Title insurance is a specialized type of insurance that provides protection against financial loss due to defects in a property’s title. A property title is a legal document that establishes ownership rights, and any issues related to it can lead to unexpected financial burdens and even legal battles.
Imagine this scenario: You’ve purchased a beautiful home that you believe is fully yours, only to discover later that there’s a long-lost heir claiming a stake in the property. Or worse, there’s an unpaid lien from a previous owner that now your responsibility.
Title insurance acts as a safeguard against these types of unexpected surprises. It not only provides financial protection but also covers the legal costs associated with defending your ownership rights.
There are two types of title insurance policies, and the home buyer is generally responsible for paying for both policies.
Lender’s Policy: Protects the lender’s interest in the property. The amount of insurance coverage is usually the loan amount, and the amount of coverage declines as the loan amount is reduced by mortgage payments.
Owner’s policy: Protects the property owner up to the full original sales price of the property. Unlike mortgage policies, this policy’s amount of coverage does not decline over time. An optional market value endorsement can be purchased with the owner’s policy to keep pace with increases in a property’s value over time. In the event of a claim, the full market value of the property would be recoverable.
Obtaining title insurance is an integral part of the real estate transaction process. Here’s a quick overview of how it works:
Title Search – Before issuing a title insurance policy, a thorough title search is conducted to uncover any potential issues. This involves examining public records, deeds, wills, and other relevant documents to ensure a clear title.
Underwriting – Based on the results of the title search, the title insurance company assesses the risk associated with issuing a policy. If the property’s title is clear, a policy is issued.
Closing – During the closing process, you’ll receive your title insurance policy, and it becomes effective once the property is officially transferred to you.
In New York, title insurers must be licensed. Policy rates and rules are subject to approval by the NYS Department of Financial Services.