Should I get Title Insurance

 

We’re going to have a conversation about Title Insurance in New York City.  That conversation where you say to yourself: “Should I get Title Insurance? ” Grab a cup of coffee and hang on to the edge of your seat.

 

First, the fundamentals-

What does title insurance do?

Title insurance is a one-time paid premium at a New York real estate closing that basically protects you from any issues that may be hidden within the history of your property previous to your ownership. Any unclear transfers of property can void the entire line of ownership all together. Without title insurance, you could potentially lose a lot of money protecting your ownership of the property. Title problems can include forged documents, unpaid real estate taxes, improper foreclosures, recording errors – the list is actually pretty long.

I’ll give you an example – Lets say the previous owner never completely paid off the liens on the property, that could end up being your responsibility. If you have title insurance, you’re likely covered. The insurance company will pay for any outstanding baggage your property came with (at least up to the face amount of your policy).

Title Insurance in New York is a strange concept but in the end it’s just like any other insurance you would obtain (car, health, life, pet (miss you, Snuggles)) except it protects you from issues that present themselves from the past rather than issues that may present themselves in the future.

 

What is a title search?

Title searches begin after the title company is contacted, which happens after both sides sign the Contract of Sale in New York.  What a title search does is exactly what it sounds like: a researcher pulls up pretty much every file they can find about a property (and the owners and purchasers) and makes sure that there aren’t any liens, claims, tax debts, or forgeries associated with it. Insurance companies will conduct an in-depth search because if they miss anything, they’re going to end up covering it for you in the future. If they do find any issues, the company will work extensively with whatever necessary parties to clear them up.

Why are people so skeptical of TitIe Insurance?

That depends on whom you’re asking. Some people are convinced that owner’s title insurance is a rip-off because title issues don’t necessarily pop up often so the insurance companies make a huge profit compared to the number of claims they actually file (and pay out).  While that’s true, it also makes sense – title insurance companies are not joking when they examine the title during the title search because the company will have to cover whatever they overlook. Title Insurance companies would rather not deal with issues later when they could become more expensive to resolve.

A lot of the same questions come up when people doubt the necessity of title insurance: If title insurance companies do thorough searches on the history of title ownership, why would I need insurance?

When a title search is conducted, it’s sometimes hard to determine whether a signature on a document was forged (forgery is the number one reason people end up filing claims) or if a mortgage wasn’t fully resolved sometime in the past. These discrepancies are often overlooked. If you don’t have owner’s title insurance, these problems can creep up on you later and cost you a ton of time and money to deal with (because you’d have to litigate to quiet title, etc.)

 

Disapproval of NY Title Insurers

In New York, title insurers are being intensely scrutinized. Title insurance in NY isn’t cheap and people are starting to wonder if they’re unknowingly paying for the alleged kickbacks provided to lawyers and brokers in return for referrals for insurers. The State Department of Financial Services (NYDFS) over the years has been collecting data on the insurance industry in order to analyze and regulate it better.

Speaking of regulation, the proposed NY ’14-‘15 State Budget (which would take effect October 1, 2014) may modify the insurance industry. Some of the changes will include:

  • Insurance agents must be licensed
  • Commissions are only allowed between licensed title agents
  • Title insurance agent, title closer, and title insurance solicitor must be clearly separated
  •  Title insurance solicitors should only be connected with one agent at a time
  • Rebates to mortgagees, mortgage brokers and real estate brokers is completely prohibited

Governor Andrew Cuomo stated, “Title insurance fees would drop by an average of 20% to 60% under reforms proposed in the budget.” The various changes will be established in order to further protect the consumers of the insurance industry.

 

How much will Title Insurance cost me in New York?

We’ve previously discussed the huge closing costs associated with purchasing a condo/home in New York City.  Title insurance rates are regulated by the NYDFS so if you compare premiums across the New York industry, they’re going to stay relatively in the same range. Also, if you’re borrowing money you’re almost always going to have to pay for Lender’s insurance which is totally separate from Owner’s insurance. Lender’s insurance gives you a whopping 0% coverage, which is very nice of them. Thus, you’re going to want to buy both Lender’s and Owner’s insurance.

Lets say you’re purchasing a condo in New York City for 750K with an 80% loan (600K). Your premium will likely come out to about $3,800:

 

title insurance

Taken from First American Title Fee Calculator

That’s just one example. You can go to the above website and play around with the fee calculator to get an idea for different purchases. Naturally, the more expensive the property, the higher the price of title insurance will be. But you can look at it this way too: the pricier the property, the more money you can lose from past-undetected title errors. You’re better off being insured.

 

Is buying Title Insurance in New York City worth it?

Despite all of the controversy behind title insurers and their companies, Title Insurance is still purchased in the vast majority of real estate transactions in New York City.  And in the near future, as we discussed above, the insurance industry will be more strictly regulated in order to prevent any dishonest charges being put onto consumers.

You could absolutely go your whole period of home ownership without running into any title issues but it’s up you as to whether you want to take that chance.  At the end of the day it’s about being comfortable and confident with your purchase. Title insurance is hard to imagine as absolutely necessary because it’s not protecting you from the future but from the past. However it’s undoubtedly one of those things that, when a title dilemma presents itself, you are really glad you paid for.

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