YOUR HOME; The Need For Title Insurance
By JAY ROMANO
Published: July 16, 2000
AT almost every real estate closing there comes a time when the lawyer for the buyer tells his client how much money it will cost for the title search and title insurance premium on the property being purchased.
And frequently, real estate lawyers say, the response from the buyer is something like, ''If I'm paying a somebody good money to conduct a title search, then why do I need title insurance in the first place?''
''That's a legitimate question,'' said Peter Brav, president of Good Deed Abstract Corporation, a title insurance agency based in Valley Stream, Long Island. ''I guess the answer is: If we lived in a perfect world, there would be little need for title insurance because every search would be perfect and every title would be clear. Unfortunately, we don't live in perfect world.''
Mr. Brav explained that title insurance provides a purchaser of real property -- and, usually, the purchaser's mortgage lender -- with protection against any of the many problems that can be associated with the transfer of real estate. In other words, he said, once a purchaser buys title insurance, the insurance company agrees -- in exchange for a one-time-only premium -- to insure the owner's title to the property for an amount typically equal to the purchase price.
The costs vary because they are regulated by individual states. In New York, a title insurance policy on a $250,000 home, including the title search, would be approximately $1,600. In Connecticut, such a policy would cost about $1,100; in New Jersey, about $1,300.
The simplest example of how a title insurance policy might be used to protect a purchaser, he said, would be a case in which there is a mortgage on the property that was inadvertently missed by the title searcher. If that mortgage is not paid off at closing, Mr. Brav said, the mortgage would remain as a lien on the property, making it possible for the person who held the mortgage to foreclose if the mortgage was not paid in full -- even though the property has a new owner.
When there is title insurance, he said, the title insurance company would be responsible for paying off the outstanding balance on the mortgage, thereby removing the lien.
And while that might appear reasonable -- given that it was the title company's title searcher who missed the mortgage in the first place -- such glitches are not always the title searcher's fault.
''There are many ways for problems with title to arise,'' Mr. Brav said. For example, he said, errors can arise when a document such as a mortgage or deed is lost, misfiled or incorrectly indexed in the county recording office. Even simple delays in the recording process can cause problems.
''There are some counties in New York that have notable delays,'' he said, adding that in some areas -- Manhattan, Westchester, Queens and Suffolk among them -- it can take four weeks or more for a mortgage or lien on a property to be entered in the public records.
As a result, Mr. Brav said, it is possible that in some counties there may be recent mortgages or liens that have not been recorded as of the date of closing -- a problem that can cause a major headache for an unsuspecting purchaser who does not have title insurance, because such liens and
mortgages, if not satisfied at the closing, can become the responsibility of the new owner.
It is also possible, Mr. Brav said, for the lawyer handling the closing to send an improperly executed document off for recording -- an error that can easily be missed by recording clerks in a busy office.
And while such an error might not cause an immediate problem for a purchaser, he said, it can cause costly problems years down the road when some future title searcher discovers that title to the property had never been properly transferred in the first place.
In fact, Mr. Brav said, errors that cause title problems are not always inadvertent or even innocent.
''I can tell you that one of the most common reasons for claims against title companies is fraud,'' he said, explaining that title insurance even protects an innocent purchaser who may have the misfortune of ending up with a forged or fraudulent deed.
Timothy Gordon, an assistant vice president in the Stamford, Conn. office of Commonwealth Land Title Insurance Company, agreed. ''Just because a buyer gets a deed to a property doesn't mean that the deed was valid,'' Mr. Gordon said, explaining that since a deed is just a document by which the right of ownership in land is transferred, it can only transfer ownership rights possessed by the person who made the deed.
In other words, he said, a person who forges another person's name to a deed -- and then transfers that deed to someone else -- is not transferring legal ownership of the property, because the forger never owned it in the first place.
If that happens, Mr. Gordon said, and a person who claims to be the true owner then sues the person who bought the property from the forger, the title insurance company will typically provide a legal defense and pay all related fees and costs of the lawsuit. If the claim proves valid, he said, the title company would be responsible for reimbursing the new owner for all losses incurred, up to the face amount of the policy.
''In addition, Mr. Gordon said, ''a deed doesn't do away with the rights that others have in the property, and it won't show you liens or claims that may be outstanding against the title.''
In fact, he said, there are some hidden hazards that even the most diligent title search may not reveal. For example, he said, a previous owner could have incorrectly stated his marital status, resulting in a possible claim by his legal spouse. Other hidden hazards can be the result of defective deeds; deeds executed by people declared mentally incompetent or those who have invalid powers of attorney; and confusion regarding ownership because of similar or identical names and clerical errors in the records.
William Selsberg, a Stamford, Conn. real estate lawyer, said that he has handled several closings in which clients ended up with liens on their property for taxes owed by a previous owner that were missed by the title searcher.
''Mistakes happen,'' he said, adding, however, that since the clients had title insurance coverage, the liens were paid by the title company. ''When clients ask me if they really need title insurance, I tell them: 'Look, I'm a lawyer and I know how to search a title, but when I bought my own house, I made sure that I got coverage. I know what can happen.''Source: www.nytimes.com