Why Do I Need Title Insurance?
What is title insurance and do I really need it? This is a question we get most frequently from clients who are purchasing a home. Title insurance is an insurance policy that covers third-party claims on a property that do not appear in the initial title search and arise after a real estate closing. Whether you’re purchasing a new home, or an existing home, title insurance will protect you from most problems that could affect title to your home. In New York, title insurance is not required by law. But, it is wise to purchase it anyway because the potential cost of not having it could far exceed what it will cost to purchase it. And, if you are financing the purchase with a mortgage, the lender will require it for the amount of the loan.
Title insurance is a one-time, up-front fee and not a continuing expense. There are two kinds of title policies - the owner’s policy and the lender’s policy. The owner’s policy protects the property owner’s interest up to the full original sales price and is based upon the sales price. The lender’s policy protects the lender’s interest in the amount of the mortgage and is based upon that amount. If you are purchasing a home without a mortgage, you would only purchase the owner’s policy. The home buyer will generally be responsible for purchasing both policies.
As part of the purchase, a buyer will order a title search, which consists of the public records relating to the particular property, which will include, among other things, deeds, court records, municipal records, property and name indexes. It is a comprehensive search that encompasses different issues that could potentially affect title to the property.
What are some issues that could arise that could relate to title to your property? If your property has a long chain of title (the sequence of historical transfers of the property), what if the property was mistakenly sold without an owner’s consent and now the alleged owner comes back to claim title? What if a property was sold without the consent of all heirs in an estate sale, or a missing heir surfaces? Or, what if the property was sold as a result of deed fraud, which means that the deed was changed without the real owner’s knowledge or consent, and then it was sold? Unfortunately, these are all situations that could arise. If someone else claims ownership to the property, title insurance will typically defend you financially and legally.
The moral of the story is that, while title insurance might not be required by law for an owner, it is wise to purchase it anyway. It’s a small price to pay in the grand scheme of things and you could potentially save yourself money, energy and time in the long run if someone does claim title to the property and you are forced to defend against that claim!
Disclaimer: The information contained in this post is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls and communications. Contacting us, however, does not create an attorney-client relationship.