What is Title Insurance and Do I Need It?
Purchasing a home is usually the biggest investment one will ever make. It is crucial to protect your investment with a peace of mind that comes with purchasing title insurance. Title insurance is not to be confused with homeowner’s insurance. Homeowner’s insurance protects against loss from fire, theft or wind damage. Title insurance, on the other hand, protects against hidden title hazards that may threaten your financial investment in your home. New York State law does not require a purchaser of a home to acquire title insurance; however, title insurance is often purchased by the home buyer because it eliminates risks associated with title problems.
When you purchase a home, you are really purchasing the title to the property – the right to occupy and use the property. That title may be limited or challenged by rights and claims asserted by others, which may limit your use and enjoyment of the property and even bring financial loss. A policy of title insurance insures against defects in or liens or encumbrances on a party’s title to certain property. While other types of insurance, such as homeowner’s insurance, protect your property against future events, title insurance protects against loss from defects that already exist in the title and is purchased with a one-time premium paid for at the closing. Should a defect in title arise that interferes with a property owner’s continued use or possession of the property, the title insurance policyholder would potentially have coverage for its financial loss resulting from such interference—or even loss of ownership of the property
Two Kinds of Title Insurance
There are two kinds of title insurance that exist:
- Loan Policy of Title Insurance
- Owner’s Policy of Title Insurance
Most title insurance policies are drafted by a title insurance industry group named the American Land Title Association (ALTA)
Loan Policy of Title Insurance
If you are applying for a mortgage to purchase your home, lenders require the mortgagee to purchase a loan policy of title insurance as security for their investment in real estate. The lender’s policy insures that title belongs to the lender, that no unknown liens or encumbrances exist against title, that title is marketable, and that the lender has access to the property. If the title search reveals liens or encumbrances against title prior to the issuance of the title policy, the policy will list these exceptions to coverage on Schedule B of the policy. Importantly, the basic lender’s policy also ensures that the lender’s mortgage lien is valid and enforceable, and that the lender’s mortgage has priority over all matters not otherwise excluded. This coverage is important to the lender because the mortgage is the vehicle through which the lender recovers its security interest in its loan.
Owner’s Policy of Title Insurance
The owner’s policy protects you against losses from ownership problems that arose before you bought the property, but that were not known at the time you bought the property. The owner’s policy protects the buyer from the covered risks listed in the policy. Title insuring begins with a search of public land records affecting the real estate concerned. An examination is conducted by the title agent or attorney on behalf of its underwriter to determine whether the property is insurable. The examination of evidence from a search is intended to fully report all material objections to the title. Examples of title defects may include, but are not limited to:
- Improperly executed deeds, wills and trusts
- Mortgages foreclosure actions, judgments, or liens against the property.
- Easements that restrict the full use and enjoyment of the property
- Pending legal action against the property that could affect a purchaser
A title search will bring to light these issues that affect title. Through the search and examination, title defects are disclosed so they can be cured. The Owner’s Policy to Title Insurance insures the owner of the property against defects that were not known at the time the policy was issued. The title insurer will indemnify the owner against claims to title by third parties, and will either perfect the title or pay valid claims up to the insurance coverage amount which is typically the purchase price of the home.
Your home is your most important investment. Be sure to protect your home with an owner’s title insurance policy. It is important to consult with a competent real estate attorney to carefully review title and bring forth any material issues to your attention. If you have any questions regarding title insurance or related issues, feel free to call Sergey Kalantarov, Esq. of Kalantarov Law, PLLC at (516) 953-9801