What Title Insurance Covers, and What It Leaves Out

Title insurance is one of the line items at a New York closing that buyers rarely see coming and often struggle to explain afterward. It does not work like homeowners insurance, which responds to fire, storms and theft after the policy begins. Title coverage looks backward, toward problems that originated before the purchase and stayed hidden. Knowing where the policy stops is as useful as knowing what it pays for, particularly in older Long Island neighborhoods where properties may have decades of recorded deeds, easements and liens behind them.

What a title policy is

A title search reviews historical public records to establish who owns a property and what claims are attached to it. Title insurance then protects against defects the search missed. The New York State Department of Financial Services describes the protected risks as including fraud, forgery, unpaid property taxes, judgments and liens. The department also licenses title insurers in the state and requires that their rates and rules be approved.

The Consumer Financial Protection Bureau gives examples in the same spirit: an owner’s policy protects the buyer if someone later claims a right to the home based on something that happened before the purchase, such as unpaid property taxes from a prior owner or an unpaid contractor for work done before closing.

Owner’s policy versus lender’s policy

Two separate policies are involved in most financed purchases, and they protect different parties. According to the DFS page, a lender’s policy protects the lender, usually for the loan amount, with coverage that declines as the loan is paid down. An owner’s policy protects the owner up to the original sale price, and its coverage does not decline over time. The department also mentions an optional market value endorsement intended to keep pace with rising property values, which is a point to raise with the title agent rather than assume.

The CFPB notes that most lenders require a lender’s policy, while an owner’s policy is optional; its words are that a buyer “may want to buy” one to help protect the investment in the home. The DFS page says the home buyer is generally responsible for paying for both policies. On the cost side, the CFPB says the total is usually lower when the same provider writes both the lender’s and owner’s policies, and it adds that buyers can usually shop for a title provider separately from the mortgage.

New York’s rate structure reflects that. The DFS describes a Simultaneous Mortgage Rate, under which the owner’s policy carries the full owner’s rate and the lender’s policy is priced at 30 percent of the mortgage rate. A refinance or subordinate discount applies in certain cases, namely when the lender’s policy is issued within ten years of a previously insured policy and there has been no change in ownership or in the property. Neither discount applies to every transaction, and the actual premium on a given closing depends on the property and the rate manual in effect.

Closing paperwork can look confusing on this point. The CFPB observes that title charges may appear differently on closing documents than on the Loan Estimate, and that this does not necessarily mean the buyer is being overcharged. The Closing Disclosure itself is covered in the article on reading the Closing Disclosure.

The kinds of problems the policy covers

Standard owner’s policies use forms developed by the American Land Title Association, and the current ALTA owner’s policy lists ten covered risks, subject to its exclusions, exceptions and conditions, according to HomeClosing101. The headline items include:

• Someone other than the insured owning an interest in the property.
• Defects or encumbrances caused by fraud or forgery.
• Unpaid real estate tax or assessment liens.
• Unmarketable title, meaning a title defect that prevents a sale.
• Lack of a right of access to and from the land.

The Old Republic piece makes the same list and describes the conditions section of the policy, which spells out how to give notice of a claim, what proof of loss is required, the insured’s duty to cooperate, and the insurer’s right to defend or settle. It recommends asking the closer or title agent about the specifics of an individual policy, which is sound advice because the policy itself, not a summary, controls.

The coverage can be real money in unusual cases. A forged deed in the chain of title, a prior owner’s unreleased mortgage that the search failed to catch, or a missed judgment against a previous owner are the textbook scenarios. They are rare, and the insurance exists precisely because the likelihood is low and the loss, if it arrives, is large.

What the policy leaves out

Three separate mechanisms limit coverage, and they are easy to confuse. The first is the set of exclusions, standard text that applies to every policy on the form. The second is the exceptions listed in Schedule B. The third is the conditions, which govern how claims are handled.

On exclusions, HomeClosing101 and Old Republic both describe the ALTA owner’s policy as excluding categories such as:

• Governmental regulations affecting the land, including laws and ordinances, and eminent domain.
• Title matters the insured created or agreed to.
• Known defects not disclosed in writing to the title company before the policy date.
• Defects arising after the policy date.
• The effects of bankruptcy or insolvency law on the transaction that created the insured interest.

The consequence is that a policy does not guarantee a property can be used as the owner wishes. A zoning limitation, a building code issue or an unpermitted addition is generally a regulatory matter outside the standard owner’s coverage, and a buyer concerned about any of these has other tools, including the municipal records review and a property inspection. The article on reading a New York title report covers where those records fit into the process.

Schedule B is different in kind. These are specific items the title company found in its search and chose not to insure over. Typical examples named by both sources include prior mortgages not yet released, easements, taxes, use restrictions, homestead rights, and survey issues where no survey was done. A buyer who skims past Schedule B can miss that a utility easement crosses the back yard, or that a restriction limits fencing or an outbuilding. The Schedule A pages, by contrast, state the policy date, insured party, amount and the legal description, and HomeClosing101 notes that a policy is not valid without Schedule A.

That last point connects to the physical property. A recorded easement is something a buyer can read, whereas a survey shows where fences, hedges, driveways and structures actually sit relative to the lines. The relationship between the two is explained in the piece on reading a property survey.

Enhanced homeowner’s policies

Some states offer an expanded form. The Old Republic article describes the ALTA Homeowner’s Policy as having 33 covered risks, including some that arise after the policy date, such as forgery of the owner’s signature on a deed and certain encroachments by a neighbor’s structure. A Stewart Title guideline lists additional protections such as certain violations of covenants, some forced removal of structures built without a permit, and automatic increases in coverage over five years, and says the policy is intended for improved land with an existing one-to-four family residence bought in a bona fide sale. The same guideline says its details come from one underwriter’s rules and that state versions may differ.

Whether a form like this is offered for a given New York purchase is a question for the title agent. The state has its own rate manual and approved forms, and what is available in one state cannot be assumed in another.

Recent changes in New York rules

New York’s forms and pricing are set by TIRSA, which the TIRSA site describes as the rate service organization licensed by the Department of Financial Services. It develops and maintains the Title Insurance Rate Manual for New York under the superintendent’s supervision, and deviations from the manual require the superintendent’s approval.

A Long Island land use law blog post discusses the manual’s seventh revision, which adopts the 2021 ALTA owner’s and loan policy forms in place of the 2006 forms. According to that post, beginning October 1, 2024, affirmative insurance offered at no fee is prohibited unless it appears in an approved endorsement in the manual. The same post says the revision adds endorsements not previously available in New York and that issuing certain endorsements may require survey, additional title searches or other diligence. It also predicts higher title costs as coverage shifts to paid endorsements, which is the author’s view and not an official finding. Readers can compare current offerings with the rate manual on TIRSA’s site or ask a title agent which endorsements apply.

Questions worth asking before closing

Because the policy is a contract, a few practical questions help a buyer read it closely:

1. Which policy form and edition is being issued, and what is the insured amount on the owner’s policy?
2. What are the Schedule B exceptions, and does any of them affect the way the property will be used?
3. Are any endorsements available for the property and the planned use, and what does each one cost?
4. Will the same provider issue the lender’s and owner’s policies, and what does the combined rate look like?
5. Is a survey being ordered, and does the policy refer to survey matters?

The question of ownership names matters as well. Schedule A identifies the insured, so a buyer who plans to transfer the property into a trust or an LLC soon after closing may want to ask how that affects coverage. The sources reviewed here do not address that scenario, so it is one for an attorney.

Related reading

• owner’s and lender’s policies on Long Island
• reading a New York title report
• getting a copy of a deed from the Suffolk County Clerk

This article offers general information and is not legal or financial advice.

Rules, rates, fees and procedures change; confirm current details with the official sources linked above and with a licensed attorney or other qualified professional before making decisions.

Sources

• NY Department of Financial Services: Title Insurance
• CFPB: What is owner’s title insurance?
• HomeClosing101: Parts of a Title Policy
• Old Republic Title: Understanding Your Owner’s Policy of Title Insurance
• Stewart Title: Guideline, ALTA Homeowner’s Policy of Title Insurance (7-1-21)
• TIRSA (Title Insurance Rate Manual for New York)
• Long Island Land Use and Zoning: Title insurance rate manual revision