What is a hold open?
A Hold Open is a title insurance term used for real estate transactions where the title company that insures the initial sale agrees to insure another sale of the same property within 24 months of the initial sale. These transactions are sometimes referred to as flips.
Benefits of a hold open
A Hold Open ultimately saves money for the Original Purchaser. If the Original Purchaser knows that the purchased property will be resold within two years, Land Title can “Hold Open” the file for the future resale at a fraction of the cost the Original Purchaser would have paid even with a discounted reissue rate in title insurance premiums.
The process works like this: The Original Seller pays the applicable title insurance premium for the initial sale to insure the Original Purchaser. The Original Purchaser then pays only a small percentage of the premium charge in order for the title company to keep the file open. No Owner’s Policy is issued at this time.
When the Original Purchaser sells the property, the Original Purchaser will pay the difference in premiums between the original purchase price and the purchase price on the second half of the Hold Open. An Owner’s Policy will be issued to the final purchaser only.
Conditions for a hold open
A property is eligible for Hold Open status only if the following conditions are met:
- A commitment to insure the final purchaser is issued after recording the initial conveyance to the Original Purchaser. This is in lieu of a policy of title insurance to the Original Purchaser.
- Any adverse matters that are recorded or become known to the title company during the Hold Open period must be satisfied before the final policy is issued.
- There must be a single resale transaction of the exact property as reflected in both the original commitment to the Original Purchaser and the final policy to the final purchaser. For example, the purchase of a duplex must be sold as a duplex, not sold as two separate units in the final conveyance.
- The Original Purchaser must acknowledge that the property must be sold within two years of the original sale or the Hold Open charge will be forfeited, and the policy will be issued to the Original Purchaser.
- Both transactions must be insured through the same title company. The final transaction cannot be insured by another title company.
Property value increases
The Hold Open charge is based upon full value of the real estate or interest at the time of the initial sale, with an additional charge of between 10-25% (depending on the underwriter) of the premium paid based on the original purchase price.
Upon closing of the resale within two years, the Owner’s Policy will be issued to the final purchaser without additional cost. If there is an increase in the purchase price between the initial sale and the ultimate sale, a charge will be made for the increased liability based on the difference in the premiums for the two purchase prices.
Charges and timelines can vary depending on the underwriter. Contact your Closer or Account Manager for more information on the fees and timing.