WHAT TYPE OF WARRANTY CAN HOME BUYERS EXPECT IN NEW YORK?

The purchase of a new home is always a big move, regardless of one’s age or financial status. When considering such a purchase, one question that may come to mind is what protections do I have against the seller down the road? Am I entitled to any type of warranty on the home? The sad reality is that in New York, as a general rule, buyers are not entitled to a home warranty, unless expressly and separately bargained for.

 

New York is known as a caveat emptor state, which basically means that buyers generally take title without a warranty as to the condition of the property or any recourse if the buyer subsequently discovers an unacceptable condition after the closing. Like most things in the law, however, there are of exceptions (albeit slight) to the rule.

 

For anyone who’s purchased residential real estate in New York, you’re probably familiar with the mandatory Property Condition Disclosure Form that most sellers complete prior to close. For those of you unfamiliar with the disclosures, this form is a detailed statement that sets forth the condition of the environmental, structural, mechanical and property service aspects of the home as understood to the best of the seller’s knowledge. When a seller completes the form, she subscribes her name to the document and confirms its accuracy. So long as a seller has not materially lied or knowingly failed to disclose a known condition or material defect, there is little recourse that a buyer has against the seller. If a seller has lied or failed to disclose a known material defect, a buyer may very well have a colorable claim against the seller for her possibly fraudulent conduct.

 

Where a seller has truthfully and fully completed a property disclosure, however, New York law shifts the burden and responsibility of discovering any other defective conditions to the buyer. For all homes, except new builds, typical contract language provides that all warranties and representations made by the seller expire once the deed has been delivered, unless specific warranties are expressly stated to survive the closing. Translated, this means that once a transaction closes, the purchaser is accepting any conditions (known or unknown) that may exist at the property. For this reason, it’s critical for a buyer to conduct a full and thorough inspection of the property prior to close. Once a deal closes, the buyer will be stuck with any conditions that could have been discovered.

 

All of that said, there is one instance outside of the exceptions discussed where a home buyer can secure an actual warranty on a home, and that is on a new build. Assuming you are the first person to purchase a home that is intended to be your primary residence, the builder will provide you with a warranty that covers construction defects, flaws in the plumbing, electrical, heating, cooling and ventilation systems servicing the home and material defects. These warranties often have monetary limits attached and expire in stated periods depending on the nature of the warrantied item. Because of these time periods, it’s crucial that homeowners seeking to make a claim under their new home warranty do so timely and in accordance with the stated periods, or they might lose any rights they otherwise had.

 

The purchase of a home is definitely not a trivial matter. When it comes down to the nuts and bolts of your purchase make sure you know your rights both prior to and after the closing. Where questions do exist, seek the counsel of a competent professional, whether it be your attorney and/or your real estate agent.

ESTATE PLANNING CHECKLIST: Making Your Family's Life as Easy as Possible When You Pass

As people move through their lives, they hit certain milestones along the way: getting a driver’s license; graduating college; getting married; celebrating the birth of their first child; and yes, even drafting your first will is a milestone. While planning for the inevitable is often times a topic that many people tend to avoid, postpone or even disregard, a little bit of planning on your part can make a huge difference to those you leave behind. While this article isn’t specifically about drafting a will, I at least hope to leave the reader with a strong impression about how important it is. A will is an essential document that will direct your final wishes; without one, you are simply at the mercy of what the Court decides.

 

That said, the remainder of this article pre-supposes that you have already had the forethought to prepare a will. So, with that out of the way, what else do you need to worry about? The grief of a family member passing is hard enough to handle without piling on the frustration of trying to sort through that loved one’s estate. When you pass away, your goal should be to make the process as easy on your loved ones as possible. Believe it or not, that actually is easier than it might sound.

 

The main thing you can do to help ease the process for those you leave behind? BE ORGANIZED! Trite as it may sound, a little bit of planning now, wherein you gather all of the important documents in your life, will make a huge difference later on. While the list isn’t long, I would urge you to gather and keep the following documents together in a safe place that loved ones can access when and if necessary.

 

As alluded to above, perhaps the most important document you should keep is your will. This is the basic roadmap that directs how you want your estate handled. As a general rule, only an original will can be submitted to probate in New York. It’s therefore critical that the original be kept safe. As a general guideline, I typically recommend that my clients leave their original wills in my custody so there is never a question about their location, while they are given copies for their own records. Clients, however, are always free to keep the originals, but it then falls on them to ensure their safekeeping.

 

In addition to your will, there are a few other documents that I would urge you to gather together. Please keep in mind that these are general categories to be used for the sake of guidance, but they are fairly comprehensive. The first category I would suggest is life insurance policies and retirement accounts. Individuals often times have a long and varied work history, and will have accumulated accounts across many sectors. Family members cannot be expected to know the whereabouts or identity of each account without you providing that information. I would suggest the same holds true for bank accounts. Gather any information you can to make locating bank accounts and safe deposit boxes as easy as possible. Finally, I would recommend gathering together all of your major documents of ownership; this would include deeds to real property and titles to any vehicles that you might own. With all of these documents in hand and readily discoverable by your loved ones, you’ll be able to rest a little easier knowing that at least one burden will be lifted from your family once you pass.

SO WHAT EXACTLY IS TITLE INSURANCE ANYWAY?

As you’re getting ready to close on your new home, it’s always a good thing to know what you’re looking at in terms of closing costs. For those of you who’ve already done your homework and have some idea of what to expect, it will come as no surprise that one of the largest components of those expenses is likely to be the title insurance you purchase. Even though you might know you need to get it, do you understand what it is and what protections it provides? If that inquiry seems daunting, I’ll puzzle you one more riddle. To further complicate matters, if you’re taking out a mortgage, did you know that you will not only be required to secure a Lender’s Title Insurance Policy, but you have the option (at least in NY) of also picking up an additional Owner’s Title Insurance Policy? What’s the difference between those policies? It’s wise to have a firm grasp on these concepts before you walk into the closing room just to make sure your interests are protected.

 

What is Title Insurance?

 

At its most basic level, title insurance protects the insured against a myriad of title problems that can hinder the transfer of a property. These are usually hidden defects that title searches somehow miss, which rear their ugly heads down the road. Some of the defects that title insurance can guard against include:

1. Forged deeds, mortgages, satisfactions or releases of mortgages. 2. False impersonation of the true owner. 3. Instruments executed under a fraudulent or expired power of attorney. 4. Deeds that appear, but it is determined they were conveyed without the consent of the grantor or delivered after the death of the grantor. 5. Property that was improperly deeded to a minor. 6. Outstanding rights not of record and not disclosed by survey. 7. Property descriptions that appear but are not actually adequate. 8. Instruments that were executed under duress.

In terms of logistics, in order to secure title insurance, an insured will pay a one-time premium, typically at the time of closing, in order to safeguard the property up to the amount of the policy for possible later claims related to the title being defective.

 

Leading into our next topic, I’ll pose this question to you – is the purchase of title insurance obligatory? Like so much in life, the answer depends. If you’re paying cash for the property, the answer is (typically) no, but if you’re taking out a mortgage, the lender will require a policy be purchased. Depending on where you live, securing an owner’s policy may be a requisite component to delivering good title, while in other areas it’s merely an optional add-on that you can purchase if you choose to do so.

 

What’s the difference between a Lender’s Policy and an Owner’s Policy?

 

Now that we have some basic understanding of what title insurance does, we need to look at the different types of policies available to you. As indicated above, if you are taking out a mortgage, you will absolutely be required to obtain title insurance in an amount equal to the amount of the loan. This type of policy is known as a lender’s policy. There are a couple important things to remember about a lender’s policies. First off, even though it’s the bank that will require a lender’s policy be secured, it should come as no surprise that you will actually be the one to pay for it – upfront at the time of closing. Second, you should recognize these policies only last until the loan is repaid. Once a lender’s policy terminates, you are on the hook for defending any title claims if you haven’t made alternative arrangements to protect yourself. Remember: lender’s policies protect the lender for the amount it has loaned, but it does not protect your equity in the property. Lender’s policies do not protect you, either directly or indirectly, but the lender alone against loss.

 

In light of that fact, owner’s policies (otherwise known as Fee Policies) are offered. These are policies, which as discussed above, are either mandatory or optional depending on where you live. In Western New York, there is no requisite that buyers secure an owner’s policy, but it is nonetheless a good idea to do so. Unlike a lender’s policy, an owner’s policy does as its name purports to do and protects an owner’s interest against possible title defects. An added benefit of owner’s policies is that, unlike lender’s policies which are limited in duration, these policies will last indefinitely. Although an owner’s policy cannot guarantee that no claims will ever be made, so long as you hold an interest in the property, your owner’s policy will provide you some semblance of protection against possible title claims that may arise.

 

This article is intended as a brief primer meant to give a general overview concerning title insurance. Please be advised that there are numerous nuances concerning title insurance that I’ve not covered in this article. If you have additional questions about those nuances, it’s a good idea to either study up on the topic or speak to a qualified professional. I’ll leave you with one final note. When compared to the cost of a standard lender’s policy, I’d urge that it’s usually advisable to obtain an owner’s policy to protect your own interests; the additional cost for that extra coverage is usually relatively small when compared to the lender’s policy, especially given the potential downside (even if slight) of a lengthy and expensive title challenge down the road.