Purchasers of commercial and residential real estate in New York are generally required by their lenders to purchase title insurance as a condition of the mortgage loan. In this post we’ll give a short summary of what title insurance does — and does not — do for purchasers.
Title insurance protects owners and lenders from potential defects in title that could lead to claims against the owner’s property rights. There are two kinds of title insurance policies: the lender’s policy, which protects the lender’s security interest, and the owner’s policy, which protects the owner’s equity interest.
A title insurance company will perform a title search before issuing the policy. This entails a search of public records regarding the property’s ownership history. The company will look for potential title issues such as tax liens, easement and access issues and fraudulent or improperly recorded deeds. Minor defects can usually be cleared up before the real estate closing. If the company finds a major defect they will list it as an exception on the policy, meaning they won’t cover the owner or lender if the issue later affects the owner’s property rights. If the company lists an exception on the policy, the buyer may choose to rethink whether they want to go through with the deal.
Title insurance companies are experienced at conducting title searches, but there are a number of title issues that can escape even the eye of an experienced reviewer. Title insurance will cover the owner and lender against any defects that are not discovered in the title search but arise later and lead to a claim against the owner’s property rights.
Real estate transactions in New York can be complicated and it is important for sellers and purchasers to understand all the legal aspects of the deal. Buyers and sellers should seek the advice they need to avoid unwelcome pitfalls.
Source: FindLaw, “Do You Need Title Insurance?” accessed Oct. 5, 2015