New York-based boutique law firmPardalis & Nohavicka brings you the latest legal updates from the world of Property. Pardalis & Nohavicka handles an eclectic range of matters representing individuals and business owners in civil, criminal and business transactions, currently litigating and representing clients throughout the United States and around the world.
Although real estate buyers are not required by law to purchase title insurance, it is risky not to. Here are some of the most important aspects to keep in mind.
1. Risk of multiple shipments from the same country: When purchasing real estate, the owner may transfer the deed to multiple parties.
For example, New York is a jurisdiction to announce contests. This means that whichever party records their deed first will receive title priority – but only if that party was unaware of any prior unrecorded claims to the same property. This type of buyer is called a bona fide value buyer (BFP). A BFP is someone who exchanges value for property without any reason to suspect any problems in the transaction. BFP will therefore be deemed to have legal title to the property.
It should be noted that the date of actual handover stated in the deed will not have much bearing on who owns the property. So, even if you bought and paid for the property and received a deed in return from the owner, you would not have priority of title against a BFP who also received a signed deed from the same owner, but who recorded the deed before you did so.
However, any purchasers after the record date will be deemed to have an existing owner notice so will not be considered a BFP. Note, however, that it can often take a few days to a few weeks for a document to be recorded, depending on whether the transaction takes place during a busy season.
2. Attorney Requirement: Attorneys are unlikely to advise their clients to purchase real estate without title insurance, as attorneys recognize the tremendous practicality and cost-benefit ratio in favor of obtaining title insurance. Also, advising clients otherwise may be considered malpractice.
3. Requirement to the lender: Finally, if you finance your purchase, the lender will require you to pay for the lender’s insurance policy. This means that you will also be required to pay for all searches, endorsements, recording and survey fees, if applicable, that are necessary for a title company to issue such a policy. Of course, some of these items will be needed anyway when purchasing homeowner’s insurance.
4. Deed Frauds After Completion: In this digital age, it’s easier than ever to close a real estate deal. But it also made it easier to commit deed fraud. Plus, since parties don’t have to be physically present at a closing, owners could be impersonated (though not easily) and documents could be forged. As a result, without the knowledge of the true owner, the property may be transferred to BFP. BFP will then be deemed to have legal title to the property.
Then, if the defrauded owner does not have title insurance, he will have to spend his own time and money to sue the fraudster and BFP. Obviously this is expensive and not a situation one would want to be caught in. Of course, there are other ways one can verify the legitimacy of a transfer, but they are much more difficult without the assistance of a title company, which generally has more experience and methods available to perform the necessary due diligence.
In this case, it makes even more sense for buyers to pay the additional owner’s premium to obtain title insurance, since much of the work and fees required to insure the title to the real estate will have already been completed and paid for.
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John Pack serves as Chairman of Real Estate at the law offices of Pardalis & Nohavicka. He is a transactional attorney specializing in acquisitions, dispositions and leasing. A graduate of Brooklyn Law School, he received a bachelor’s degree in political science from New York University. Prior to joining PN Lawyers, John owned his own private law practice for 15 years and a property company for 6 years.
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Tasso Pardalis is a founding partner of the Law Offices of Pardalis & Nohavicka, a leading full-service New York law firm with offices in Manhattan, Queens and WeWork. Tasso may be a well-known attorney with many cases making headlines in the big media, but at heart he is a true entrepreneur who believes in supporting the small business community. His areas of concentration are: intellectual property, trademarks, corporate, commercial and real estate law.