What is “Gap Insurance” in a Real Estate Transaction?
Many people have heard of “gap insurance” in the context of insuring an automobile against excessive damage, but gap insurance in the real estate context is different. Let’s say that you are in the process of making an offer to buy a house. You probably know that you need to obtain title insurance to protect yourself from adverse claims or other clouds on the title of the property that preceded the title insurance company’s title search.
However, many title insurance policies specifically exclude coverage for the “gap.” This gap is the period of time which occurs after the title insurance company performs the title search and issues a title policy and before the deed is recorded with the buyer as the new owner. Sometimes this period of time is just a few hours because the deed is recorded on the same day as the closing. But sometimes this period of time is a few days or a week. An attorney can review a prospective buyer’s title insurance policy to determine whether the gap period is covered or excluded. If title issues like a mortgage, unpaid taxes, or construction liens are recorded against the real property being conveyed within this gap, the buyer’s title insurance policy may not protect the buyer. It is important to note that even if a title insurance company performs a detailed title search, sometimes claims on the title are simply not recorded until after the title search is performed.
If the gap period is excluded from a buyer’s title insurance policy, the buyer can obtain a separate, and relatively inexpensive, insurance policy solely for the gap period, called gap insurance, or a gap endorsement. A gap insurance policy can be useful, especially if the gap period is more than a few hours. The purchase of real estate is often an individual’s largest investment, so why not give yourself as much protection as possible? The attorneys at Kelly & Brand, Attorneys at Law, LLC can help prospective buyers review their real estate purchase documents to determine whether the gap is included in their title insurance policy and advise on whether a gap endorsement would be valuable.