Understanding Title Insurance for all New Home Owners.
Home Purchasers often ask about title insurance and why they need it. They ask if the builder has purchased the property and did a title search, wouldn’t that be good enough? Usually it is, but there are title problems that can come up. Indian land claims are a big problem in the Western part of New York State. I once knew of a situation when there was a stone wall on the property that divided the land and was the accepted property line but the surveyor missed it because it was under snow and conveyed land to the new purchaser that wasn’t his. This became a title dispute for the new purchaser and the neighbor when they both owned the same land in their deeds. It is then up to the title company to do whatever they have to do to correct the situation and to pay all legal costs.
Mortgage lenders require title insurance to insure that their interest in the property that you are purchasing is protected up to the amount of your mortgage. This insurance is purchased in increments of the amount that you are borrowing. If a long lost relative of the property’s original owners shows up and places a claim of ownership on the land, the bank will have insurance to recover their investment. If you then have an additional amount that you are investing, (the property costs $200,000 and you are borrowing $150,000) your $50,000 investment is not covered with the insurance that you are required to pay at closing-the bank would be and you would not be.
At your closing settlement table, the title company representative will ask you if you want “Owners Insurance”. This protects your $50,000. If you purchase Owners Insurance and there is a claim against the property, the title insurance company would pay all legal costs and defend you and the bank to the $200,000 original cost of the home-you and the bank are now covered.. This is a one time fee and they will allow you up to 10 days after the closing to make a final decision about purchasing it. After the closing, you will be so busy moving and unpacking that you probably will not remember to consider it again, so if you are interested, the closing table is where it should be purchased.
You may ask your attorney to give you an opinion about whether you should purchase this insurance but he will, 99% of the time, decline to venture an opinion in case there is something that should arise that he couldn’t possibly know about. If you decide not to purchase an Owner’s Policy, the title insurance representative will ask you to sign a statement that you were offered owner’s title insurance but that you refused. They want to have documentation of your decision in their file.
If you agree to pay the one time fee for an owners fee policy, they will then ask you if you want a “market value rider”. This is relatively inexpensive and again is a one time fee. This will cover any increase in value that your home may experience while you own it, in the event of a challenge on the clear and marketable title of the property. For instance, if your $200,000 home is worth $300,000 two years after you bought it, and there is a challenge to the title of the property, the title insurance company will now defend you and cover the entire $300,000 that the home is now worth.
These are important decisions that arise at the time of closing that usually are not discussed prior to the day of closing. Your attorney can go over this procedure with you prior to closing so you have some time to think about it and are prepared in case you want to purchase additional title insurance.