Title Insurance 101
“Title” represents the bundle of rights associated with property ownership. Whoever title is vested in has the right to possess, occupy, improve or transfer that property as he or she sees fit. If you are financing your purchase of real property in order to obtain title, your lender will likely require you to purchase title insurance.
What is Title Insurance?
Title insurance is indemnity insurance bought by the purchaser of real property which protects against future defects in title. A title insurance policy is a contract of indemnity which insures against an actual monetary loss because of a defect, lien or other matter affecting title. Unlike other forms of insurance that insure against future loss, title insurance protects the insured against defects in the title that exist at the time of the closing but are asserted at a later time.
Title insurance insures against the risk that defect(s) will interfere with the insured’s interest. For a lender, that interest will be the priority of its lien; for the owner, it is title to the property free from the claims of third parties that could divest the owner of title.
If a defect in title is found it, will be the Title Insurance Company’s job to protect you against outside claims. The Title Insurance Company will pay the costs, attorney’s fees and expenses incurred in the defense of your title. Any money paid by the company will NOT reduce the amount of your insurance.
When is a Title Defective?
There are often instances when individuals or entities come out of the woodwork following your closing and argue that they have rights in the real estate that you purchased. Common defects in title include fraud, human error, improper deeds, improper wills, liens against your property and claims to ownership. These are problems that are not discoverable in a routine title search. These problems occur more often than you would think, and if it ever happens to you, you don’t want to be caught without a title insurance policy.
Who is Covered by Title Insurance?
When you purchase a house, townhouse or condo in New York State, your lender will require you to buy title insurance on their behalf. This is called a “lender policy”. The lender policy that you will be required to purchase will cover the outstanding balance on the mortgage for the lender, but it will not protect you. Buyers are encouraged to purchase their own title insurance policy. This policy is called an “owners policy”. An owners policy will provide the maximum protection if there is ever a claim against your home.
The protection you purchase at closing will continue for as long as you own that property. Once you transfer or convey your interest in the property your policy will expire and the purchaser will be required to obtain a new policy.
How Much Does it Cost?
You purchase title insurance by paying a one-time premium at the closing of title. In New York State, the Title Insurance Rate Service Association, Inc. rate manual defines how to determine your amount of insurance. Depending on what your mortgage amount is, your premium will be calculated by multiplying a standard rate per thousand.
If you have any questions about title insurance, please contact us at Kanen Law.