Title Insurance: What is it Good For?
If you’re in the process of purchasing a home or you’ve done any research into buying a home in New York, you’ve likely heard about title searches. A title search is an important part of the home-buying process. It give assurance a home is free of encumbrances and liens prior to closing, so buyers aren’t forced to pay for something that occurred long before the home was theirs.
Unfortunately, title searches sometimes fail to bring up all of the financial and legal issues tied to a home, which is why title insurance exists. Title insurance provides your mortgage lender, and you, with protection against any of the problems that could be associated with the transfer of the property. It requires a one-time premium paid to insure the owner’s title to the property, and covers you for as long as you own the property.
How Does a Title Insurance Policy Protect You?
Title insurance protects you from the unexpected. Most commonly, if you purchase a home that already had an unpaid mortgage that was inadvertently missed by the title searcher, the mortgage remains a lien against the property, which means you are responsible for that mortgage and could face foreclosure, even though you had nothing to do with that transaction and you are a new owner with a different mortgage. With title insurance, the insurance company is responsible for paying off that old, unpaid mortgage and removing the lien.
Though it might seem far-fetched that something as well-documented as a mortgage could be missed in a title search, it’s more common than most people realize. Errors arise when mortgages and other documents related to a home are lost, misfiled, or indexed incorrectly in the county recording office. Issues regarding fences, adverse possession, legal use of a property, unpaid taxes, judgments and liens can also be missed—making title insurance protection critical. Delays can also play a role and many of New York’s larger counties are known for their delays, making title insurance essential for New York State homebuyers.
If you’re fretting over the cost of title insurance, it’s important to consider what it costs in comparison to not having it. In a 2011 New York Times article, First American Title Insurance Company estimated title insurance on a home with a $240,000 mortgage would be under $1200. Compare that to the hundreds of thousands of dollars you’d be on the hook for if a title search missed a previous mortgage on the home.
In addition to the mistakes and oversight that can happen, fraud is also an issue. Title insurance also protects against forged or fraudulent deeds. Should you purchase a home from someone who claimed to be the owner but had actually forged proof of ownership, the title insurance company would pay the associated legal fees and be responsible for reimbursing you for any loss.
Other issues title insurance provides protection for include:
- Misreported marital status, resulting in a claim by a spouse
- Defective deeds
- Deeds executed by people declared mentally incompetent
- Deeds executed by people with invalid powers of attorney
- Confusion about ownership due to owner’s names
- Legal issues created by the death of an owner and related estate issues, including taxes
- Clerical errors
- Unpaid property taxes
Title insurance is one of the most important purchases you’ll make related to your home. If you would like to know more or you need assistance with the purchase of a home in New York, contact the Law Offices of Elan Wurtzel by calling 516.822.7866.