Title insurance is one of the important and least understood aspects of a real estate transaction. There are two types of title insurance; lenders’ coverage and owners’ coverage. Title insurance protects the lender and the owner against all types of title defects and also covers issues such as zoning, access, and protects the lender and owner against frivolous claims against title by providing legal defense against such claims.
In Massachusetts, a real estate attorney examines title to a property and must certify title to the lender and owner. However, this certification is based only upon a fifty year title search and is based only on the documents that are recorded at the Registry of Deeds. There are many situations where an attorney has done his or her job perfectly, and yet title issues could exist. For instance, if there is a forgery in the chain of title or if there is an heir who was erroneously omitted from a probate notification, title to a property could be defective. Additionally, if a document is improperly indexed at the Registry of Deeds or if a signatory to a deed is a minor or is incompetent, this could also make the title defective. These defects are called hidden defects and this is what makes title insurance so important to protect one’s interests.
The lender’s title insurance is required in practically every closing. It is a common misconception on the part of buyers that if there is a lender’s policy in place, the owner’s policy adds little value, particularly where the mortgage is a high loan to value mortgage. In fact, the lender’s policy does not protect the owner at all, as it only comes into play if the property is foreclosed by the lender and the lender is then unable to resell the property due to a defect. In recent years, owner’s policies have saved the day when documents such as mortgage discharges and mortgage assignments have not been properly recorded at the Registry of Deeds, and the title insurance companies have provided the necessary assurances and guarantees to allow the closing to take place.
Each buyer should consult with his or her attorney to learn more about the costs and benefits of title insurance. All title insurers provide a substantial discount when the lender’s policy and the owner’s policy are purchases simultaneously.Courtesy of: Mark L. Scheier Esq. Scheier & Katin P.C., Acton MA MScheier@skactonlaw.com