The role of title insurance when buying real estate
Timothy A. Berger
When purchasing real property, if you are obtaining a mortgage, you will be required to buy title insurance. Although title insurance increases your closing costs, it is a good idea even if it is a cash deal since, like car insurance, it provides protection from the unexpected. Specifically, it provides coverage for the title – in other words, your ownership rights – to the property that you are buying. It gives you protection against claims that you do not, in fact, own the real estate for which you paid.
When title insurance is ordered, the title company orders a title search. It is a good idea to request a copy of the title search as soon as it is available so that you can review any exceptions to the coverage that you are receiving. Closing is not the time to look at the title search for the first time since you will have little time to attempt to resolve any issues identified by the title search. For example, title insurance has no impact on documents such as easements or restrictions that have been filed with the Recorder of Deeds for the county in which the property is located. Rather, you buy the property subject to those easements and restrictions. Thus, if a house is located in a planned community and there is a recorded Declaration of Planned Community, you must live with the provisions of that Declaration. (Particularly in light of Pennsylvania’s Uniform Planned Community Act, which requires that you be provided with certain documentation for a house located in a planned community covered by the Act, as well as the requirement for a Seller’s Disclosure Statement for a resale of an existing house, you will typically know well in advance of receiving the title search that a house is in a planned community).
Title insurance also does not cover certain exceptions. The exceptions listed in a title policy come in a number of different flavors; however, there are certain standard exceptions in Pennsylvania. For example, Pennsylvania title policies normally do not provide coverage against mechanics’ liens that have not been filed at the time the policy is issued. In the present economy, this can become particularly significant when you are buying a new house or newly-constructed building. If the builder goes bankrupt or goes out of business without paying all of the contractors in full, title insurance typically does not provide any protection. Thus, you could end up having to pay those subcontractors even though you paid the builder in full, potentially dramatically increasing your cost for the property. Title insurance also does not cover issues such as those arising out of easements, errors regarding the area of the property or boundary line disputes that would be disclosed by a survey.
The cost of title insurance in Pennsylvania is regulated by the state. Its cost depends on the purchase price and whether title insurance was recently obtained for the property (for example, in connection with another sale or a refinance). If a policy was issued within the past 10 years, depending on how much time has passed, you should receive a discounted rate.
Accordingly, while title insurance may seem like a standard part of purchasing a new home, do not overlook its importance or the information that it provides you, which is only one of many issues associated with a purchase.
If you have questions regarding title insurance or any aspect of purchasing a property, whether it be residential or commercial, please contact me at 610-565-4750 or by Email.
