By Dan Wade, Esq.
We’re all familiar with auto insurance, health insurance and homeowner’s insurance, but what do you know about title insurance? Do you know if you’re covered?
Owning a home is likely the biggest investment you’re ever going to make. And like most homeowners, the “American Dream” comes with a mortgage attached. It’s safe to bet that as the mountainous stacks of papers were being shuffled around during your real estate closing, you may not even remember that you purchased title insurance for the lender.
Lenders require this to protect their security. It’s important to note that the title insurance you purchased for the lender, sometimes called a loan policy or mortgage policy, only covers losses incurred by the lender. It does not cover you. At the closing table, you would also have been offered an owner’s title policy. As a practice, I prefer to discuss any expenses like this with my clients prior to closing day. The decision of whether or not to purchase the owner’s title policy could have ramifications for you down the road should you decide to sell someday.
So, what does an owner’s policy of title insurance cover and why is it important?
An owner’s policy of title insurance will cover any loss you might suffer as a result of the condition of title to the property you own being something other than what was insured. The owner’s policy covers you up to the dollar amount you paid for the property.
Some of standard covered title risks include public record or clerical errors not previously discovered, forgery or lack of capacity or legal authority of a party somewhere in the history of the ownership of the property, unsettled mortgages or other liens of record not previously disclosed, lack of a right of access, recorded easements not previously disclosed, and deed not being joined/executed by all necessary parties, to name a few.
So, having something “pop up” 5, 10, 15 years from now when you try to sell your home could cause a devastating delay to your deal and cost you thousands of dollars in fees trying to correct an issue if you didn’t have an owner’s policy. With an owner’s policy, you would have the ability to make a claim and put the title insurance company and their attorneys to work correcting the issue. In some instances, the title insurance company insuring the buyers of your property may be able to seek indemnity from your title insurance company allowing the deal to proceed on schedule while they work behind the scenes to correct any title defects, saving you both time and money.
The good news is that in New York state an owner’s policy premium is a one-time fee, unlike auto, health, or homeowner’s insurance. You pay it once and you’re done. In addition, title insurance premiums are strictly governed by the state Department of Finance, so you’ll pay the same premium rate no matter which title insurance agent you purchase your policy from. No shopping around needed. The best part is that your owner’s policy will cover you for as long as you own the insured property.
I recommend to all of my clients that they purchase title insurance. As a one-time fee that provides peace of mind for as long as you own the property, it’s a worthy investment. And yes, title insurance is a four-letter word. But that four-letter word is “gold” because it’s worth its weight should you someday need it.