Title Insurance Explained for Michigan Buyers and Sellers

Well, let's talk title, huh?

Sure.

Yeah, I had a buyer recently ask me, do I need title insurance?

Sure.

And I was like, well, yeah, you want title insurance. Well, do I have to pay for it? And of course, the custom around here is that the seller buys the buyer title insurance.

Sure.

Yeah, but I guess for just the basic, basic level, what is title insurance?

So title insurance is very important. It's one of the most important pieces going through a real estate transaction. You know, it insures the buyer, which the seller pays for that, which you had said that's called an owner's policy. And then there's a loan policy which insures the bank up to the amount of the mortgage. Title insurance insures that there's no issues with title. With that being said, it could be called, you know, cloud on title, issues with title, whatever you want to call it.

Defect.

Exactly, defect on title.

So those are all kind of synonymous terms, a cloud on the title, a title defect, or a break in the chain of title.

Yep.

Like a break in the chain of title is an example of a cloud over the title.

Sure, sure.

You know, when you buy homeowner's insurance, you kind of know what you're insuring yourself against. You're insuring yourself against a sudden drastic thing like a fire or, right, a house fire. But what exactly are you insuring as far as title insurance goes?

So you're insuring that there's no issues accrued from when you're buying this piece of real estate. You're not accruing any issues from the previous owners. So title insurance isn't like a homeowner's policy. It's not like a car insurance policy. It does not insure the future. From when you put the orders through us, through to us at the Taylor Group, or any title company for that matter, it insures from that date backwards. 40 years. We can do things such as like HELOC searches, which ensures like, I think, 20-year searches and stuff like that, which can be cheaper. But it— when you get an owner's policy or a loan policy that ensures the bank with the buyer, it ensures from that day backwards. In the Register of Deeds, when registered title is not recorded digitally, and depend— depends on the county, you have to have somebody go in there, an examiner that goes into the Register of Deeds. For example, Kalkaska County, some of the title is held in the Register of Deeds. So we have Mark Jensen, one of our employees, go into the Kalkaska County Register of Deeds, examines title, depends on obviously the piece of real estate that's going for sale.

So when you say examining title, that's the kind of due diligence that the title company is doing in preparation for a closing.

Yep.

Right. But, but you're doing that for your own, for like A title examiner for Talon Title Agency is examining the title to make sure that it's worth insuring.

Yep.

Right?

Yep.

And so what can come out of a title examination? Would there be like certain things that the title company is going to exclude or—

Issues that could come up with title, you could have a lien on the mortgage if you had a builder and you didn't pay something, back taxes that are owed. So if there's an issue with title, the title company, if you're working with them, if they have a good examiner, they'll find it and hopefully you can get that cleared up before closing. Yeah, so that's why I tell a lot of realtors, and I'm sure Sander does it with his preferred title company, I tell these agents to get preliminary title. It's free through us at the Talon Group, and most title companies in town, I believe it's free. And what that does is make sure that if there's an issue with title, you get that cleared up way in advance. So before you get to—

you want to get So it doesn't hold up close.

Exactly.

Yeah, I guess it would behoove— and it's one of the things that, um, uh, I know when I work with attorneys, they'll say, well, make sure your client is reading that title policy, reading what exemptions are there in the commitment package. In the commitment package. Yeah. Uh, and so because you need to understand what is really being insured.

Sure.

And what's not being insured by the title policy, because those lists of exemptions are saying we're going to insure all these things except for these exemptions. You will, you will not get title insurance if one of these exemptions rears its ugly head. Sure, correct. Sure.

Yep. Okay, there is such things as, and I think it was one of your questions, an extended policy. So basically any type of insurance extends additional stuff Yeah, well, if you can—

is that something you can give me? And then I can kind of like put graphics in on the podcast or something. I bought and sold a lot of houses before I became a real estate agent because my career kind of took me around quite a bit. I mean, I stayed in the region, but I might— I went from district to district and would move into those communities. And so I bought and sold a lot of homes, and I did not understand until I became a real estate agent the differences among these just an owner's policy, an extended policy, and an alta policy. It was never— I thought title insurance was title insurance. I didn't know there were— and that was for whatever reason, no agent or no title company that I closed with ever mentioned it to me. So I just thought that was curious.

Um, yeah, so a lot of people when they're going through real estate transaction, they don't understand why they need it. They don't understand what it is that insures them. Obviously that we're explaining that here today. And why it's so important going through a real estate transaction. I mean, I had this realtor— realtors hate to hear the word FSBO, right? Like, it's so scary. But, you know, like, unfortunately, this realtor wasn't able to get the deal. So she's like, do you have a FSBO packet I can give to my clients so that at least shows some kind of value? I was like, yeah, of course. So then the people selling the piece of property didn't realize that they have a choice on their title company because they didn't realize they're paying for it. So I gave them the FSBO packet and they're like, why do we need this? I was like, because it ensures the buyer that you're free and clear title. So I don't know, it's just some people just don't understand, like, they have a choice on their title company, that what title insurance is, or any of that kind of stuff. That's another issue that's like, I'm creating a class right now on, on deed theft protection. So I taught it through various senior advocacy, and now I'm going to be getting certified through CE Credit. And a statistic that I've heard recently is out of 1 in every 20 real estate transactions, there is a fraudulent issue with it. I don't know if you've seen this, but people are reaching out from whatever country, or they're hitting you up on the WhatsApp. And some—

I've seen—

I heard this impersonate— impersonation thing recently where these people are actually getting fake— but not a driver's license, what's the other one— the passport, a fake passport, and impersonating the sellers, or impersonating the people that actually own the piece of property. So then they're reaching out to this one real estate agent. Let's say they get busted, right? Whatever. Like, oh, I'm not going to work well with you because you won't communicate to us in a normal format. But that That's not necessarily true because I was working with this one real estate agent where he was telling me he could hear somebody in the background talking to this individual and what to say. So he was actually on the phone with somebody who wasn't trying to impersonate the sellers, who wasn't the seller. So they're trying to, you know, do all sorts of different avenues, and if they get busted by one agent, they'll move to the next one.

Yeah, there's like— well, you may have just given me more information. I've been trying to figure out what— why I'm getting contacted by these people through WhatsApp, and it's an obvious scam to me because they only, you know, they are posing as buyers, but they, um, they only want me to communicate through WhatsApp. I went down a rabbit hole with one individual. I mean, this, this gal was— that was gorgeous model. She's interested in buying a multi-million dollar piece of property in Leon County. And the one other thing. And I'm like, this, this, all this together is crazy. It's just obviously a scam. So I, I kind of went, uh, went along with it for, for quite a little while to try to figure out what's the end game, what's the goal, because I don't know how they're going to end up scamming, especially posing as a buyer.

I mean, yeah, most of the time you see it, they're trying to impersonate the seller to bust the buyer that would potentially buy the piece of real estate.

Yeah, give them, give me a little down payment or something, right?

Or if you're working with a good title company, you would find out way, way in advance. But I've heard of incidences, I don't know names or anything like that, where it's almost got to closing.

Really? Yeah. So what I started doing, because what I get a lot of is the contact form on my website, so they'll send me something and they'll say, communicate with me through WhatsApp, and I just email back and just say, let's talk on the phone, and then going forward, I'll communicate with you through WhatsApp. But and then they just drop off. And I'm, of course, I'm sitting here thinking, if you're actually going to buy a multi-million dollar piece of property, talking to an agent live ought not to be that big of a barrier, right? It doesn't mean everything has to be done that way. I text them, email all the time. But if you can't be bothered to, right, talk on the phone for 10 minutes or less when you're buying multi-million dollar piece it's the property, then I just move on.

But one of the most targeted demographics is obviously seniors. So that's why I taught this class to BASA. And, and one of the great things when I taught it, this literally didn't come out until like the next week, is propertyfraudalert.com. And what you can do is you can go in, you enter your information in there, and they can alert you via text, email, phone call on if there is an issue that comes up with the piece of real estate that you own. And depends on the county.

I actually shot a YouTube video.

Oh, did you?

Because they have that link on Leon County's website.

Yep.

So I haven't seen it on Grand Traverse County's.

Grand Traverse County, I believe you have the ability to get an alert now because I'm in Grand Traverse County.

Okay.

But not every county in the state is in that yet.

And maybe we'll leave— you don't, you don't need to, you don't need to buy this Home Title Lock. Stuff you see advertising, right?

Exactly.

Each county— that this is a service that's being provided within Leon County, and you're telling me it's with Grand Traverse County. I just need to find that now.

Yeah, that's why I teach in my classes.

Do you have some examples of when title insurance has been activated to kind of save a property owner's rear end?

I'll tell you a situation that it didn't save somebody. This person did not invest in title insurance and the bank did. So obviously a financial institution invested in the own loan policy, but the owner chose— he elected out. So there was a cloud on title. They went back to the financial institution and said, hi, like, would you be interested in letting us get coverage for our— for the cloud on title? Through your policy. And they said, no, I'm sorry, but that insures the bank, not you.

I had a situation along State Park Highway that was sold off. Those were— that was like divided and sold off a long time ago. And that individual had a partner, and when they sold it, only one of the two partners signed off. And so the cloud on the title originated because they needed they needed that partner's signature, which he's now deceased.

Yep.

Had to research the heirs of that partner who did not sign and ask them to sign off on it. Yep. And they were very cooperative. Well, what happens if they refuse? It's kind of like an individual negotiation. They could have held out and said, pay me money or whatever. I mean, how bad do you want my signature? Because that created a cloud on the title on who actually owned this property. And fortunately, they signed off on it so my client could sell.

Right.

Otherwise, that buyer would have had to make a decision. Do I want to accept this piece of property with this cloud over it?

Speaking of issues with title, so same similar situation. There was a deceased in the family. There was multiple siblings in the situation. And one of the siblings was left out, but they don't talk to him. So then all of a sudden they're working with a title company and they find out that they have a sibling they don't talk to, and then now I have to reach out to them. So then that sibling's like, no, like, I, I don't get along with my other siblings, no, I don't want to sell it. So then that's a similar situation. Now you have an issue where a title company won't be the mitigator in that kind of situation, so they won't get involved with that. But if you have— if they work it out, you know, where they, where they can come to some kind of agreement, then That's a way to work through that situation. But unfortunately, that's what kind of comes up on title sometimes. You'll see that.

So back to the title policy for the bank loan policy versus the title work for the homeowner. That's, by the way, why there can be split closings now, right? I mean, I remember when I first started buying and selling homes, the seller just picked the title company and the buyer, you had to go to that title company. But now you see a lot of split closings, and that's because the buyer's title company is doing the title policy for the lender, correct? Okay.

Yep. And, and so the purpose of that is the reason a financial institution would get a loan policy is because they're, um, you know, forking over money basically to have somebody get— take a loan out. And so they're— they want to make sure that obviously they're, you know, financially backed, that the debt-to-income ratio is good and all that kind of stuff. So once they give the, the buyers the money, then they want to go back to make sure that they're insured with a title company to back that money. Like I said, it goes only up to the amount of the mortgage. The owner's policy goes up to the amount that the sale, the price of the property is going for.

But I guess what I'm after, Alex, is Let's say for property insurance, like homeowner's insurance. Big storm comes along, takes off all the shingles of the roof. The insurance adjuster comes out, looks at it, sees the evidence, and the insurance company cuts a check to a contractor, right, to come fix the roof.

Sure.

Right? In this case, what— Claim. Somebody comes out of the woodwork, yeah, claim.

Obviously claims shouldn't come up if you're working with a good title company, 'cause they should be able to search the title and find out if there is another owner. Owner of the property that isn't selling it. When it comes to claims, if there's something that comes up, I'm not familiar with any claims the town's been through, but we'll take care of it. So generally, when working with a title company, you're basically going to have the same pricing because it's all regulated by the State Insurance Commission. I love it because I don't have to fight for pricing for the most part.

Right.

I'm the business development manager and I get outside outside of the transactional relationship and help people grow their business. And in return, create a partnership and, you know, obviously if that individual has the opportunity to direct title, they think about Talon. So, a lot of other title companies, they'll have affiliated business agreements or they'll just wait for the business to come through the door. But what I do is, what Talon does is we have to go out and get it. Sponsor events, get community involved.

So Callen does not do affiliated business agreements?

No, exactly.

So yeah, so what an affiliated business agreement— because I actually have one.

Sure.

With Lake States Title. In my case, realtor, um, has a business arrangement with the particular title company, and that must be disclosed to clients through what's called an affiliated business arrangement disclosure form. And that always sparks a conversation, and I always let my clients know You're free to choose any title company, and we have chosen Talon quite a few times as well. By the way, the way those affiliated business arrangements work is that agents, um, they own a piece of it. They're not paid by how much business they direct that way. It's the— it's a chunk of the overall— at least that's how my affiliated business arrangement works. But you're saying Talon just has a policy, no affiliated business arrangement? Seller net sheets. You have this tool, and what does a net seller sheet do for the realtors and then the clients who ultimately see those net sheets?

It does a lot of different things, but I guess for the sake of time, the biggest thing that it does is for the sellers, a realtor can go in on our website at taylorgrouptitle.com. It's free underneath the tools tab. Go in and create an account and you are able to compare multiple offers going through a real estate transaction for your sellers. So if there's multiple offers on your piece of real estate, you can sit down there with them and it breaks it down.

I'll show a visual.

Sure.

I think I'll try to get a seller's net sheet visual to show during this podcast. Yeah. It basically takes out what the real estate agent commissions are, it projects taxes, right? Proration of taxes.

Yep.

And then the different title company fees.

Yep.

And then gives the bottom line. The bottom line.

Exactly.

Yeah. And that, that really— I found that really helpful with my clients using seller net sheets to help them understand.

Absolutely.

You know, because they, they— and it's never perfect, but it gives a really, really close estimate because so much of it depends with the exact loan amount, if they've got an existing loan that needs to be paid off. Mobile notaries.

Sure.

So you, you had mentioned that as a free service that Talon provides, and I use mobile notaries a lot and just found, found that to be a really great service. I had a situation where I sold a waterfront summer home in Northport.

Sure.

It was owned by 3 different parties, none of which lived in the state of Michigan. So when it came time for closing, a mobile notary was hugely advantageous. So what is a mobile notary and what do they do?

So to your point, another example on top of that, like, so let's say that you have somebody that's physically impaired or there's like issues going on with Grandview Parkway right now because of the construction that's coming up, they don't want to have to come to our office, whatever it might be, or you want to close your brokerage, you want to close at the financial institution, you want to close in your living room, we can come to you and close a transaction with a mobile notary. When it comes to the 5 surrounding counties, generally a title company would have a fee for a mobile notary, but we'll give cost savings to our clients with no charge for a mobile notary.

That's at least, I think that's at least a couple hundred bucks.

Yep, yep.

Yeah, so that's a nice value.

And then on top of that, we also have, like I said, 26 offices around the state in the northern lower. So if you have a closing, let's say in Gaylord or Alpena, Mount Pleasant, or let's say you have a transaction around those counties in that area, you can close at our other offices with no charge as well. I really appreciate you, and, uh, if you ever have any questions, like, please reach out, and then I'll stay in touch.