Owner’s title insurance: The costly 'bond off'

Part 4 of a series

So let’s say you just sold your home. You then receive an email notice from the settlement company as follows:

"Our office has completed the title search for your upcoming closing and sale of 2525 Badtitle Lane, and we regret to inform you that the search has revealed two unexpected mortgage liens secured against the subject property. Both of these open mortgages (deeds of trust) were acquired by your seller (the prior owner).

The settlement company that handled your closing in 1995 when you purchased the property would have been responsible for paying off and filing lien releases for these two mortgages. Our office has attempted to contact that settlement company but, unfortunately, that settlement company is no longer in business.

Please produce a copy of your owner’s title insurance policy so that we may contact the title insurance underwriter to verify payoff and satisfaction of these mortgages and request that the underwriter pay the costs for curing this problem."

You begin searching your paperwork from the 1995 closing only to find that you elected to waive owner’s title insurance coverage. In other words, you don’t have an owner’s title insurance policy.

Now what?

You contact the settlement company in response to the notice and explain that you don’t have owner’s title insurance coverage. The settlement company then explains that both open mortgages must be "bonded off." That is, you have to apply for a bond with a bonding company in order to convey title to your buyer.

The bonding company charges $20.00 per thousand of the face amount of each mortgage. In this case, the first mortgage is for $115,000.00 ($2,300.00 bond cost) and the second mortgage is for $75,000.00 ($1,500.00 bond cost) for a total bond cost of $3,800.

Had you elected to purchase owner’s title insurance coverage in 1995 when you purchased the property, you would have paid $980.00 for the owner’s title insurance coverage and the title insurance underwriter would have been responsible for the bonding expense.

Instead, you now have to write a check for $3,800.00 in order to deliver insurable and marketable title to your buyer.

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