If you plan on purchasing new construction, do a little homework and weigh all of your options before using the builder’s title company, no matter how hard their sales associates push and try to pressure you. Why? It’s likely that the builder has a “business relationship” with the title company that they’re steering you towards, meaning they have a shared financial interest. In both PA and NJ, insurance regulations permit homebuyers to hire their own title company, and it’s well worth the time to look around. Let’s face it, if your builder and their title company are financially married to each other, they may not have your best interest as their top priority. Choose an independent title company that represents you and will not be influenced by the seller when it comes to identifying and correcting title defects.
Recently we were hired to provide title insurance for a couple buying new construction from a local builder in Montgomery County. When the title search was completed, it showed two mortgages against the property: one for $300,000 and another for $1,100,000. When we brought it to the builder’s attention, he told us that he only had one mortgage for $300,000 and knew nothing about the larger mortgage. After further investigation, it appeared that the builder’s title company erroneously recorded a mortgage for another project against our buyer’s property. As an advocate for our client, we could not assure the buyer that the $1,100,000 wasn’t a valid lien until the bank agreed to satisfy it.
At first the builder was thankful that we caught the mistake and even commented that this was not the first time this happened with his title company. However, once he heard that settlement would have to be delayed until his bank acknowledged that the mortgage had been recorded in error, he approached the buyers with a desperate proposal to fast track the settlement. He suggested that the buyers switch to his title company, and they would just insure the title as clear instead of waiting for the bank to acknowledge that their lien was recorded in error.
Although the buyers were eager to settle on their new home, they weren’t willing to use the builder’s title company which was responsible for the problem in the first place. We cleaned up the mess for the builder and his title company, and the buyers went to settlement a week later, having peace of mind that they owned the house free and clear. After settlement the buyers asked us how this would have been handled if they agreed to use the builder’s title company from day one. Would they have been informed that a questionable mortgage appeared on record? The answer, of course, is maybe, maybe not.
Fortunately this couple, having been burned in the past using the in-house title and mortgage company when they purchased their first home, had a better game plan this time around. They made sure that they assembled a team that put their interests first.