Contract Vendee Title Insurance

New York Real Estate Journal recently published an article authored by Co-Chair of Olshan’s Real Estate Law practice Thomas Kearns and real estate partner Hyman Kindler entitled “Contract Vendee Title Insurance” (subscription required). In the article, they discuss how buyers and sellers allocate the risk of a recorded title exception first being discovered after executing a real estate contract of sale. “A contract vendee title insurance policy (the premium for which is calculated only on the amount of the contract deposit, and is paid for on the day the contract is signed) shifts the risk onto the title company by insuring a buyer as to the state of title as of the day the contract is executed. The insured amount is equal to the contract deposit,” they explain. Tom and Hymie proceed with an example of the appeal to the seller of shifting the risk to the title company: “We were involved in one transaction where the seller kept insisting that the buyer take subject to all matters of record, but the buyer kept insisting that it was not going to risk its significant deposit on the accuracy of the title report it had obtained (even though the report was from its title company). The resolution: seller paid the premium for the buyer’s vendee policy!” Furthermore, since there are often several other requirements for issuance of a vendee policy in addition to payment of the premium, they suggest to “include a clause in the contract that the funded deposit does not become the contract deposit unless seller has made the required deliveries, and get the title company involved early.” They conclude, “Contract vendee polices can be a useful tool in resolving certain title negotiations between buyers and sellers, and, while beyond the scope of this article, can also be useful when navigating and negotiating complicated title insurance matters with title insurance companies prior to contract signing.”