What Is Title Insurance in New York and Do You Actually Need It?

Title insurance is one of those transaction costs that buyers pay without fully understanding what they’re buying. It appears on the closing statement as a line item – often several hundred to over a thousand dollars – and most buyers accept it without questioning what it covers or why it exists.

Here is a clear explanation of what title insurance actually is, what it protects against, and whether it’s worth what it costs.

What Title Insurance Covers

Title insurance protects the policy holder against financial losses arising from defects in the title to a property – problems with the legal ownership chain that could affect your right to own and use the property after you purchase it.

The title search conducted before closing reviews public records to identify known issues. What it cannot reliably uncover are defects that exist in the records but were missed, or that existed before the records were created or properly indexed. Title insurance covers you if those undiscovered issues surface after closing.

Examples of what title insurance can cover:

Undiscovered liens. A contractor who did work on the property and was never paid may have recorded a mechanic’s lien that the title search missed. An unpaid property tax assessment that wasn’t properly indexed in public records. A judgment against a prior owner that didn’t surface in the search.

Forged or fraudulent prior documents. If a deed in the property’s chain of title was forged, the person who conveyed the property may not have had the right to do so – and your claim to the property traces back to a fraudulent document. Title insurance covers your defense costs and any resulting loss.

Unknown heirs. A prior owner died, and an heir whose existence was unknown at the time of the estate sale comes forward claiming an interest in the property.

Survey issues. Encroachments, boundary disputes, or rights of way that a survey would have revealed but weren’t properly disclosed.

Errors in public records. Clerical mistakes in recorded documents that affect the title chain.

Two Types: Lender’s Policy vs. Owner’s Policy

Lender’s title insurance is required by virtually every mortgage lender as a condition of the loan. It protects the lender’s interest – not yours – against title defects up to the loan amount. If something goes wrong with the title, the lender is protected; you may still have a problem.

Owner’s title insurance protects your interest – your full ownership stake – against the same risks. In New York, the cost of the owner’s policy is typically paid by the buyer and is based on the purchase price.

The lender’s policy is mandatory if you’re financing. The owner’s policy is technically optional – but choosing to skip it is accepting personal exposure to risks that the policy covers for a one-time premium. Given the cost of a policy relative to the potential exposure, most advisors recommend purchasing it.

The Cost in New York

In New York, title insurance premiums are regulated by the state – they are set by law and do not vary significantly between title companies. The premium is paid once at closing and provides coverage for as long as you own the property (and, for some claims, after you sell it). There are no ongoing premiums.

The Exception: Cash Purchases

Cash buyers are not required to purchase lender’s title insurance (there’s no lender). But cash buyers have an even stronger argument for purchasing an owner’s policy, because there’s no lender’s policy providing even partial protection in the event of a title problem.

I coordinate the title process for every transaction I’m involved in and make sure buyers understand what they’re purchasing and why. Call me at (321) 447-4259 or visit movewithricky.com.

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Rakesh (Ricky) Khanna | Licensed Real Estate Salesperson
Better Homes and Gardens Real Estate Realty Connect
Call or text: (321) 447-4259 | movewithricky.com