Do I Need Owner’s Title Insurance For A Condo Purchase?

A condo purchase has a great deal in common with the purchase of a single-family (“detached”) home, but the two investments are not the same. While the purchase of a house includes both the unit itself and the land it sits on, a condo purchase includes only the space inside the unit — not the land or structure itself. As a result, many condominium buyers have questions regarding whether they still need to obtain title insurance, specifically owner’s title insurance, for a condo purchase.

What Is Title Insurance?

To start, let’s review what title insurance is and does. When you purchase a home or condo, a title company will be engaged by your representatives to perform a number of functions. First, the title company will perform a title search — a review of available public records to determine whether the seller actually has the right to sell the property in question free and clear of any existing claims. 

A title search for a home usually includes a review of the chain of title, or history of ownership of the property, going back 30 years. The search includes a review of deeds, county land records, federal or state tax liens, divorce cases, bankruptcy records, and other financial judgments that could potentially attach to a property. The review also includes easements against the property and a review of HOA liens against the property. Following this search, the title company will issue a title commitment, and, at closing, a title insurance policy. 

From dramatic events like heirs attempting to claim their rightful stake in the property, to forgeries or intentional fraud, to mundane recording errors, there are a number of factors that can lead to unexpected claims arising well after title has been transferred. This is where title insurance comes in. Title insurance protects the interest of the insured in the property from claims that the title held by the owner is not held free and clear of defects.  

There are two types of title insurance: lender’s title insurance, also called the lender’s policy, and owner’s title insurance, or the owner’s policy: 

Lender’s Title Insurance

Lender’s title insurance, required as a condition of most mortgages, protects the lender in the event it becomes clear that the borrower does not hold clear title to the property. This insurance policy assures the lender of the priority of its security interest in the property in the event of foreclosure or a third-party claim. 

If you are financing all or part of your condo purchase, your mortgage lender will require a lender’s title insurance policy as a condition of the loan. 

Owner’s Title Insurance

Owner’s title insurance protects your interests. Title insurance is backward-looking, protecting against title defects that may have existed at the time you received title to the property but that aren’t obvious until a later date. 

Title Insurance On A Condo Purchase

While a condo purchase is different from a house purchase in some important ways — for example, property line disputes are less likely to arise in a condo purchase — title insurance still includes important protections for condo owners. Many of the same issues, including gaps in the chain of title, unpaid mechanics liens for work performed, or tax liens, can still arise after purchase. In addition, there are issues specific to condo purchases that can be specifically endorsed against by an owner’s title insurance policy.

These specific endorsements can include protections against loss suffered as the result of non-compliance with applicable condominium laws or regulations. This endorsement can also insure against failure to remove improvements caused by encroachments by other units or the condo’s common elements, failure of title resulting from a right of first refusal, or loss or damage by reason of the unit not being entitled by law to be assessed as a separate tax parcel. These provisions, unique to a condominium purchase, can offer critical protections for condo owners. 

The American Land Title Association’s (ALTA) standard endorsement 4.1 covers condo purchases, and includes the following: 

1. The failure of the unit identified in Schedule A and its common elements to be part of a condominium within the meaning of the condominium statutes of the State in which the unit and its common elements are located.

2. The failure of the documents required by the State condominium statutes to comply with the requirements of the statutes to the extent that such failure affects the Title to the unit and its common elements.

3. Present violations of any restrictive covenants that restrict the use of the unit and its common elements and that are contained in the condominium documents or the forfeiture or reversion of Title by reason of any provision contained in the restrictive covenants. As used in Section 3, the words “restrictive covenants” do not refer to or include any covenant, condition, or restriction: 

a. relating to obligations of any type to perform maintenance, repair, or remediation on the Land, or 

b. pertaining to environmental protection of any kind or nature, including hazardous or toxic matters, conditions, or substances, 

except to the extent that a notice of a violation or alleged violation affecting the Land has been recorded in the Public Records at the Date of Policy and is not exempted in Schedule B.

4. Any charges or assessments provided for in the State condominium statutes and condominium documents due and unpaid at the Date of Policy.

5. The failure of the unit and its common elements to be entitled by law to be assessed for real property taxes as a separate parcel.

6. Any obligation to remove any improvements that exist at the Date of Policy because of any present encroachments or because of any future unintentional encroachments of the common elements upon any unit or of any unit upon the common elements or another unit.

7. The failure of the Title by reason of a right of first refusal to purchase the unit and its common elements that was exercised or could have been exercised at the Date of Policy.

While those who are financing most or all of their condo purchase may believe that the lender’s policy is all they need to protect their financial investment, that policy only protects the lender’s interest in your unit and remains in effect only until the mortgage is paid off. The owner’s policy, by contrast, protects your investment for as long as you own your condo. A separate policy, with unique protections for condo owners, is a critical part of protecting your largest investment.

Learn More With Your Trusted Title Insurance Company

Buying or selling a home is complicated, and sometimes it seems like you need to learn a whole new vocabulary just to protect yourself! But you don’t have to navigate the ins and outs of title searches or owner’s and lender’s title insurance policies alone. 

If you have questions about what title insurance can do to protect you, what it involves, or how to get it, Landtrust Title Services can help.
Landtrust Title was established to fulfill the growing need for partnerships that provide higher service standards and growth opportunities in the title insurance and escrow services industry. At Landtrust, we’re different. We’re customer-obsessed and strive to focus on what you need from start to finish. We strive to deliver service excellence for every real estate transaction. Contact us today at [email protected] or by phone at 312.528.9210 to get answers to all of your questions.

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