands in legal fees to pursue someone over an inexpensive resale timeshare? Not likely. And it's not likely that there will be a clouded title either. So buy it, skip the title insurance and enjoy your future vacations. Get the insurance if you need it to sleep, but it's probably a waste.
 

Dave H

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Yes, in theory the seller is on the hook. But would it really be worth it to spend many $$$ thousands in legal fees to pursue someone over an inexpensive resale timeshare? Not likely. And it's not likely that there will be a clouded title either. So buy it, skip the title insurance and enjoy your future vacations. Get the insurance if you need it to sleep, but it's probably a waste.

Dave is right on. Make sure you get a warranty deed if you want to sleep better at night and do not accept a quit claim deed. At least you have warranty of title if something is ever found, but I agree with Dave, the cost of legal action would not always make sense.
 

dryden

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thanks to all...

i love this place!
 

TJK

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Ok, 1 more hypothetical: If I pay $1000 for a resale, do not take title insurance, and the seller still owes $10,000 to the developer and $1500 in maint. fees, what happens then?
 

dioxide45

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Ok, 1 more hypothetical: If I pay $1000 for a resale, do not take title insurance, and the seller still owes $10,000 to the developer and $1500 in maint. fees, what happens then?

Title insurance would only cover it if it is liened to the property. MF usually are not. They wouldn't be paid by title insurance. If the developer loan is not mortgaged to the deed then the developer only has recourse with the borrower. If it is a mortgage then... good question, I don't know. Though it is unlikely that the title insurance company would provide insurance in the scenario you describe. They would make the payoff of that loan a condition to providing the policy.
 

Dave H

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Title insurance would only cover it if it is liened to the property. MF usually are not. They wouldn't be paid by title insurance. If the developer loan is not mortgaged to the deed then the developer only has recourse with the borrower. If it is a mortgage then... good question, I don't know. Though it is unlikely that the title insurance company would provide insurance in the scenario you describe. They would make the payoff of that loan a condition to providing the policy.

If the mortgage were a recorded instrument, then the title commitment the agent works from will call for the payoff. If the agent then neglects to pay off the mortgage, they have committed and Error or Omission and THEIR E&O would be on the hook.

If the mortgage were missed during the search process, the title insurance policy would cover UP TO the policy limits, in this case 1k. It is going to also depend on WHO did the search. If the agent did the search, then the agent E&O again will kick in as well.

Bottom line, the policy only pays to the limits of coverage and that is based on the purchase price at the time the policy is issued.
 

Dave H

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Ok, 1 more hypothetical: If I pay $1000 for a resale, do not take title insurance, and the seller still owes $10,000 to the developer and $1500 in maint. fees, what happens then?

you now own it and the liability. If you got a warranty deed, you could sue under the warranties of the deed, but if you got a quit claim deed, your dead in the water.......

Since a warranty deed makes a representation (Warranty) that the title is fre and clear, that is what your suit would be based on. Legal fees won't be cheap, but then for 11k, it might be worth fighting.

A properly completed estoppel would have found it.
 

Harry

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The 2 Dave's and Dioxide dehave answered your question but...

One of the Dave's indicated it is an individual decision, and that is the best answer. For good properties (Marriotts) it is just not necessary, as Dioxide noted. The title is going to be good. In addition, there is a representation that there are no encumbrances which is to your friends benefit. In these difficult economic times, buyers cannot be too careful. So, my old rule of thumb of never getting title insurance might not apply depending where the property is located, the size of the resort, etc.

Harry
 

Dave H

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One of the Dave's indicated it is an individual decision, and that is the best answer. For good properties (Marriotts) it is just not necessary, as Dioxide noted. The title is going to be good. In addition, there is a representation that there are no encumbrances which is to your friends benefit. In these difficult economic times, buyers cannot be too careful. So, my old rule of thumb of never getting title insurance might not apply depending where the property is located, the size of the resort, etc.

Harry

Exactly Harry.... you have to figure out what your risk tolerence level is and then decide.
 
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