Whether you are researching the potential closings costs you will pay or are simply learning terms mentioned by your real estate attorney, one of the fees you are likely to encounter is title insurance.
Title insurance is a type of indemnity insurance that is fairly common in the United States. The main purpose is to protect against financial loss from any defects in the title of real property that may result in the loss of ownership by future claims. Title insurance is required if the real property is being purchased with financing from a mortgage lender.
There are two forms of title insurance – lender’s policy and owner’s policy. Lender’s insurance is required to be bought by the borrower to protect the lender in the event the seller was not legally able to transfer title of ownership. This lender’s title insurance policy only protects the lender against loss. An owner’s title insurance policy is by the seller at the buyer’s request to protect the buyer’s equity in the property. Very often these two policies are bundled so everyone is protected.
Are you getting a mortgage to purchase your condo or home in NYC? If yes, then you will be required to take a policy from a title insurance company. Title insurance rates can vary depending on the provider but most real estate attorneys will estimate 0.45% of the purchase price when you buy title insurance.
The title insurance that lenders require NYC buyers to take will feel like another closing cost to add to your list, but the title insurance premiums protect buyers and lenders against claims on the title of your property prior to you owning the condo or home. For example, unpaid property taxes by the previous owner or liens against a property are two potential issues that title insurance protects you (and your bank) against. While not an insignificant cost, a mortgage company probably won’t lend you money without it.
You can estimate what you can expect to pay in title insurance with our NYC Closing Costs Calculator.
When purchasing in a co-op, you are actually buying shares in the corporation that owns the co-op and these shares provide you with a proprietary lease. This means you are not buying what is classified as real property like you would be with a condo or home. Therefore, you will not be required to purchase title insurance if you are using mortgage financing to purchase a co-op.
Your real estate attorney(s) will perform due-diligence when buying a co-op. They will review the financials of the co-op, read the minutes of the co-op board meetings, and look for any costly capital improvement projects. Your attorney will also request a co-op lien search. This request searches for UCC filings and judgements or liens against the co-op corporation. There is still a level of investigation that goes in to a co-op purchase even if it is not real property.
While less common and not required, there are insurance policy options available for buyers in co-ops called leasehold title insurance. This is an added layer of protection if you like to feel more secure. Just ask a title agent.
As always, the Prevu Team is here to help if you have any questions. You can reach us at email@example.com or (646) 603-6868.
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