Kerrie: A penny for your thoughts.

Jim: Oh, I was just thinking about an urban legend.

Kerrie: Do you mean generally, like Kentucky-fried rats and fingers in soft drink cans?

Or, more likely, do you mean that a seller is entitled by law to possession for thirty days after closing “rent free.”

Jim: No, but you’re close. I was thinking about the “you have thirty days after closing to purchase an owner’s title insurance policy.”

Kerrie: What brought this on?

Jim: Well, I was explaining the coverage at a closing and the buyer turned to her agent who said “you have thirty days after closing to think about it.”

Kerrie: That’s better than the answer they used to give: “If the lender is protected, so are you. You don’t need it.” So what is the source of this thirty day, post-closing period? Is it part of the policy or some insurance regulation?

Jim: None of the above. In fact, it is a local, Cincinnati-style custom or course of business. This so-called thirty-day post-closing reservation period is not an issue in Columbus and Cleveland, since everyone gets an owner’s policy as a matter of custom.

Kerrie: So it is a local marketing tool to at least try to sell an owner’s policy if it’s not purchased at closing. What is the reason for the delayed insurance sale?

Jim: Remember how the issuance of title insurance policies works. The agent examines the title to the property and then issues a commitment to issue whatever policy is requested. Schedule A of the commitment identifies the policies to be issued, the amount of coverage and the proposed insured. It also identifies the property and the current owner. Schedule B-I sets out the things that must happen in order to issue the policy, such as a deed from the sellers to the buyers and a mortgage from the buyers to the lender. It may also require the payoff of the sellers’ mortgage and similar matters. Schedule B-II sets out the matters that excluded from coverage, such as survey and plat matters, current taxes that are a lien, but not yet due and payable.

So the commitment is a contract between the title company and the proposed insured to issue a policy under certain terms and conditions. If the requirements of Schedule B-I are met, the company is bound to issue the coverage. And that is why there is a commitment fee as the consideration for this agreement to insure.

Kerrie: So where does the thirty days come in?

Jim: Well, technically once the policy is issued, and around here it is the lender’s policy, the company has fulfilled its commitment and is no longer bound by it after the closing. Many years ago, I assume some local title agent came up with the thirty-day thing to allow some period to let the buyer take advantage of the commitment even though the agent is no longer obligated by the commitment. The thirty days could be twenty days, ten days or even no days. I have a feeling that the thirty-day period was somehow tied to the hold-over thirty-day possession after the closing practice.

Kerrie: Well it does seem to make sense in our area to give some time period after closing to purchase the policy. Any reason why an agent would not want to do that?

Jim: With the state of affairs that exist now, I am not sure that I would want to keep myself obligated any longer than necessary. Remember we do round table closings and give out the checks to the parties with the hope that nothing has changed from the last time we looked at the title. Remember that the county recorders do not certify their records on an up to the minute, or even a daily basis. There is always some lag time, or gap, between the actual closing and the time when the documents are actually filed for record.

Kerrie: So, once again, as the title industry is asked to respond more quickly every day, the chance for error and potential loss rises exponentially.

Jim: Even though Ohio law has codified that title insurance agents must “disclose” the availability of an owner’s policy prior to the closing, the agents or their underwriters may decide that this thirty-day post-closing purchase period leaves them open to increased liability and this marketing practice may cease to exist completely, or be reduced to a much shorter period.

Kerrie: It is clearly in the buyer’s best interest that the risk should be covered by the purchase of the owner’s policy at the closing table.

Jim: That’s my opinion

Kerrie: And mine.