What Is Title Insurance & Do You Need It?
As you navigate a commercial or residential real estate transaction for the first time a number of unfamiliar documents, agreements and pieces of paperwork are certain to cross your desk or arrive via email. Often, one part of real property purchases that isn’t fully understood by buyers and sellers in Long Island, particularly in a residential real estate transaction, is title insurance.
Title insurance isn’t widely known or recognized outside of the real property industry. For individuals new to these transactions, it can be confusing to determine exactly what title insurance covers and whether it is a necessary and advantageous investment. A Long Island real estate attorney can answer these questions about title insurance and many others regarding your real property transaction, contract negotiation, and closing.
What is Title Insurance for Real Property?
Title insurance is a narrow type of insurance for purchasers and owners of real property. There are title insurance policies that cover your car or other vehicle, but those policies are slightly different than what is applicable to real property.
As with all other insurance policies, title insurance covers you against a specific and stated set of losses or damage. Many people therefore associate title insurance with physical damage to your property, but this protection comes from homeowners or other property insurance. Instead, title insurance protects your ownership and lawful possession of the real property. Given the cost of real estate, ownership is an essential investment to safeguard.
Specifically, title insurance covers a variety of issues and complications that can arise with the title (deed) to your real property in New York. Most title insurance protects against liens, encumbrances or defects in the written deed or other transfer of interest in real property, but every policy is slightly different to match the specific property interest it covers. For example, some title insurance polices cover another person claiming an interest in the property, fraud, forgery of a deed or document in the past, and easements, while a policy from the same company may only cover some of these issues.
In terms of the type of harm that title insurance guards against, it is very different from most other types of insurance because it protects against events that took place in the past – sometimes long before the current owner.
Do You Need Title Insurance?
A buyer typical knows about the liens, encumbrances and other issues with a specific piece of property prior to the closing. As part of the due diligence process, the buyer should request a title search of the property. However, a title search only looks at the public records for the property, and documentation wasn’t always as thorough and accurate as our electronic system today. Title issues were missed, forgotten, and ignored in many instances, and a title search might not catch the mistakes.
When a lien or other defect arises or comes to light after the sale and transfer of real property, it can be a very costly mistake for the buyer. In some instances a title defect or encumbrances could mean the buyer loses the property and doesn’t recover the sale proceeds.
Most commercial property buyers decide to purchase title insurance, while most residential buyers in Long Island do not. This disparity in purchasing this insurance is due to the divergent costs of these types of property and the fact that commercial property often has a more complicated and complex history.
When to Procure Title Insurance?
In New York, a title insurance policy is most frequently issued at the closing of a property transfer or transaction. The purchaser, or seller if it is agreed in the sales contraction, pays a one-time fee to the title insurance company in exchange for an owner’s policy. These policies provide protections in the owner’s favor, in the event a title issue arises at any point in the future.
However, lenders often require a title insurance policy, as well. This policy not only protects the owner’s losses and damages, but the lender’s lien on the property in the event an expensive title issue comes about. As mortgages and commercial lending most often coincide with the purchase of property, the lender’s policy might be issued along with an owner’s policy, but not always. When the policies are issued together the title insurance company often does so at a special rate, called a simultaneous rate or simultaneous issuance.
Questions About Your Transaction
Are you considering title insurance in your real property transaction, but uncertain if it is necessary? Discuss the specifics of your situation with real property attorney Sami Perez. Our Long Island office can be reached via the contact request form on our website or by calling 516-216-5060.
The information in this blog post (“Post”) is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this Post should be construed as legal advice from The Law Office of Samilde Perez or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter.