Title Insurance Explained: Owner’s vs Lender’s Policy

Title insurance pays for losses from ownership problems that existed before you bought, such as a forged deed in the chain, an old mortgage that was never paid off, or an unpaid city lien that the search missed. A lender's policy protects the bank's loan; an owner's policy protects you, and it is optional.

In New York the premium is not haggled over deal by deal. Rates are filed with and approved by the Department of Financial Services (DFS), and most insurers use the rate manual maintained by the Title Insurance Rate Service Association (TIRSA).

What a title search finds and title insurance covers

Before closing, a title company searches the public record for the property: deeds, mortgages, liens, judgments and taxes. In NYC much of this is in ACRIS, the city's online register (see how to search ACRIS). The company then issues a report listing what it found and what must be cleared before closing.

A search can only find what is in the record and what the searcher catches. Title insurance covers the rest. DFS describes the risks as problems not discovered in the title search, including fraud, forgery, unpaid real property taxes, judgments and liens. If a covered claim comes up later, the insurer pays to defend your title or pays your loss up to the policy amount.

Lender's policy vs owner's policy

The key point: the lender's policy protects the bank's money, not yours. If a forged deed from years ago surfaced, a lender's policy would protect the outstanding loan, but your down payment and any equity you built would be uncovered unless you bought an owner's policy. If you pay all cash, there is no lender's policy at all, so the owner's policy is your only title coverage.

Is an owner's policy worth it?

The Consumer Financial Protection Bureau says most lenders require a lender's policy, and that you may want to buy an owner's policy to help protect your investment. Points to weigh:

• The premium is part of your closing costs. Ask your attorney how long coverage lasts under the policy form you are offered.
• When both policies are issued together, New York's rate rules give a discount: DFS says the owner's policy is charged the full owner's rate and the lender's policy 30% of the applicable loan rate.
• Your down payment is usually the largest sum you have at risk. The owner's policy is the only one that protects it.
• Deed fraud is a known risk in NYC (see deed theft protection). A policy covers defects before you bought; it does not stop a forgery after you own the home.

DFS also notes an optional market value endorsement that lets coverage keep pace with rising property values, since a standard owner's policy is capped at the original price.

How New York regulates title premiums

Title insurers are licensed by DFS, and DFS must approve their rates and rules. TIRSA, which the legislature set up in 1993 and DFS licenses as a rate service organization, develops policy forms and rates for title insurers and publishes the Title Insurance Rate Manual for New York. Each insurer may also file its own rates and rules manual with DFS.

What this means for you:

• The premium for a given policy amount comes from a filed rate schedule, not a negotiation.
• Fees outside the premium (such as municipal and departmental searches, recording service and closer fees) are where quotes can differ. Ask for an itemized quote.
• DFS says a discounted premium applies to a lender's policy issued on a refinance within ten years of a previously insured mortgage or owner's policy. Mention your earlier policy.
• You can check that an insurer is licensed in DFS's company directory, linked from the DFS title insurance page.

Why co-op buyers get a lien search instead

A co-op buyer buys shares in a corporation and gets a proprietary lease. Shares are personal property, not real property, so there is no deed to insure. The NYC Department of Finance notes that loans on individual co-op apartments are not even subject to mortgage recording tax.

Instead, the buyer's attorney orders a lien search on the seller and the shares. It looks for UCC financing statements (how co-op share loans are recorded; ACRIS handles UCC filings), judgments, tax liens and bankruptcies against the seller. The attorney also confirms with the managing agent that maintenance is paid and whether any flip tax is due. The land and building belong to the co-op corporation, so their title is the corporation's matter, not part of your purchase.

Common title problems in NYC searches

You can preview much of this yourself before you make an offer. Search the address on Roofy's building lookup for HPD, DOB and ECB violations, and use ACRIS for deeds and mortgages (see ACRIS mortgages, assignments and satisfactions).

What to do at your closing

1. Ask your attorney for the title report as soon as it arrives, and read the list of exceptions.
2. Make sure every open item has a plan: paid at closing, escrowed, or insured over.
3. Decide on the owner's policy and any market value endorsement before closing day.
4. Check the title bill on your Closing Disclosure against the quote.
5. Keep your policy with your deed. You will want it if a claim ever arises.