There are a number of major title insurance companies in the country and a few smaller ones, and I can apply to them for a title policy, which is a one-time insurance policy when you purchase real estate, to insure that the title on the property is clear. The title company will run a number of searches, including an owner’s search, a judgment search, a mortgage search and a tax search, as well as a few other ancillary searches like housing and building search, bankruptcy search and patriot searches, all of which are usually required if you are getting a loan.
After the title searches, the title report will come back after the title is abstracted by the title company with what are called exceptions to title that have to be cleared. Some are easy, as easy as signing an affidavit, but others are more complicated, such as proving there are no estate taxes due.
Once all those title exceptions are cleared, the title company will clear the file for closing and issue an owner’s policy of title insurance at the closing. This ensures the owner that they have good, clean title and if, in the future, someone knocks on their door and serves them papers claiming an interest in the property and plan to sue, the owner can call their attorney, who will call the title insurance company, who will hire a lawyer to defend the case and in the event that they lose, they pay the claim and you get to keep the house.
The title insurance company performs other services, such as running ancillary searches, and sending a title closer to the table to facilitate the closing. The title closer is an important part of the transaction here in New York
Why Title Insurance is Essential?
Most people in New York buy title insurance when they close and that’s always a good idea. There are occasionally breaks in the chain of title, such as when a house is transferred between family members. I recently got a deal in which my client took title from her sister who took title from their parents 20 or 30 years earlier; the parents were dead and the father had a pension loan from his union.
That loan had been paid off, but with all of these family transfers, no one ever bothered to clear title on the old loan. Then my client, who had owned the house for about 10 years, wanted to sell, so we were trying to clear the title, and we saw this pension loan that was paid off in the 1980s; the pension fund was out of business. We had to bring a lawsuit against the pension fund to procure an order from the court directing the county clerk to discharge the mortgage.
We basically had to do a quiet title action which took about 6 months. The title company let us close over the mortgage as it was a small mortgage; about $20-30,000 however they required my client, the Seller, to post a $45,000 to an escrow until I cleaned it up. With intra-family transfers, a lot of people will flip titles without clearing them, and they don’t realize they’re actually voiding their title policy. When you buy a title policy, it’s insuring the people whose names are on the policy. If for example someone decides to flip the house to his wife to avoid a lien the title insurance policy may be voided depending on the facts and circumstances of the transfer and there is no protection in the case of a suit.
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