Monday, May 20, 2002

Erpenbeck fiasco making more weigh title insurance

By Ken Alltucker
The Cincinnati Enquirer

        Fewer than one in five Cincinnati-area home buyers elect to purchase their own title insurance, even though they must buy it for their lender. The lack of protection leaves homeowners vulnerable to title problems that could lead to foreclosure even if they make all mortgage payments, real estate experts warn.

        The reluctance stems in part from custom and the trust that Tristaters historically placed in neighborhood savings and loans, which tended to clear up even the smallest title problems for customers.

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        Title insurers say people here might start to buy it more often as problems with titles become more publicized in cases such as the troubles of Edgewood-based builder Erpenbeck Co. and the closing of Phoenix Land Title of Blue Ash.

        “A lender has no legal responsibility to look out for the purchaser,” said Daniel Dozer, executive director of Ohio Land Title Association. “They are looking out for their own interests.”

        Homeowners expecting help from the state in title defect cases will find little relief; neither Ohio or Kentucky regulate real estate closings.

        Ohio Rep. Michelle Schneider, R-Madeira, vowed Friday to work with Ohio's title agents, home builders, contractors, banks and others to close any loopholes that have allowed builders or title agents to divert mortgage funds.

        There may be similar pressure mounting in Kentucky in the wake of the Erpenbeck fiasco, which has left some homeowners without clear titles to their homes and has triggered dozens of lawsuits by banks and contractors who are owed millions.

        “Maybe there is an area where legislation can address these problems,” said Kentucky Rep. Arnold Simpson, D-Covington.

        About half of all U.S. homeowners protect themselves by buying their own title insurance.

        Title insurance protects an owner's equity against title defects up to the face amount of the policy (which can exceed the amount of the mortgage).

        Most Greater Cincinnati home purchasers are required to purchase title insurance for their lenders; they rarely choose to buy it for themselves, too.

        Refinancings are trickier. If an owner lives in a home for several years and knows of no potential claims, they might not need coverage. Title experts recommend consulting a lawyer.

        Title insurance rates are established by state law in Ohio, but not Kentucky.

        On a $150,000 Ohio home with a 10 percent down payment of $15,000, the buyer can expect to pay a one-time fee of $438 for lender's title insurance. An owner's policy for the same house would cost $754 plus search fees.

        Why the difference? The owner's policy carries more risk, Mr. Dozer said, because many title challenges can be paid with the owner's equity. The bank has no obligation to challenge such claims.

        Also, lender's title insurance is set for a fixed period, typically 30 years, while owner's policies last as long as the person keeps the house.

        While chances of a title challenge are slim, a successful one can be devastating because owners could lose their homes or equity or delay a home sale.

        Mason resident Michael Davis said he hasn't been able to sell his home for more than two years because of title problems stemming from the shutdown of Phoenix Land Title Agency in 1999.

        Mr. Davis refinanced his mortgage through the Blue Ash title agent, which closed days later after its underwriter, Ohio Bar Title, filed a lawsuit accusing it of fraud.

        He cleared his title only after filing a lawsuit in Warren County Common Pleas Court.

        Mr. Davis estimates the ordeal has cost him thousands of dollars in legal and other costs. A potential buyer backed out of a deal to buy Mr. Davis' home after learning about the title problems.

        In some cases, it takes years to detect a title problem.

        How can this happen? Titles are checked before a closing for ownership, liens, property easements and restrictions, but problems can elude a title search.

        Forged documents or estate settlements might not be detected during an initial search.

        One Cincinnati home buyer discovered a claim filed by a prisoner in Lucasville. It turned out the prisoner was the former owner. A boyfriend of the prisoner's wife impersonated the prisoner at the home closing, forging docments.

        Home owners can buy title insurance at any time. It's easier at closing, however, because the necessary title searches already have to be made and the closing process includes assurances that there are no outstanding liens.

        “It often takes situations like this (Erpenbeck)” to persuade people to buy title insurance, said James R. Maher, executive vice president of Washington, D.C.-based American Land Title Association. “Suddenly, you have a lot of homeowners that realize that there is risk in buying real estate.”

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