Hopefully, Debby with her rain, Helene with her surge and Milton with his wind are in our rearview mirrors by now, not forgotten, but we survived. Next, we can look forward to more mundane real estate issues like insurance.
What if you were ready to close on a new property and the possibility of a named storm was on the horizon? This situation could be the ultimate inconvenience since there is a very good chance you may not close your sale on time, costing money and delays with movers, utilities, and possibly short-term living arrangements. This is an important thing to keep in mind when you live in a hurricane zone like we do. Since both buyers and sellers are in a real estate transaction together, they both should be motivated to give allowances if this is happening.
This sometimes little-known insurance issue is called a moratorium, also known as a binding prohibition. They are issued by insurance companies for certain high-risk areas. During hurricane season, insurance companies wait until 24 to 48 hours before the impact to issue a moratorium on buying new policies. This could delay a closing since the insurance companies will not bind or cover the property in question until the storm has passed. If this happens to you, there is almost nothing you can do about it short of closing the property without property insurance – a non-starter if you are financing any part of the sale.
Since we’re talking insurance, there have been some recent problems in the area of title insurance. Just to review, when you take out a mortgage, one part of your closing costs will be title insurance. If you aren’t taking out a mortgage, you will not be required to purchase title insurance, but most buyers do and all lenders insist on it and expect buyers to pay. The premium for title insurance is a one-time charge and the policy protects the lender. You also can purchase owner’s title insurance to protect yourself but that is optional.
Title insurance covers third-party claims on a property that don’t show up in the initial title search and arise after the closing. The title company searches for public records related to your home to try to find any title defects that could affect the lender’s or buyer’s property rights such as liens, including tax liens or unpaid bills; easements that give others the right to use your property; and encumbrances like zoning laws and covenants imposed by homeowner associations. A “cloud” on the title can usually get resolved with the cooperation of the previous owner and/or the entity placing the lien.
In the wake of the National Association of Realtors settlement over real estate brokerage commissions, government officials are looking at compensation paid to real estate professionals who recommend title companies. This is happening without the knowledge or disclosure to the buyers who are paying the fees, therefore, potentially elevating the fees charged for the title insurance. The title insurance industry is under scrutiny by the federal government in an effort to lower the upfront costs of obtaining a mortgage.
The crackdown on partnerships with title companies is the same general trend as addressing brokers’ commissions. Just to be clear, this partnership arrangement with title companies is not happening all over, and carefully analyzing the title fees before you close a property is a wise thing to do.
Title insurance is just one more type of insurance a property owner needs to be aware of. We’ve turned the corner and it’s time to pick up the pieces and move on.
