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Editorial


Front Page - Friday, January 13, 2017

Local title insurance custom has some Realtors asking why




Title Guaranty and Trust’s records date back to the 1880s. These are the original drawings. Inset: Charles O. Hon, III, left, and Brian Kopet of Title Guaranty and Trust browse through the records. - Photographs by David Laprad

Inside the South’s oldest title company, two men are mulling a question: Why do sellers in Hamilton County pay for the owner’s title policy?

Charles O. Hon, III, the chairman and CEO of Title Guaranty and Trust, establishes the context. “In most places across the country, the buyer purchases his own policy,” he says. Hon is bellied up to a blackjack-style table he designed and built in the 1970s for closings.

Title Guaranty and Trust’s president, Brian Kopet, is sitting in the dealer’s spot. He provides two examples of nearby places where the buyer typically shells out the money for the owner’s title policy. “In Georgia, it’s written into the contract that the buyer will pay,” he says. “In Bradley County, most buyers purchase the mortgagee’s policy.”

In Hamilton County, however, the seller typically buys the owner’s title policy, Hon says. This isn’t something new that came out of the recession, either. Rather, sellers in Hamilton County have been paying for the policy since before Hon entered the business in 1970.

“It was this way when my grandfather took over the business in 1920,” he explains. “It was probably put in place in 1887, when my great-grandfather, Henry Clay Beck, founded the company.”

Hon can make this claim with confidence. He says because Title Guaranty and Trust was the first title company south of the Mason-Dixon line and was the only game in town until the 1930s. By the time other companies started cropping up locally, he adds, people were accustomed to doing things a certain way.

This still doesn’t answer the question of why local sellers pay for the owner’s title policy when they don’t elsewhere.

Hon says he can only speculate. “My family believes this came about because the only person with money at the time of the transaction was the seller, so it was easier for him to pay for the policy,” he points out. “The buyer sometimes had trouble coming up with enough money to pay the closing costs and buy the house.”

Kopet agrees with Hon’s estimation of history and says the logic behind the seller purchasing the owner’s title policy still works today. “It’s something the buyer can shift to the seller so he doesn’t have to bring as much money to the closing table,” he says.

“Some buyers might not be able to close if they had to pay more,” Hon says.

While some sellers do chafe when asked to pay for the owner’s policy, the cost is usually less for the seller than the buyer. If the seller has an owner’s policy for the house he’s placed on the market, title companies will generally give him a discount when he purchases an owner’s title policy for the same property, says Realtor Travis Close of Berkshire Hathaway HomeServices Realty Center.

“It’s cheaper for the seller to purchase it for the buyer because he can take advantage of a credit the buyer wouldn’t have,” Close adds.

Title Guaranty and Trust provides the seller with a 30 percent discount on the owner’s title policy if the policy he’s holding is less than ten years old.

While money is an important factor in determining who pays for the owner’s title policy, Kopet says the reasoning goes deeper than currency to become a matter of trust.

“The seller provides the buyer with the policy as a gesture of good faith,” he says. “On the other side of the coin, the seller tells the buyer to purchase his own title policy if he wants to be insured.”

Buyers and sellers in Hamilton County do sometimes buck tradition. This typically happens when the seller has priced a property below market value or is selling a property “as is,” says Realtor Jeremy Callahan of Better Homes and Gardens Signature Brokers in Ooltewah.

“Ultimately, title expenses are a small part of the transaction compared to the other moving parts,” Callahan says. “In this scenario, my clients saw they were already gaining far more financially by purchasing a home well below market value and trying to negotiate title expenses wasn’t worth the risk of losing the home.”

The thing a Realtor must remember, Close says, is that the decision regarding who will pay for the owner’s title policy is negotiable. In other words, there’s no law requiring either the seller or the buyer to pay for it.

“It’s up to the buyer to lay out what he wants,” Close says. “Just because the home is listed in a surrounding county doesn’t mean the buyer isn’t going to ask for the seller to pay for his owner’s title policy.

“At the end of the day, it’s part of the negotiation. As long as the seller receives an acceptable amount for the house, he typically doesn’t care if he’s providing an owner’s title policy or helping with the closing costs.”

Callahan says the most important thing a Realtor can do is help his or her client see the bigger picture.

“First and foremost, it’s important to make sure purchasing the home is a smart financial investment,” he says. “That comes from negotiating a favorable sales price, reducing risk on the condition of the home and minimizing out-of-pocket closing costs, which are usually around three percent of the purchase price when getting a loan.”

Having mulled over the question of why the seller pays for the owner’s title policy, Hon and Kopet say it ultimately doesn’t matter to them who pays for the policy; they have a job to do and always aim to do their best.

“Title Guaranty has a heritage of quality service to Chattanooga,” Hon says. “That’s our tradition, and we’re proud of it.”