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If I purchase an empty piece of land and get title insurance for the value of the land, what happens later down the road when structures are built on the land, can I purchase more title insurance?
Title insurance basically insures that you own the property (aka land). Building on it won't change the ownership. If you take a mortgage out to build, you will have to pay for a lender's title policy, but you will not need another owner's policy. (The lender's policy is more to protect against liens on the property and secure their position as the first lien position.)
As a new title agent that just started learning the business from scratch back in January, I'm going to play devil's advocate and ask what would happen if the vacant lot was fraudulently transferred to our Tom11011 and down the road after Tom's house was already built the land is now being challenged by the rightful out of state owner who finally caught the scam.......well the owner's policy Tom took out at the time of purchase was only for around $5,000, or x amount for vacant lot.......... so yes this is a claim issue and Tom would be well in his rights to file a claim but his property is now worth $300,000... The policy amount was only for 5k.. Would he be compensated for his total LOSS of 300k or only up to his original owner's policy amount of 5k? (I am going to find out the answer to this rare worse case scenario, or if someone else can answer)
If he had taken out a construction loan for 300k to buy and build on the vacant lot then EVEN before construction begun the lender's policy and owner's policy would both be in the amount of 300k, owner's policy probably being a little more then 300k to reflect his down payment...
If there is title insurance on the land, that means he is insured against all other claims to the land because he was given clean and clear title. If someone comes later to try to claim it, it's still covered because he was given clean title. I don't see how putting a house on it changes that when the title company gave a title commitment for the clear title.
Because according to my title manual, title insurance is not a guarantee that insured title is good or free of defects, liens, encumbrance, or other adverse matters, Rather it is an indemnification against loss or damage sustained or incurred by the insured, should a claim arise or title otherwise proves to be defective.
So if the rightful owner comes along after realizing the fraudulent sale of his vacant land and demands his land back, well Tom has a problem since he put a 300k house on it that can't just be picked up and moved. His owner's policy amount of 5k obviously does not cover the amount of the house. His loss is going to be much more then 5k. This is what I am needing specific clarification on, because there is a policy amount for a reason, or else there would be no cap on the amount the insurance company would pay out on a claim right?
Last edited by JPrzybylski07; 08-25-2017 at 11:20 AM..
As a new title agent that just started learning the business from scratch back in January, I'm going to play devil's advocate and ask what would happen if the vacant lot was fraudulently transferred to our Tom11011 and down the road after Tom's house was already built the land is now being challenged by the rightful out of state owner who finally caught the scam.......well the owner's policy Tom took out at the time of purchase was only for around $5,000, or x amount for vacant lot.......... so yes this is a claim issue and Tom would be well in his rights to file a claim but his property is now worth $300,000... The policy amount was only for 5k.. Would he be compensated for his total LOSS of 300k or only up to his original owner's policy amount of 5k? (I am going to find out the answer to this rare worse case scenario, or if someone else can answer)
If he had taken out a construction loan for 300k to buy and build on the vacant lot then EVEN before construction begun the lender's policy and owner's policy would both be in the amount of 300k, owner's policy probably being a little more then 300k to reflect his down payment...
Quote:
Originally Posted by JPrzybylski07
Because according to my title manual, title insurance is not a guarantee that insured title is good or free of defects, liens, encumbrance, or other adverse matters, Rather it is an indemnification against loss or damage sustained or incurred by the insured, should a claim arise or title otherwise proves to be defective.
So if the rightful owner comes along after realizing the fraudulent sale of his vacant land and demands his land back, well Tom has a problem since he put a 300k house on it that can't just be picked up and moved. His owner's policy amount of 5k obviously does not cover the amount of the house. His loss is going to be much more then 5k. This is what I am needing specific clarification on, because there is a policy amount for a reason, or else there would be no cap on the amount the insurance company would pay out on a claim right?
Your logic is waayyy off.
I'll devil's advocate your devil's advocate.
Tom does not build on his property. It is still untouched land. 30 years go by. Property values have risen naturally. His land is now worth $50K. Someone makes a claim. According to your logic, he will only be insured for $5K of that.
Or...
Tom does not build on his property. It is still untouched land. Instead, Tom finds out he has oil or some other highly valuable resource on his land. His $5k land is now worth $50 million. Someone makes a claim. According to your logic, he will only be insured for $5K of that.
Tom does not build on his property. It is still untouched land. 30 years go by. Property values have risen naturally. His land is now worth $50K. Someone makes a claim. According to your logic, he will only be insured for $5K of that.
Or...
Tom does not build on his property. It is still untouched land. Instead, Tom finds out he has oil or some other highly valuable resource on his land. His $5k land is now worth $50 million. Someone makes a claim. According to your logic, he will only be insured for $5K of that.
but this isn't a case of logic, it's a case of contract.
For instance, if you buy a regular insurance policy for a $5000 property, and you never update it, the insurance will only cover $5K, no matter what the property is worth.
But I don't know how title insurance works, so am following this thread to see if an expert gives opinion.
Tom does not build on his property. It is still untouched land. 30 years go by. Property values have risen naturally. His land is now worth $50K. Someone makes a claim. According to your logic, he will only be insured for $5K of that.
Or...
Tom does not build on his property. It is still untouched land. Instead, Tom finds out he has oil or some other highly valuable resource on his land. His $5k land is now worth $50 million. Someone makes a claim. According to your logic, he will only be insured for $5K of that.
Hence I am curious what happens when you don't update your owner's policy amount but you have seen significant appreciation and/or built or improved the dwelling and someone comes along and challenges the title to the property and wins because of past fraud or mistake someone else made.
My logic only would be waayyy off if I was just assuming things and giving blind advice, instead I am posturing on this thread as a student and NOT an expert
I'm almost tempted to call my local title plant and ask one of our underwriting attorney's because even the senior escrow officer I work and sit next to all day cannot give me a clear explanation what happens. Her only response is that the insurance company who issued the owner's policy would not leave you out to dry but that is not good enough to satisfy my question nor would it be as a consumer and homeowner.
Last edited by JPrzybylski07; 08-25-2017 at 12:21 PM..
I have seen people add on to their houses, without mortgage, and the title insurance doesn't get increased. Hopefully the new title agent will ask a seasoned agent and we'll get a good answer.
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