By Amy Magit, Esq.
One of the most frequently asked questions by a home buyer is whether or not purchasing an owner’s title insurance is necessary. The short answer: YES!!!!
It is not mandatory for a buyer to purchase owner’s title insurance. However, most if not all attorneys would highly recommend it to their clients. Most lenders require a borrower to purchase a lender’s title insurance policy, which protects the amount they lend. But, a lender’s title insurance policy does not provide added protection to the borrower. An owner’s title insurance policy will protect the home buyer’s financial investment in the home. In general, owner’s title insurance protects home owners from someone, at some point, contesting their ownership in the property.
An example of a very common title issue is one that occurs during a refinance. Often times during a refinance, the new lender pays off the current lender’s loan with the proceeds from the refinance. When this happens, a Discharge of the paid off loan is to be recorded at the Registry of Deeds either by the new lender, the closing attorney or the borrower. But what happens if a Discharge is never recorded? And what happens if there is another refinance a few years down the road and yet another Discharge is not recorded? A problem will arise when the home owner attempts to sell the property and a title search of the property is conducted. The title examination will reveal that there are several outstanding mortgage liens on the property and the property will not be able to be conveyed to a buyer until this title defect is cleared. Owner’s title insurance will not only protect the seller from this kind of loss but the title insurance company will also defend the seller and pay for the cost in clearing the title.
A costlier title issue to clear would be one involving a discrepancy with land ownership. For example, a seller has co-owned her property with her brother for 25 years. She and her brother have not spoken in the last ten years and she is unaware that she needs her brother’s signature on the deed to sell the property. Buyer purchases the property and attempts to sell it someday. A title examination reveals that the buyer did not purchase the property with good, clear, marketable title as the brother still has an ownership in the property. Again, owner’s title insurance will not only protect the seller from this kind of loss but the title insurance company with also pay for the financial cost of litigating the claim of ownership to the property. The financial cost to a seller without owner’s title insurance could be hundreds of thousands of dollars.
The difference between other insurances, let say auto insurance, and owner’s title insurance is that other insurances protect you from events that haven’t happened yet. Whereas, owner’s title insurance protects you from defects in the chain of title that are already in existence at the time you purchase a property but have either not been detected or are erroneously missed during a title examination. In Massachusetts, the attorney who represents the lender is required to search the records at the Registry of Deeds to determine that the buyer has good, clear, record and marketable title. The attorney’s certification of title only protects against problems that appear on record. It cannot, for example, protect against forged documents, misindexed documents or documents signed under duress. The likelihood of needing an owner’s title policy is not great but the financial cost could be very expensive and time consuming to cure even a simple title insurance. Not only can the cure be expensive, but a sale can be canceled if the defect cannot be cured within a reasonable time. If title insurance was purchased, assuming the defect is not extensive, the transaction can generally go forward on schedule while the title insurance company gives assurances that it will guarantee a good title and cure the defect.
In Massachusetts, owner’s title insurance can only be purchased by an approved title insurance agent. The premium rates are set by the company. It depends on the sale price of the property. If you buy the owner’s policy when you by the required lender’s policy, there is a substantial savings. Therefore, if you decide to buy the owner’s title policy, you should do so during the purchase closing. Owner’s title insurance is in effect for as long as you own the property and it increases as the property value appreciates.
The owner’s title policy premium is a one-time payment and, unlike other insurances, no additional premiums are due after the policy is due. The fee for an owner’s policy of insurance is relatively low compared to the cost of purchasing a home. Although you may never need it, the peace of mind and financial savings are monumental if you need it someday. Buy owner’s title insurance. You do not want to be in a position where you regret not doing so.