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How has the lawyers job changed with the Introduction of Title Insurance?

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Many of you I know practiced real estate before title insurance came in, right? And those of you who did will remember the amount of work that the lawyer used to do prior to closing, to assure good title. You always had to get a survey plan by the way and the lawyer did a full 40 year title research, and off title search to make sure that there were no outstanding permits or warrants or anything else like that. They also looked to see if there were any taxes outstanding.

The reason for this is that the lender had to be assured that the purchase price that was being suggested, that was being paid for, was actually the fair market value of that property. And that there wasn't something that was going to come up after the fact to diminish, to lower, the value of the property. Because understand this: title insurance is about the lender - primarily about the lender. It's not a bad thing, but that's what it's about 

The lender is most concerned about their loan-to-value ratio. If you're buying a home for a million dollars and you're asking the lender to lend 80 percent of that, you're going to put 20 percent down, and the lender is going to contribute eight hundred thousand dollars of that as a mortgage. What that means is that, the lender has to ensure that that million dollars, the million dollar valuation, is actually accurate, because if it then turns out, after the fact, that there's something wrong with the property that results in the property being worth nine hundred thousand, or eight hundred thousand, or less, the lender's loan to value ratio, is out of whack and they get really, really twitchy about that.

Before title insurance came in, the lawyer's job was primarily to assure clean title, clean title meaning that there was nothing that was going to come up after the fact that they could figure out, that they could find, that was going to challenge the value of the property that was being paid. That was the job of the lawyer prior to title insurance. 

Title insurance came in, said to the industry, hang on a second, we've got an alternative way that we can do this. Instead of doing all that work up front every single time, why don't we say: don't do any of that work, and instead, we will offer an insurance policy that, instead of assuring good title prior to close, insures bad title, or title defects, after the fact. 

That is the crux of it. Pre title insurance our system assured good title and lawyers had to do the hard work of making sure that that million dollar price tag, that was the value of the home, and that something wasn't come up and diminish that.

Title insurance comes in, and ever since then, the whole process, the whole system has been rigged around insuring title defects and bad title after the fact. That's what the lawyer's job is now. It's not to do the research. It's to make sure that the insurance policy is in place with all associated documents, so that once your client moves in, and something comes up that should be covered by title insurance, that everything's in place so that the client can get the best outcome. 

The lawyer's risk is managed better because they don't have to do as much, but they are covered by the title insurance policy as well. And the homeowner is covered.