JEANNE REARDON - Attorney at Law
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Real Estate Law Blog

October 2011

Why You Need Title Insurance

Buying a house may be the most significant and expensive purchase you will make.  When you make such a significant investment in the purchase of a home, how can you be sure that there are no problems with the home's title?  Problems with the title can limit your use and enjoyment of the property, as well as cause you financial loss.  This is why you need title insurance.   

Title insurance will pay for defending you against any lawsuit attacking your title, and will either eliminate title defects or pay your financial losses, up to the amount of the policy.  Your title insurance policy remains in effect as long as you, or your heirs, retain an interest in the property.  Title insurance will give you the peace of mind in knowing that the investment that you have made in your home is a safe one.

There are two basic types of title insurance: Owner's title insurance, called an Owner's Policy, and Lenders title insurance, called a Loan Policy.  Most lenders usually require a Loan Policy when they issue you a mortgage. The Loan Policy is usually based on the dollar amount of your mortgage. It only protects the lender's (or any subsequent lender to whom the loan may be sold or assigned) interest in the property should a problem with the title arise. It does not protect the buyer.

Only an Owner's Policy fully protects the buyer should a covered title problem arise with the title that was not found during the title search.  The Owner’s Policy is ordinarily issued in the amount of the purchase price and protects the homeowner from the potential risks which can arise. It is purchased for a one-time fee at closing and lasts for as long as you or your heirs have an interest in the property. 

Title insurance is issued after a careful examination of the public records. Prior to issuing its title policy, a title company will perform a detailed search of the property records going back many, many years in search of title defects.  Sometimes however, title problems occur that could not be found in the public records or are inadvertently missed in the title search process. Even the most thorough search cannot absolutely assure that no title defects are present, despite the experience of professional title examiners. In addition to matters shown in the public records, other title problems may exist that cannot be disclosed in a search.  An Owner's Policy of title insurance will help to protect you in these events.

Title insurance protects against the following common hidden risks just to name a few:

  • Errors or omissions in deeds
  • Mistakes in examining records
  • Forgery
  • Undisclosed or missing heirs
  • False impersonation of the true owner of the property
  • Instruments executed under invalid or expired power of attorney
  • Mistakes in recording legal documents
  • Misinterpretations of wills Deeds by persons of unsound mind
  • Deeds by minors
  • Deeds by persons supposedly single, but in fact married
  • Fraud
  • Liens for unpaid estate, inheritance, income or gift taxes

Every homeowner must, however, carefully read the insurance policy. There are numerous coverage exclusions contained in an owner’s policy, such as:

  • Defects, liens or adverse claims not known to the insurance company but known to the insured and not disclosed in writing to the company prior to inception of the policy;
  • Taking of the property by a government (eminent domain); 
  • Any law restricting or relating to the use or occupancy of the property; the subdivision of land; environmental protection, and
  • Defects, liens, encumbrances, adverse claims, or other matters attaching or created subsequent to the date of the policy.

There are a number of such exclusions from coverage, and all buyers should discuss these issues with their attorney before going to closing.



The Right Of First Refusal In Condos

Anyone who has been in the market to purchase either a condo or co-op is acutely aware that it is easier to buy or sell a condominium than a co-op because transferring ownership of a co-op almost always requires the consent of building's board, while the transfer of a condo usually does not.

Since a co-op is not real estate, the board can control who lives in the building by controlling who is allowed to become a shareholder and proprietary leaseholder.  So long as the co-op board does not violate laws against discrimination, it is free to grant or withhold its consent to the sale "for any reason or no reason at all."

A condo, however, is considered to be real estate.  Under centuries-old English common law, it is not permissible to impose an "absolute restraint on alienation" when transferring ownership of real estate to someone else.  In other words, if the governing documents (bylaws) that create a condo allow the board to prohibit a unit owner from selling his or her apartment, that prohibition would most likely be considered an impermissible restraint on alienation.

However, virtually all condo boards can exert some measure of control over who becomes an owner in the building, through what is known as the board's "right of first refusal".  A right of first refusal basically means that the condominium association itself has the right to become the purchaser of the apartments being sold in the building.

Most condo governing documents give the board a right of first refusal when a condo unit is being sold and the ability to halt an impending sale by buying the apartment from its current owner.  The rationale for exercise of a right of first refusal by a condominium board of managers, as with a co-op board, is to secure a community of friendly, qualified and congenial condo owners while protecting the value of their apartments.  

The board must elect whether to exercise its right within a specified time period set forth in the bylaws (usually 30 days).  In the event the board fails to accept the offer within the designated time, in other words, decides not to block the sale, it will issue a waiver of its right of first refusal and the unit owner is free to consummate the sale.  

The board's right of first refusal usually does not apply to a conveyance by (a) a unit owner to adult family members, or a trust for their benefit, (b) the sponsor (with respect to unsold units), (c) the board or (d) parties in title as a result of a foreclosure.