Co-op Buyers Should Consider Purchasing Title Insurance
It is a commonly accepted practice for home buyers to purchase title insurance. Title insurance provides buyers, and their lenders with coverage up to the full purchase price of a home in the event a valid title claim is instituted against the property. Buyers of co-ops, however, rarely purchase title insurance.
Since co-op buyers are not purchasing real estate, but rather shares in a corporation – accompanied by a proprietary lease that gives the buyer the right to live in the co-op, traditional title insurance would not cover the buyer's ownership interest in the shares. Consequently, the Title Rate Service Association (or Tirsa) created an endorsement to the standard title insurance policy that would cover co-ops. The Tirsa endorsement is known in the title industry as "leasehold title insurance." This endorsement insures the buyer's interest created by the proprietary lease.
Just as title insurance provides protection in the event that the title search conducted before closing failed to uncover a valid lien against the real property, the leasehold endorsement provides similar protection in the event the lien search failed to uncover liens against the seller of the co-op. However, the Tirsa endorsement never really caught on with co-op buyers.
As an alternative to the Tirsa endorsement, the State Insurance Department, approved the Eagle 9 policy for sale by title companies to co-op buyers. The Eagle 9 – unlike the Tirsa policy, is not a real estate policy with an endorsement. Rather, it is a policy specifically designed to insure the buyer's interest in the co-op. The Eagle 9 policy insures the buyer for loss and legal expenses resulting from claims arising against previous owners of the co-op.
Additionally, the Eagle 9 policy is significantly less expensive than the Tirsa policy.
Here are some instances where a co-op buyer should consider purchasing an Eagle 9 policy:
Seller is in bankruptcy
Buying from an estate or heirs of a deceased seller
Buying a foreclosed co-op (REO)
Federal tax lien filed against seller in another state (will not be found by a typical search in New York)
Considering the substantial investment involved in purchasing a co-op, the cost of the Eagle 9 policy, which is far less than title insurance for real property or the TIRSA endorsement, is a worthwhile outlay in order to protect your investment and give you peace of mind.