You may have heard of the term "Title Insurance", but what exactly is it? NYC attorney Keith A. Schuman of Schuman & Associates LLC sheds some light on the term.
Title Insurance provides the Purchaser of real property with protection against financial loss if a defect is found in the title to property after closing. When a condominium unit or single-family residence is purchased, the Purchaser should receive full and unencumbered legal ownership (title) of the property. On occasion, there may exist a mistake in a prior deed in the chain of ownership, or a mortgage or other lien that may give a third party a valid legal claim against the property. Title insurance provides a safety net around the property by protecting the Purchaser against, among other things, the following hidden risks which may not be discovered in a routine title search:
1. Errors: incorrect information contained in deeds, mortgages, or other public records.
2. Liens: claims against the property or the seller that become the new owner’s responsibility after the sale, such as unpaid mortgages, water and sewer charges, real estate taxes and bills owed to contractors or other creditors.
3. Claims to Ownership: such as a claim to a marital interest in the property by the spouse of a former owner or by the child of a former owner who was not mentioned in his or her parent’s will.
4. Invalid Deeds: for example, a transfer by a previous seller who did not actually own the property.
The Title Search or Title Report is the first step in obtaining title insurance. It is a detailed examination of the historical records of the property that includes prior deeds, tax records and civil and probate court records. The purpose of the title search is to verify the seller’s right to transfer ownership of the property, to discover any claims, errors, assessments, debts, or other burdens or restrictions on the property. Based on the results of the title search, the title insurance company usually issues a title commitment (also known as a binder) that includes the following:
1. A summary of the condition of the title, including title defects and liens
2. Conditions to be met in order for the title insurance company to insure the proposed transaction, and
3. An Agreement to issue a title insurance policy upon payment of the one-time premium by the Purchaser.
At the closing of title, ownership of the property is transferred, the Purchaser pays a one-time title insurance premium, the insurance policy is issued, and title coverage begins to protect the Purchaser for as long as the Purchaser owns the property.
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