While title insurance may seem like extra paperwork and added costs, it is an essential element of any real estate transaction.
While title insurance may seem like extra paperwork and added costs, it is an essential element of any real estate transaction. Title insurance can help avoid costly legal issues by protecting buyers and mortgage lenders against defects in title during and after a transfer of property ownership.
Title Insurance 101
Every real estate transaction must have a clear title to ensure the property is free from liens and other “encumbrances”. This is true whether you are conducting a commercial or residential real estate transaction. Title insurance is a form of indemnity insurance that protects you from suffering financial loss due to issues with the title.
The first step of obtaining title insurance is a title search. In performing a title search, the title insurance company will investigate all of the recorded property transfers, tax liens, easements, and any other encumbrances affecting the subject property. The information is then used to create a title report.
Since title reports are not infallible, title insurance protects against any undiscovered title defects. If a defect in the title is discovered post-closing, and the title company should have disclosed it in its report, the title insurance company is generally responsible for covering any associated legal expenses and damages. A typical residential title insurance policy covers the following:
Ownership by another party
Incorrect signatures on documents
Forged or fraudulent documents
Flawed records
Restrictive covenants, i.e., unrecorded easements
Encumbrances or judgments against property, i.e., unresolved lawsuits and liens
Many buyers are not aware that title insurance is not available for the purchase of a co-op apartment, since this involves the purchase of corporate shares rather than actual real estate. Nevertheless, most title companies will provide a “Judgment and Lien Search Report” to help buyers learn whether there are any such encumbrances on the shares of a particular co-op unit. These reports are usually provided at a nominal cost as there is no insurance being offered.
Importance of Title Insurance for Commercial Transactions
Given their added complexity, title insurance is particularly important with respect to commercial real estate transactions. Various endorsements are available to protect purchasers and lenders from more than just title defects. For instance, endorsements can cover additional issues, such as zoning concerns and environmental issues.
While the policy should be tailored to the transaction, the American Bar Association recommends that commercial buyers obtain title insurance policies addressing the following:
Extended coverage;
A closing protection letter, with verification of issuance and continued validity;
Available and relevant endorsements, such as endorsements relating to
covenants;
survey issues;
minerals and subsurface substances;
loss determination;
taxes;
special use (for example, zoning);
special mechanic’s lien coverage;
project use;
unusual loan document issues (for example, shared appreciation, swaps, re-characterization); and
the standard ALTA 9.06 (Restrictions, Encroachments, Minerals-Loan Policy),
ALTA 9.2-06 (Covenants, Conditions, and Restrictions-Improved Land-Owner’s Policy), ALTA 28.2-06 (Encroachments-Boundaries and Easements-Described Improvements), and ALTA 35.2-06 (Minerals and Other Subsurface Substances- Described Improvements).
The ABA also recommends that commercial property buyers consider the financial depth and durability of the title insurer.
Types of Title Insurance
There are two main types of title insurance. Loan policies protect the mortgage lender’s investment should a title defect arise. Meanwhile, buyer’s policies protect the buyer of the property in the event there are problems with the title.
Mortgage lenders almost always require buyers to purchase a lender’s title insurance policy. The policies are distinct, meaning that property purchasers can’t rely on their lender’s title insurance policy. Accordingly, a lender’s policy and an owner’s policy are often both required to guarantee adequate protection for all parties. Finally, unlike other types of insurance, title insurance requires payment of a one-time premium, which is paid at closing.
Key Takeaway
Title insurance is invaluable in any real estate transaction as it protects lenders and buyers from financial loss due to defects in the title to the property. Without insurance in place, buyers may have to shoulder the financial burden of unpaid taxes, open building permits, contractors’ liens, and other title problems.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Bruce Feffer, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.
Does Your Homeowners Insurance Provide Adequate Coverage?
Your home is likely your greatest asset, which is why it is so important to adequately protect it. Homeowners insurance protects you from the financial costs of unforeseen losses, such as theft, fire, and natural disasters, by helping you rebuild and replace possessions that were lost While the definition of “adequate” coverage depends upon a […]
Understanding the Importance of a Non-Contingent Offer
Making a non-contingent offer can dramatically increase your chances of securing a real estate transaction, particularly in competitive markets like New York City. However, buyers should understand that waiving contingencies, including those related to financing, or appraisals, also comes with significant risks. Determining your best strategy requires careful analysis of the property, the market, and […]
Fred D. Zemel Appointed Chair of Strategic Planning at Scarinci & Hollenbeck, LLC
Business Transactional Attorney Zemel to Spearhead Strategic Initiatives for Continued Growth and Innovation Little Falls, NJ – February 21, 2025 – Scarinci & Hollenbeck, LLC is pleased to announce that Partner Fred D. Zemel has been named Chair of the firm’s Strategic Planning Committee. In this role, Mr. Zemel will lead the committee in identifying, […]
Novation Agreement Process: Step-by-Step Guide for Businesses
Big changes sometimes occur during the life cycle of a contract. Cancelling a contract outright can be bad for your reputation and your bottom line. Businesses need to know how to best address a change in circumstances, while also protecting their legal rights. One option is to transfer the “benefits and the burdens” of a […]
What Is a Trade Secret? Key Elements and Legal Protections Explained
What is a trade secret and why you you protect them? Technology has made trade secret theft even easier and more prevalent. In fact, businesses lose billions of dollars every year due to trade secret theft committed by employees, competitors, and even foreign governments. But what is a trade secret? And how do you protect […]
What Is Title Insurance? Safeguarding Against Title Defects
If you are considering the purchase of a property, you may wonder — what is title insurance, do I need it, and why do I need it? Even seasoned property owners may question if the added expense and extra paperwork is really necessary, especially considering that people and entities insured by title insurance make fewer […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Why Every Buyer of Real Estate Needs Title Insurance
Author: Bruce Feffer
While title insurance may seem like extra paperwork and added costs, it is an essential element of any real estate transaction.
While title insurance may seem like extra paperwork and added costs, it is an essential element of any real estate transaction. Title insurance can help avoid costly legal issues by protecting buyers and mortgage lenders against defects in title during and after a transfer of property ownership.
Title Insurance 101
Every real estate transaction must have a clear title to ensure the property is free from liens and other “encumbrances”. This is true whether you are conducting a commercial or residential real estate transaction. Title insurance is a form of indemnity insurance that protects you from suffering financial loss due to issues with the title.
The first step of obtaining title insurance is a title search. In performing a title search, the title insurance company will investigate all of the recorded property transfers, tax liens, easements, and any other encumbrances affecting the subject property. The information is then used to create a title report.
Since title reports are not infallible, title insurance protects against any undiscovered title defects. If a defect in the title is discovered post-closing, and the title company should have disclosed it in its report, the title insurance company is generally responsible for covering any associated legal expenses and damages. A typical residential title insurance policy covers the following:
Ownership by another party
Incorrect signatures on documents
Forged or fraudulent documents
Flawed records
Restrictive covenants, i.e., unrecorded easements
Encumbrances or judgments against property, i.e., unresolved lawsuits and liens
Many buyers are not aware that title insurance is not available for the purchase of a co-op apartment, since this involves the purchase of corporate shares rather than actual real estate. Nevertheless, most title companies will provide a “Judgment and Lien Search Report” to help buyers learn whether there are any such encumbrances on the shares of a particular co-op unit. These reports are usually provided at a nominal cost as there is no insurance being offered.
Importance of Title Insurance for Commercial Transactions
Given their added complexity, title insurance is particularly important with respect to commercial real estate transactions. Various endorsements are available to protect purchasers and lenders from more than just title defects. For instance, endorsements can cover additional issues, such as zoning concerns and environmental issues.
While the policy should be tailored to the transaction, the American Bar Association recommends that commercial buyers obtain title insurance policies addressing the following:
Extended coverage;
A closing protection letter, with verification of issuance and continued validity;
Available and relevant endorsements, such as endorsements relating to
covenants;
survey issues;
minerals and subsurface substances;
loss determination;
taxes;
special use (for example, zoning);
special mechanic’s lien coverage;
project use;
unusual loan document issues (for example, shared appreciation, swaps, re-characterization); and
the standard ALTA 9.06 (Restrictions, Encroachments, Minerals-Loan Policy),
ALTA 9.2-06 (Covenants, Conditions, and Restrictions-Improved Land-Owner’s Policy), ALTA 28.2-06 (Encroachments-Boundaries and Easements-Described Improvements), and ALTA 35.2-06 (Minerals and Other Subsurface Substances- Described Improvements).
The ABA also recommends that commercial property buyers consider the financial depth and durability of the title insurer.
Types of Title Insurance
There are two main types of title insurance. Loan policies protect the mortgage lender’s investment should a title defect arise. Meanwhile, buyer’s policies protect the buyer of the property in the event there are problems with the title.
Mortgage lenders almost always require buyers to purchase a lender’s title insurance policy. The policies are distinct, meaning that property purchasers can’t rely on their lender’s title insurance policy. Accordingly, a lender’s policy and an owner’s policy are often both required to guarantee adequate protection for all parties. Finally, unlike other types of insurance, title insurance requires payment of a one-time premium, which is paid at closing.
Key Takeaway
Title insurance is invaluable in any real estate transaction as it protects lenders and buyers from financial loss due to defects in the title to the property. Without insurance in place, buyers may have to shoulder the financial burden of unpaid taxes, open building permits, contractors’ liens, and other title problems.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Bruce Feffer, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
