What is title insurance?

Title insurance is an indemnity (reimbursement) policy, available to Buyers of real estate.  The policy is available through national title insurance companies (click here to see our title insurance partners). The closing attorney is typically the issuing agent of the policy.  The policy insures a buyer against a) defects or gaps in ownership that can occur as a result of an abnormality in the historic ownership of the property; or b) liens or encumbrances against the property that were not discovered prior to your purchase. 

Why should I buy owner’s title insurance?

A buyer purchasing real estate is offered the opportunity to purchase an owner’s policy of title insurance. The lender will require an examination of the title to the property and a lender’s policy of title insurance insuring that the property is or will be owned by the purchaser and that there are no defects, liens or encumbrances on the property which would adversely affect the marketability of its mortgage.

Since the closing attorney is already issuing a lender’s policy of title insurance, the buyer has the opportunity at that time to obtain an owner’s policy of title insurance at a cost substantially less than the buyer would pay if the policy was not written simultaneously with the lender’s policy.

The owner’s policy of title insurance ensures that the owner has good marketable title to the property free of any encumbrances or liens that would adversely affect the property, except those made known to the buyer, and ensures to the owner that if any such liens, encumbrances, defects or other title problems become known, the title insurer will defend the buyer’s title to the property. We recommend the purchase of the title insurance for some very simple reasons.

First, the premium for purchase of the title insurance policy is a one-time charge. Since the purchaser is usually borrowing money to finance the purchase, the majority of the cost of the title insurance policy that the owner would receive has been paid through the premiums for the lender’s policy which is required by the loan. Therefore, purchasing the owner’s title insurance simultaneously with a lender’s title insurance policy, offers a discounted premium. The additional premium cost for the owner’s policy will be shown on the Loan Estimate prepared by the mortgage lender. These items include forged documents in the chain of title, signatures of mentally incompetent persons or minors which are unknown to the party reviewing the title, mistakes or inaccuracies in recording of legal documents of title at the appropriate place or recording or registration of title, fraud in the execution or in the handling of the recording or indexing of recorded documents, undisclosed or missing heirs, fraud in the execution or in the handling of a transaction in the prior chain of title, invalid divorces or misrepresentation of marital status of the parties signing the documents, and most importantly clerical errors in the public records and claims of parties unknown because their claims have not been filed in any indices of public record.

There are also enhanced policies that may be purchased that go well beyond these simple coverage and provide coverage for a host of issues such as additional protection regarding issues in zoning, building permit violations, encroachments and defects in title that can affect property both prior to and after you purchase it.

Even though the buyer may be asked to pay for the lender’s title insurance protection, the lender’s policy of title insurance does not protect the buyer and a claim can only be made if the lender suffers a financial loss because of a title defect that adversely affects a foreclosure of the buyer’s mortgage. There have been many defects in titles which could not be revealed by an examination of the public records. These defects usually arise at a time after the transaction has taken place and purchasers can suffer significant losses as a result of them.

Methods of Taking Title

If you are buying your home with a spouse, partner, friend, or relative, a decision must be made.  The deed will list your names as the new owners, and will specify the manner in which you take title.  The three most common ways two or more persons may hold title to real estate are:

• Tenants in Common: (the default tenancy if no other is specified), you and your “co-tenant” own separate interests in the property. If a co-tenant dies, then that person’s ownership interest passes through his or her “estate.” It will be necessary to probate the estate of the deceased before the real estate may be sold or mortgaged.

• Joint Tenants (for unmarried persons) or Tenants by the Entirety (for married persons): Conversely, if the owners are Joint Tenants or Tenants by the Entirety), the ownership interest of the deceased automatically passes to the surviving title holder, and the expense and time delay created by a probate is avoided.  

We will explain these so you fully understand the best option for you.

What is a title exam?

A title exam is an integral part of the purchase process.  With each client purchase, we are performing a historical research project called a title examination.  In most situations, we start the research with the first deed we find for the property dating back at least 50 years.  We then review books, records, and reports forward through the current date.  We review each transfer of ownership to be sure the holder of any ownership interest has signed off properly.  We review any liens or encumbrances that are filed during each period to be sure the lien or encumbrance has been properly satisfied.  We review and report all matters that can affect ownership rights, such as easements (right of another to use a portion of the property); restrictions (things that cannot be done by an owner).  As a result of obtaining and reviewing the title examination, we are able to certify to a buyer that title is “good record and marketable” title.

Is title insurance required?

If you are financing your purchase with a mortgage loan, your lender will require you to purchase a policy for the lender (or will not grant you the loan).  The “lender’s” policy does not extend protection to the buyer.  For a buyer to be protected, an “owner’s” policy is also issued at the time of closing.  Purchase of owner’s coverage is optional, and is a charge separate from the lender’s premium.  It is, however, discounted if purchased at the same time as the lender’s policy.  

Do you recommend title insurance?

Every real estate attorney practicing in Massachusetts will answer yes, Kellem & Kellem included.  The implications of a title issue can be so substantial that we always recommend the purchase of a policy.  Considering the price of the home, you can understand why.