The Nest

NestApple's Real Estate Blog

Featuring real estate articles and information to help real estate buyers and sellers. The Nest features writings from Georges Benoliel and other real estate professionals. Georges is the Co-Founder of NestApple and has been working as an active real estate investor for over a decade.

Is title insurance required for Coops in NYC?

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New York co-op apartment purchasers generally do not pay for co-op title insurance. Usually, it’s not a required closing cost. Besides, a co-op lien search already grants buyers $50,000 in coverage against any liens missed during the due diligence. So why do sometimes buyers ask their attorneys if title insurance is required for Coops in New york? Attorneys only recommend buyers to get title insurance for a coop purchase in the case of an estate sale or foreclosure.

Co-op title insurance: what does it mean

When a buyer pays for title insurance, this protects him from any liens generated by previous owners of the property. This insurance also protects the buyer from any potential claims against their purchase or ownershiptitle insurance required for Coops. This covers the risk of someone who claims that they had rightful ownership in the past.
In short, title insurance protects buyers from events that happened in the past before they purchased the apartment. In contrast, a home insurance policy protects the buyer from events that occur in the future.
The precise technical term to name co-op title insurance is “co-op leasehold insurance.” Remember, a coop is not a real property like a condo or house. Instead of a deed for real property, co-op apartment purchasers receive a proprietary lease and well as a proprietary lease.
The stock certificate describes the number of shares they own in the coop. The proprietary lease allows the buyer to occupy their apartment. Like we already explained, co-op owners are somehow tenants. Technically, owners are shareholders of the co-op that is the landlord of the entire apartment building.

Is Co-op title insurance even worth it?

Yes and no. Technically, Co-op shareholders do not own their homes. As a result, title insurance would not be legally valid. The co-op may have a standard title policy on the building. However, it would not cover shareholder interest. Back in the 1990s, the Title Insurance Rate Service Association (TIRSA) created various rules to protect co-op shareholders. those rules were called “leasehold title insurance.” The purpose was to insure the shareholder’s interest in the proprietary lease. At the time, those TIRSA policies were not widely applied. That changed first in 2006 when First American Title Company created a title policy for co-op shareholders.

Title insurance: what does it cover for coops?

Co-op title insurance protects purchasers from any liens on the property that were missed by the lien search. It also protects against loss and legal title insurance required for Coopsexpenses from any claims on the ownership interest. This insurance guarantees that the seller transfers the title to the buyer “free and clear.” Furthermore, co-op leasehold insurance ensures that the coop was duly formed and holds title to the building. This insurance also protects against any missed liens imposed by the co-op itself (delinquent HOA, assessment).
Finally, the co-op title insurance covers the legal for which there is no limit. There is no maximum limit on how much a title insurance company may spend to defend the purchaser & policyholder. As a rule of thumb, title insurance companies spend as much on legal defense costs as they do on claim payments.

How much does coop title insurance cost?

A co-op leasehold insurance policy typically costs about 0.30% of the purchase price. This premium includes a sliding percentage and a fixed fee. This is cheaper for coop than for a condo or house (generally between 0.40% and 0.50%)
For buyers who are more concerned about liens than claims, there are cheaper alternatives such as UCC insurance policy. This costs 0.10% and includes the co-op lien search fee and provides coverage up to the purchase price.

Title insurance not required for Coops as the co-op lien search provides some protection.

A buyer’s attorney typically orders a lien search for any transaction even if the buyer does not plan on buying intends to purchase co-op title insurance or not. Attorneys are looking for any open liens against the seller, the shares and lease, and the coop. itself. The title company is likely to discover all open liens. However, if the due diligence missed an open lien, the co-op lien search fee covers the buyer with a cap of $50,000.
However, anything above $50,000 wouldn’t be covered.

The market value rider

Co-op title insurance only protects the buyer against the purchase price of the property. The market value rider is a feature that co-op apartment buyers can purchase. This additional insurance protects buyers up to the full market value of the property. Buyers pay for that extra insurance if they expect the value of the home to increase in the future. Market value rider typically adds 10% to the bill of the title insurance premium. An appraisal gets completed to certify the market value of the home in the case of a claim.

Regulating Title Insurance Rates

There is a commonly-held belief that the state sets title insurance rates. This is not entirely true. New York permits insurance companies to set their own rates as a cartel. Regulators allow the industry to submit those rates for approval to the State Department of Insurance. In the past, the New York State Insurance Commissioner has not accepted the rates set by the industry cartel and forced them to lower the rates. Additionally, the law permits any title insurance company that is unhappy with the rate schedule to set their own rates.

When is title insurance required for Coops or necessary

Co-op title insurance remains rare in NYC.

Title insurance is required by lenders when buying a condo or a house with financing. It is extremely common even for all-cash deals. However, we do not see too often in co-op apartment transactions. Banks don’t require borrowers to utilize a mortgage to get a co-op leasehold insurance policy. However, real estate attorneys generally don’t push buyers to get them either. However, there are a few unique, risky cases where we recommend buyers to pay for co-op title insurance.

When it’s an estate sale

An estate sale can be messy. Having a clear title may not be as simple as a regular deal. For example, the trustee may not have identified all beneficiaries.

Another example: a brother has taken over the sale process but did not get written consent from his sister. The sale may go through without the permission of the sister, which is a significant risk.

If the seller has lost the shares stock and lease

For Coops, the seller must physically give the original stock certificate and proprietary lease to the managing agent. The latter will cancels them at closing title insurance required for Coopsand then re-issues a new stock and lease to the buyer. However, this can be an issue if a seller lost their stock and lease.

The managing agent sometimes asks the seller to cover the cost of co-op title insurance to protect the management company in case of any potential future disputes.

In this specific case, the seller will pay for the insurance covering the managing agent’s risk. In parallel, if the purchasers want to cover themselves, they will have to pay for the insurance.

When it’s a foreclosure

This situation entails higher and more specific risks. This is because previous owners could complain that the co-op foreclosure process was improper. This increases the risk since the co-op foreclosure process is non-judicial. Co-ops do not need to go through a court process to foreclose.

When the buyer’s attorney is from out of town

The third situation where we recommend buyers to get co-op title insurance is if the buyer has an attorney from out of town. We saw closings where a seller’s attorney has no idea what a co-op is. This situation is not entirely surprising considering that co-ops are indeed a very NYC concept. In these situations, we recommend buyers to get a title insurance policy. This instance is the last example where we tell our clients: title insurance required for Coops!

Written By: Georges Benoliel

Georges has been working in Wall Street for the last 16 years trading derivatives with hedge funds. He has been an active real estate investor for over a decade. Georges graduated from HEC Business School in Paris and holds a master in Finance from ESADE Barcelona.

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