FAQ's about Title Insurance

Purchasing a new home is an exciting process, and whether you are building your dream house or buying a fixer-upper, there are many important decisions that need to be made in order to protect your most important investment. One of these is whether to purchase an owner's title policy for yourself.

Sneeringer Monahan Provost Redgrave has created this FAQ to help you understand title insurance, to answer common questions about title insurance, and to help you make an informed decision about choosing this important coverage.

What is Title Insurance?

What is a "Hidden Defect or Hazard" in Title?

Why do I need a separate policy if I am already buying title insurance for the bank?

You wouldn't be insuring the mortgage if title wasn't clean, right?

Does a title search, abstract, or lawyer's title opinion offer me any protection?

Doesn't my sale contract, which specifies "marketable" title, cover me?

Should I buy an owner's policy now even if I have no equity in the property?

What if my seller has a fee title policy already? Does that protect me?

What if the property I'm buying has been held in the same family for ages?

Doesn't everybody need title insurance, then?

Can I shop Rates and Quality?

What is Title Insurance?
Before you buy any property, you want to make sure that the seller has clean title. Usually, your attorney or your bank's attorney will order a title search. This is a detailed examination of historical public records, including deeds, court records, property and name indexes, and other public documents. It is done to verify the seller's right to transfer ownership, and to uncover any and all title defects in or encumbrances on the property, such as unpaid taxes or liens, outstanding mortgages, judgements, utility or other easements, and any other restrictions limiting the owner's use or enjoyment of the land. Prior to closing, the title agent will notify parties of the steps that need to be taken to ensure title is clear, such as securing satisfactions to be recorded, collecting funds to pay off judgments, taxes, liens, warrants, and mortgages, correcting any flaws in the deed, and taking any other necessary measures. At the closing, the title company will further proofread all documents to be recorded, ensure the appropriate funds have been collected for such recording, and undertake to record all necessary documents.

In addition to searching title, correcting known defects, and recording the documents, the title agency offers title insurance to protect the policy buyer from any loss suffered due to hidden defects or hazards in title. These include any defects or encumbrances that could not have been known or found through even the most thorough and professional title search, but nevertheless constitute a valid claim on all or part of the property. Defending one's claim to ownership against such hidden hazards, or taking the steps necessary to correct such title defects, is very expensive, starting at a few thousand dollars, and possibly costing more than the property did! Moreover, there is no guarantee that even a vigorous defense will win in court, exposing the owner to the devastating prospect of losing the entire property. But a title insurance policy holder need not worry; in the event of a challenge to title, the title company undertakes the legal defense of title at no expense to the policyholder; and should title fail, the title company will reimburse the policy holder up to the full value of the policy.

There are two types of title insurance policies: lender's (mortgage) policies, and owner's (fee) policies. A mortgage policy protects the lender 's equity in the property, which is usually less than full value. It declines in value as the loan amount is reduced. Most lenders in New York State require the buyer to purchase a lender's title insurance policy. An owner's policy protects the property owner up to the full sale price of the property. Unlike mortgage policies, owner's policies do not decline in value over time. A separate market value rider can also be purchased with the owner's policy, to keep pace with inflation and insure to the full market value of the property as it rises over time.

What is a "Hidden Defect or Hazard" in Title?
Title to a property can fail due to many types of hidden hazards. These cannot be known or found through regular searching, and are only discovered if someone brings forward a claim. Among the most common ones are the following: 

• Errors or delays in recording/indexing at the county clerk's office, resulting in:
  • liens against your property that are not yet recorded
  • open taxes that have been misreported as paid
  • open mortgages that were incorrectly indexed
• Fraud on the part of some seller earlier in the chain of title
• Forgery, such as of a spouse's signature, a power of attorney, or a death certificate
• A power of attorney used after a death, when it is void
• A sale of property by an owner with only a partial interest in the property
• An unrecorded private mortgage or lien brought forward by the lien holder
• A challenge with respect to the mental competence or legal age of a seller in the chain of title
• Sudden appearance of unknown heirs of previous owners (people presumed dead, illegitimate children, stepchildren)
• Defective deeds that neglected to show reservations of life estates, easements, restrictions, exceptions from previous deeds * Confusion, errors or fraud in the case of similar names or family members (such as Jr., III, Sr., etc.)
• A technicality or other occurrence which can reverse or void a judgment or levy upon which title rests
• Discovery of a will of a person presumed to have died intestate

Unfortunately, title insurance cannot eliminate these and other title defects; but it assures you of the best possible defense at no cost to you should your ownership ever be challenged. And if the defense were to ultimately fail, it reimburses you up to the face value of your policy. Moreover, a fee title policy premium is paid just once, and covers you forever, not just for the duration of your ownership of the property. If a title claim were to be filed after you sold the property, and the buyer took action against you, you or your heirs would still be covered. For these reasons, fee title insurance is perhaps among the least expensive, yet most important, insurance you can buy.

Why do I need a separate policy if I am already buying title insurance for the bank?
The bank policy does not offer you any protection should a title claim arise. It only covers the bank, up to the amount of the mortgage, which is reduced as the loan is paid off. If the bank were to file a title insurance claim due to a challenge to your ownership, you may benefit from the free defense mounted on the bank's behalf; however:

• Not all title claims rise to the level of the bank's concern. A dispute with a neighbor, or the discovery of a lien or an easement, may not cause the bank to file a claim, and you would be responsible for your own title defense or for correcting title prior to selling or refinancing the property; and
• If the defense of the bank's claim were to fail, the title company would reimburse the bank's mortgage; but the title company could then take over the note. In reality, you could lose your property AND still have to make payments on it

Only an owner's policy guarantees that you will suffer no financial loss as the result of a title claim.

You wouldn't be insuring the mortgage if title wasn't clean, right?
The title company can only bring to the closing what it knows about the title circumstances of your property. True, if there were serious known title defects, we could not insure the property, and your attorney would probably advise you not to purchase it. However, the bank wants title insurance to protect itself in the case of hidden defects, noted above. Shouldn't you want the same?

Does a title search, abstract, or lawyer's title opinion offer me any protection?
If you have any of these, you do have some limited protection against loss due only to the oversight or mistake(s) of the provider. But these would provide no protection against hidden defects or hazards. More importantly,

• Your chance of recovery in the face of loss would be dependent upon the provider's ability to pay the damages

Doesn't my sale contract, which specifies "marketable" title, cover me?
In theory, it should; but in reality, you would still need to initiate expensive legal action against the seller; and your recovery would be subject to the seller's ability to pay damages.

Should I buy an owner's policy now even if I have no equity in the property?
Your title policy reimburses your equity, up to the face value of the policy. However, even with no equity, your policy covers your free defense of title, and should title fail, your note could not be called by the title company (see first question, above). Also,

• When you purchase a fee policy simultaneously with the mortgage policy, you get a very substantial discount

What if my seller has a fee title policy already? Does that protect me?
No. The previous owner could have encumbered the property many times since the policy was issued. Additionally,

• Should a title defect arise that pre-dates your ownership, you would have to take action against the seller, and the title company would be obligated to represent the defendant in your action

What if the property I'm buying has been held in the same family for ages?
A long-held property is no guarantee of clean title. In fact, some of the most tangled title claims arise from split interests, unrecorded private mortgages, discoveries of wills years after a sale, frauds and forgeries stemming from divorces and other family arguments.

Doesn't everybody need title insurance, then?
It is important to understand that choosing not to buy a title policy makes the buyer a self-insurer. This may be a legitimate choice for people who can afford to defend an action in court, and possibly to risk losing their home and their land without suffering a catastrophic financial setback. Most people, though, should have title insurance.

Can I shop Rates and Quality?
In New York State, premium rates for mortgage policies and owner's policies are set by the state, and therefore are the same with every provider, whether offered by an attorney, a small independent title office, or a large title agency. However, there are very large differences in the financial backing underwriting your insurance policy, and in the strength of the legal defense that can be mounted on your behalf. If you need to have a claim defended, you want the best title defense; and should you lose, you want your insurance provider to compensate your loss.

Sneeringer, Monahan, Provost Redgrave Title Agency, Inc., is the area's largest and most respected title agency, and for good reason! We have been in this business over 50 years. Our insurance underwriters are the industry's giants – they have the best legal departments, with the expertise and knowledge focused exclusively on title law to successfully defend your claim. But should the best title defense ultimately fail, they also have the financial assets to compensate you for your loss. Why do we have access to these underwriters? Because Sneeringer Monahan Provost Redgrave provides the best title services, the best policy turnaround time, and the best customer service in the area. With four area offices serving twelve New York counties, we are sure to be able to provide you with the title insurance you need. We hope this information has helped to explain what title insurance is all about.