The following article was written by Marc Brown, a New York State attorney who does not practice in the area of transactional real estate. That said, he very much understands and articulates the incredible importance of purchasing an owners title insurance policy!
Title insurance — A must-buy in real estate transactions by Marc Brown
I am not a transactional real estate attorney, nor do I work for a title insurance company. With the exception of my own purchase of title insurance when I bought my house in 2008, I never previously made a decision to purchase title insurance, nor did I ever advise clients on whether to purchase it. However, over the past 12 years, I have been regularly retained by title insurance companies to handle litigation across New York State for insureds under both lenders’ and owners’ policies. At some point after closing, a claim is made under a title policy that clouds title to property owned and/or encumbered. Based on my significant experience handling extensive litigation involving title to real property, I have come to the realization that purchasing title insurance is a must buy under all circumstances.
In New York, a lender’s policy of title insurance is required when financing real property. Therefore, no decision is made by the lending institution, and the borrower has no choice but to purchase a lender’s policy for its mortgagee. However, an owner is not required to purchase title insurance when purchasing property.
Although it may seem like a good idea to save the cost associated with purchasing an owner’s policy, the costs associated with the ultimate litigation that results in a title dispute years later far outweigh the cost to purchase a policy that lasts throughout the purchaser’s ownership of the property. A decision not to purchase title insurance is a classic case of being penny wise and pound foolish.
This article will focus on a few cases across New York where it seemed like a title dispute would never develop. In each case, the owners who were subsequently involved in litigation made the right decision and purchased title insurance when they purchased their properties.
The canal development in Monroe County
A retired couple from Rochester chose to purchase property overlooking the Erie Canal that was owned by one family for over 100 years. It seemed unlikely that a title claim to the property would ever develop. However, the couple made the right decision and purchased title insurance when they purchased the property, which they intended on using to develop four or five single family homes.
Unbeknownst to them, the adjacent neighbors, who were disappointed that they could no longer trespass over the couple’s property, commenced a lawsuit alleging adverse possession and prescriptive easements, which clouded the couple’s title in their property.
The couple’s title insurance provider brought me in to represent them and through discovery I found that the neighbors had undisputedly asked to purchase the property from the former owners on multiple occasions, which defeated the hostility element for their adverse possession and prescriptive easement claims.
After we had moved for summary judgment, plaintiffs discontinued their claims against the couple, with prejudice.
The Unpaid Mortgage in Tompkins County
About five years ago, a professor moved from New York City to Ithaca for an academic position. Upon arriving, she purchased a home not too far from the college from her former landlord, whom she trusted. However, she still made the right decision by purchasing title insurance just in case something developed.
Years later, after the professor had put substantial funds toward improving her property, she was served with a summons and complaint from a bank that claimed to have an interest on her property and was seeking to foreclose on it.
Unbeknownst to the professor, her seller/landlord had an unrecorded and unpaid mortgage, and the bank sought to record its interest and assert a first lien position on her property. Upon entering litigation and asserting claims against both the bank for its failure to record its secured interest and against the seller for fraud, the matter resolved itself through a nominal settlement paid for by the title company to the plaintiff, which discontinued its action against the professor and gave up any and all rights to the professor’s property.
The cash crop farmer in Genesee County
Approximately three years ago, a cash crop farmer sought to purchase land in Genesee County to expand his business operations.
The farmer purchased the property at a tax foreclosure sale. The former owner who failed to pay the taxes was present and, in fact, was a losing bidder at the sale. Fortunately, the buyer obtained title insurance upon his purchase of the property from the Genesee County.
Shortly after the buyer’s purchase, and after the buyer had begun to make capital improvements to the property, the former owner commenced an action to vacate the foreclosure sale by alleging that it never received notice, and that the prior tax allocation was improper.
Because the farmer had purchased the title insurance, he was protected throughout litigation. The court determined that the foreclosure sale was valid and accordingly dismissed the plaintiff’s claim against the property.
The former owner chose to not appeal the order.
Beachfront property in Ontario County
About two years ago, a couple was served with a lawsuit commenced by neighbors who wanted to use a prior easement over the property the couple had purchased in order to create an easy path toward the beach. The owner fortunately purchased title insurance and was protected from the plaintiff’s claims in the lawsuit. Upon establishing that the neighbors had no right to an easement that was previously terminated by the last holder of the easement’s dominant estate, the Ontario County Supreme Court granted summary judgment for the couple. The neighbors chose to not appeal the order.
In each of these cases, the owners chose to purchase title insurance when they purchased their properties, even though it seemed unlikely that a title claim would ever be asserted. Subsequent representation of the insureds under their owner’s policies involved significant litigation wherein the cost to defend them and, if necessary, indemnify them substantially outweighed the amount of the title insurance policy premium they purchased.
Therefore, based on my experience in handling title litigation, an owner’s policy of title insurance is a must-buy and should be recommended in all real estate transactions.
MARC BROWN is a partner at Goldberg Segalla who focuses on business and commercial litigation: email@example.com
Questions about title insurance? Please contact Hallmark Abstract Service at firstname.lastname@example.org.
(Article was reposted with permission)