Should a homebuyer get a condition of title report? What's title insurance?

Question: We are purchasing a one-half-acre lot in Maricopa County for $140,000 cash. Although we are buying the lot as an investment, we are confused about title insurance. My father is a broker in another state, and he says that even if we don't plan to build a home on the lot, we need at least a title commitment. Our real estate agent says we only need a condition of title report, which is much cheaper. We are so confused. What should we get?

Answer: A title commitment says that a national title insurance company (e.g., First American) will issue a title insurance policy, subject to any exceptions and requirements in the title commitment. The cost of the title insurance policy is then paid, usually by the seller, at close of escrow. Still, the actual title insurance policy, with a big seal, may not be received by the buyer until weeks after close of escrow. The cost of a title insurance policy is based on the property's value (e.g., a title insurance policy for your $140,000 lot should be in the $1,200-$1,500 range). On the other hand, a condition of title report is basically, after a "quick look," the title company's "best guess" as to the condition of title. If the title company is wrong in its "best guess," it has no liability. The cost of a condition of title report usually is $300-$350.

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Note: Our law firm's standard procedure when representing a client regarding a home or other real estate is to pay $300-$350 and immediately order a condition of title report. We can then see in the beginning if there could be a major problem (e.g., a dispute over ownership of a $400,000 home and the condition of title report shows a recorded $450,000 mortgage).

Contact real estate attorney Christopher A. Combs at azrep@combslawgroup.com.