One of the most asked questions during the resale process for a timeshare property is whether it is required or recommended to purchase insurance.
In this article, we shed light on this topic so you can make an informed decision. We discuss what title insurance is, how it works, and its pros and cons. Let’s take a closer look!
What is Title Insurance?
When purchasing a timeshare, a buyer can add title insurance to protect their financial investment against losses from various title issues. Below are some of the situations that arise with a resale that could cause title issues:
- Unpaid taxes or fees that may be outstanding;
- Liens placed on the property;
- Defects/errors in the previous chain of transfer documents, such as recorded deeds.
When purchasing title insurance, a specialized title company will perform a title search and review all legal documents in the transfer chain from previous owners to ensure no liens or defects. Once the title search is completed and no issues are found, the new owner is issued the title insurance.
Title insurance will protect the buyer’s funds for the purchase price. It will generally not cover the closing costs and transfer fees the buyer pays. Before committing, ask the closing company to confirm what is covered/included with title insurance.
How Much Does Title Insurance Cost?
Title insurance generally ranges from $95 to $400 for the properties we typically coordinate the sale and closing. The cost depends mainly on the property’s purchase price, the company conducting the title search, and the property’s physical location.
Is Title Insurance Required?
Title insurance is optional for the buyer when purchasing a timeshare resale. It is not required.
What Are the Pros & Cons of Buying Title Insurance?
- Title search ensures a clear title with no defects or liens
- Funds invested in purchasing the property are protected
- No risk of not being able to sell your timeshare due to defects
- There is no risk of being liable for unpaid taxes or fees
- Adds costs to the closing process, typically covered by the buyer
- Extends the timeline of the closing process due to the time it takes for the title search, which could be an additional few weeks
What Can Happen if You Do Not Buy Title Insurance?
What is the worst if you do not buy title insurance and the property has title defects, liens, or other issues? We rarely see such situations occur, but theoretically, here are some of the risks / consequences of this worst-case scenario:
- You may owe unpaid taxes or fees that need to be brought current before you can use your ownership;
- A previous owner could reclaim their ownership, and the developer may transfer the ownership out of your name back to a prior owner;
- You may be unable to sell your ownership if you cannot find previous owners to execute corrected documents and fix the previous title issues to ensure a clean title for the next potential buyer.
Conclusion: Should You Buy Title Insurance with a Resale?
So, when should a buyer purchase title insurance? Purchasing title insurance provides peace of mind and protects the monetary investment, but it comes at a cost and extends the closing process time. Title insurance is generally preferred when the timeshare price is significant (more than a few thousand), as a more substantial financial investment is at risk.
In our experience, most buyers do not opt for title insurance, and closing companies obtain and provide documentation for most transfers showing no back-due taxes or fees for the ownership. However, when the purchase price is significant, and the buyer wishes peace of mind knowing they are protected against title defects or liens, purchasing optional title insurance may be in their best interest.
