Legal Matters is a regular column intended to address general legal concerns. Since every client walks in the door with a different set of circumstances, you should not rely on this column to provide specific legal advice. If you are in need of specific legal advice, please consult with an attorney; he or she will provide advice that is unique and tailored to your legal needs.
A title insurance policy, like most insurance, is additional protection against the unknown and unforeseen.
Title policies are purchased by a person having a significant financial interest in a piece of real property — most commonly, the buyer and the lender. Most banks, as the lenders, require that the buyer purchase what’s called a “lender’s policy” to protect the bank’s interest in the property. The buyer then has the option of purchasing an “owner’s policy” to protect her interest in the property.
Title claims are rare but generally result from the failure to record some document — a deed, mortgage, or easement agreement, for example — in the chain of title. A policy may also cover a dispute over the property’s boundary lines.
Policies don’t usually cover issues that are known or otherwise reflected in the title search, but they may cover minor defects such as a slight encroachment of a shed on an adjoining property. Most known concerns will be resolved when the buyer’s attorney reviews the title search.
The cost of these policies is not exorbitant because the risk of a claim is relatively low. Policy pricing is set by New York State statute and is based on the value of the policyholder’s interest in the property. Thus, the lender’s policy is issued to protect the dollar amount of the mortgage, and the owner’s policy is issued to protect their initial investment in the property — the purchase price. An owner may also choose to purchase a market value rider, which covers any appreciation in the property.
Although it is in an owner’s best legal interest to obtain a title policy, she must also weigh the cost and benefits of such a policy.