What is Title Insurance?
When buying a home there are multiple costs associated with closing the real estate transaction. One of the items that a buyer will see on their closing summary statement, and something their attorney should discuss with them before the closing, is the purchasing of title insurance. What is Title Insurance? What does it cover? Why do buyers need it?
In short, title insurance is a policy that protects the purchase of real estate for owners and their mortgage companies. The Title is the sum of all the documents that create the legal history of the ownership of the underlying property. With any purchase, the attorney or a title searcher will perform a title search, to check for existing defects such as mortgages, liens, easements, servitudes, etc. The title search will tell you exactly how the property is currently owned, so that a buyer knows exactly what they are purchasing…or so it would seem. This is where title insurance comes in.
What does Title insurance cover in New York?
A title search can only show those defects in title that are properly recorded. Title insurance covers the unknown and undiscoverable defects which might eventually lead to another person make a claim against the buyers ownership of the property. This includes:
- Errors in the title search
- Mistakes in indexing the land records
- Fraudulent or forged documents on the land records
- Deeds or documents that were not properly executed and recorded
- Mortgages and liens that were not properly released
- Claims by unpaid contractors (aka contractor liens)
- Claims by heirs of a selling estate
- Claims by CT DRS for unpaid estate taxes of selling estate
- Claims from prior owners or lien holders of foreclosure properties
- Claims by tax collectors for unpaid property taxes
- Theft of funds paid at closing, and
- Attorneys fees and legal expenses for defense of covered claims.
Expanded Owner Policies, only available for owners, will add additional protection including:
- Cost of moving or repairing a house forced by zoning violations or lack of building permits
- Costs of removing structures because they encroach on neighbors
- Claims that the property is not properly zoned for single family residential use
- Expenses if neighbor builds structures on your property
- Expenses created by violation of restrictions on the property, and
- Expenses if your house is not located on the property described in the title.
Title insurance not only covers you while you own the property, but even covers any liability you may have to future owners.
Why do Buyers of New York real estate need Title Insurance?
Title insurance is mandated by lenders (banks and mortgage companies) because they want to make sure the money they are lending is actually going to buy the property as described, since that property acts as collateral, and the title insurance makes sure that the lender is protected from any mistakes, errors, and omissions in the title search or land records for the amount of the loan.
Shouldn’t home owners have the same type of guarantee that their newly purchased home is, and will be, theirs? Yes, and that is why there is an owners policy that covers the owner for the entire value of the property at a small additional cost.
What is the cost for Title Insurance?
Unlike most insurance policies which require a continual annual premium paid in monthly payments, title insurance is a one time premium that is paid at closing. The cost of title insurance (the “premiums”) are regulated by the statute. The prices between the multiple title insurance companies are similar if not identical, only varying by a few dollars. However, fees for title searches and other ancillary products or services can range greatly between title insurance companies.
Why Title Insurance?
The bottom line is that Title Insurance can do a great deal to put a home owners mind at ease. Many times we hear horror stories of driveways built on a neighbors property or additions built without zoning permits. Title insurance can cover the unknown risks of home ownership, with a one time premium that can be added to the mortgage amount, that protects you even after you sell the property, and that covers all attorneys fees and legal costs also.