Ask Eli: Should You Buy Homeowners Property Insurance?

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Ask Eli: Should You Buy Homeowners Property Insurance?

This regularly scheduled sponsored Q&A column is written by Eli Tucker, Arlington real estate agent and Rosslyn resident. Ask him your questions via email for comment in future columns. Enjoying!
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Question: We are buying a house in a few weeks and one of the closing costs is an optional $1,500 for property insurance. Do you recommend taking out property insurance?

Answer: Yes, I recommend buying title insurance. It is a one-time fee that protects your property in what is probably the most valuable asset you own and you cannot decide to add property insurance in the future. However, like any form of insurance, it depends on your risk appetite.

I asked David Cartner, a lawyer at… Highland Title & Escrow, to give a full explanation of the benefits of title insurance and some examples of when it would be used. Take it away David…

Do you really need title insurance?

As a real estate arranging attorney, buyers often ask me if they should buy property insurance when buying a home. My answer is that it depends on the level of risk the buyer is comfortable taking. Buying a house or condominium is usually the largest investment a person makes in their life. If a buyer does not purchase property insurance, he/she risks losing the entire investment.

Then why do buyers hesitate to buy property insurance when the risk of loss is so high? After all, no one seems to question the need for homeowners or rental insurance. I believe the reason is twofold: (1) buyers don’t understand the benefits of the purchase, and (2) property insurance is different from other types of insurance because it covers problems that have already happened.

There is indeed a long list of risks covered by property insurance, but essentially the buyer is covering for the unknown or hidden dangers that could put his or her property in the house at risk. Hidden dangers can include:

  • Retention rights not disclosed in the title exam or disclosed to the Settlement Agent prior to closure. Normally, a title search will reveal any liens on the property that must be paid off and released before closing. However, if the title examiner overlooked a judgment, tax, or mortgage on the property or did not record it in the title exam, the buyer would have to pay the previous owner’s lien.
  • Borderline issues that a close examination would not reveal. For example, if an investigation did not determine that a neighbor’s shed infringed on the buyer’s property, property insurance would cover the cost of removing the shed and resolving any associated boundary line disputes.
  • Forgery or lack of authority. If there is a forged signature on the deed in the title deed, or a person or company has signed a deed without being authorized to do so, the transfer of ownership to the buyer would be in question.
  • An unknown heir to a previous owner came forward to claim ownership of the property. For example, suppose a seller has died and his three children have sold the house to a buyer. When an unknown fourth child later steps forward to claim his quarter ownership in the house, the buyer’s title to property is jeopardized.
  • Instruments performed under an expired power of attorney.
  • Building permit violations. An enhanced version of property insurance is available that covers existing building permit violations. If a previous owner never obtained proper building permits when remodeling a kitchen or bathroom or building a patio, enhanced property insurance would cover the cost of obtaining the proper permits. Please note that the upgraded version is approximately 20% more expensive than the standard version and provides additional protection for the homeowner.
  • Errors in the public registry at the county in which the property is located. Recently, Arlington decided to take a look back at taxes for individuals who were exempt up to 20 years ago. Arlington checked the accounts to see if the exemption was properly applied years ago. If not, the county will attempt to collect the back taxes from the current owner of the property. At the time of the shutdown, there was no evidence of taxes owed and a phone call to the county would reveal no taxes owed. At Highland Title & Escrow we have had two of these cases and luckily the owner has purchased property insurance and the property insurance company will pay the back taxes.

While lenders require owners to purchase the lender’s property insurance (which protects only the lender’s interest in the property), the homeowner’s property insurance is completely optional. It is a one-time fee that covers the owner for life.

While there are certain factors that reduce the risk of an existing title defect, such as fewer previous home owners, a typical subdivided lot, or a recently built home, a buyer takes title to a home without knowing what title defect already exists. In this regard, property insurance is different from other types of insurance where the buyer can mitigate the risk.

Please contact David Cartner (703-760-3300 or [email protected]), an Arlington settlement attorney at Highland Title & Escrow, with further questions about property insurance or the real estate settlement process.

Ask Eli: Should You Buy Homeowners Property Insurance?About David

David is an attorney originally from Asheville, NC, where he learned the business from his parents who are both real estate attorneys.

Prior to joining Highland Title & Escrow in 2013, he served as Managing Attorney of the District of Columbia division for Morris Hardwick and Schneider. While there, he tried many foreclosure, foreclosure, and foreclosure cases before the various courts in the District of Columbia.

David graduated from the University of North Carolina at Chapel Hill with a BA in Public Policy specializing in Business and Government. He received his JD from Campbell University, Norman Adrian Wiggins School of Law, and graduated with honors in business and tax law.

David is licensed to practice law in the states of Pennsylvania, North Carolina, New York and the District of Columbia.

David currently lives in Arlington, VA with his wife, Melany, and their dog, Wheatley.

If you would like a question answered in my weekly column, send an email to [email protected]. To read one of my older posts, visit the blog section of my website at www.EliResidential.com. Call me directly at (703) 539-2529.

Eli Tucker is a licensed real estate agent in Virginia, Washington DC, and Maryland at Real Living At Home, 2420 Wilson Blvd #101 Arlington, VA 22201, (202) 518-8781.

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