Title insurance is a form of indemnity insurance that insures against financial loss from defects in title to real property (such as old mortgages, judgments, liens, incorrect legal descriptions, etc) and from the invalidity or unenforceability of mortgage loans. Title insurance protects against: another person claiming an ownership interest, improperly recorded documents, fraud, forgery, liens, encroachments, easements and other items that are specified in the insurance policy.
If you obtain a mortgage loan to purchase your property, your lender will require a loan policy of title insurance to insure the lender’s interest in your property until your loan is paid in full. An owner’s policy of title insurance insures your ownership rights to the property. Even though you’ll pay for this policy only once, your coverage will last as long as you own your home.
Over the years I have encountered several situations in which clients said title insurance was the best purchase they made. Here are some “war stories”:
-A client was purchasing a property from a seller who purchased it from a bank foreclosure for $9,000. The seller had obtained a “free” title insurance policy from the foreclosing bank. However, despite receiving a policy with no defects indicated there was a judgment against a prior owner for $216,000! The clean policy to the seller never should have been issued. We eventually were able to have the judgment creditor release the lien agains the property and issue an actual clean policy of title insurance to the property. The client will never have to worry about defending her title due to that defect.
-A client purchased a property from an LLC. In completing the search it was discovered that the seller had obtain the property from another party, which upon further examination had fraudulently obtained title to the property by drafting a bogus deed from a person who had died to their entity.
The premium rates for title insurance are set by New York State statute and are based on the purchase price of the property and the loan amount. For a relatively low one time cost, it can provide extraordinary benefits should claims associated with the property arise during your ownership or upon selling your property.