Whether Buyers should purchase Title Insurance at the time of closing is an important, often debated issue. At its most basic level, Title Insurance protects an insured against loss due to a title defect, many of which remain undetected by a thorough title examination. Title Insurance is obtained with a one-time premium, paid at closing. Coverage continues for as long as the policy holder or her heirs has or have an interest in title to the property. In addition to reimbursing policy holders for losses, should it be necessary, the Title Insurance company will also provide for the cost of attorneys necessary to defend the insured’s interest in the property.
But here is the natural question (usually asked at closing):
Why do I need an Owner’s Policy if I’m already buying a Lender’s Policy at closing?
Most lenders require that the Buyer purchase a “Lender’s Policy” at the time of closing. A Lender’s policy, limited to the amount of the loan, protects the lender should there be a loss due to defective title. The amount of coverage reduces over time to reflect the unpaid principal balance and eventually disappears as the loan is paid off. The Lender’s Policy only protects the lender against loss–NOT THE HOMEOWNER. For purposes of Title Insurance, the lender does not suffer a “loss” until there is a title defect and the Borrower defaults on the loan, i.e. the Borrower stops making monthly payments.
An “Owner’s Policy” protects the Buyer and her heirs against losses due to title defects up to the policy amount—the purchase price of the property. Coverage continues as long as the owner or her heirs have an interest in the property and some policy limits actually increase over time to keep pace with inflation.
Title defects are actually common. Here are some of the usual, covered title defects:
- Errors or omissions in deeds
- Mistakes in examining records
- Improperly discharged mortgages
- Forgery
- Undisclosed heirs
- Erroneous or inadequate legal descriptions
- Silent (off-record) liens (such as mechanics’ or estate tax liens)
You’ve just done a title exam, shouldn’t you know if there’s a title defect?
The short answer: No. The customary title examination reviews records held at the Registry of Deeds and Registry of Probate for a period limited to fifty years. If title defects occur before this point, they will go undetected. Title examiners are not looking for forgeries, missing documents, unrecorded documents, or unaccounted for heirs. Frankly, title examiners are human, which by definition means that they can make mistakes.
It’s new construction, so the title should be clear, right?
No. While the beautiful house you are buying may be brand new, the land that it sits on is not. Any defects that may have affected the land will also encumber your new house. So whether you’re buying a brand new home or buying from a seller who has lived in the house for the past 50 years, the need to adequately protect your home remains extremely important.
The purchase of a home often represents the largest investment that a person will ever make. Home buyers should strongly consider purchasing an Owner’s Policy as an affordable protection for this investment.
Stiles Law, with offices located in Boston and Marshfield, Massachusetts, is a firm concentrating in real estate conveyancing and mortgage lending services, representing buyers, sellers, borrowers, banks, mortgage companies, investors, builders and developers in all of their real estate and mortgage transactions. Stiles Law serves all areas of eastern Massachusetts–the North Shore, Boston, and Cape Cod, in addition to the entire South Shore, including: Plymouth, Kingston, Duxbury, Hanover, Pembroke, Marshfield, Scituate, Norwell, Cohasset, Hull, Hingham, Weymouth, Braintree, and Quincy.
Copyright © 2014 Stiles Law, All rights reserved. Stiles Law is a Massachusetts licensed law firm and all content is based on Massachusetts law. The information presented above is meant to be used for general informational purposes and it should not be construed as legal advice or legal opinion on any specific facts.