Owners Title Insurance – what the heck is it and why do I need it?

Congratulations, as a soon-to-be homeowner, you probably have come to learn, rather quickly, that real estate transactions have lots of parts. Finding your dream home was probably difficult enough, and now it’s time to seek out and find a full time Real Estate Title Attorney. Don’t worry too much– it’s not as complicated as it seems. We are 24/7/365, real estate all the time.

Here’s what you need to know about title insurance in a nutshell.

Many ask:

What is Title Insurance?insurance_policy1

According to the American Land Title Association (ALTA):

  • The purpose of title insurance is: “Helping the parties in real estate transactions to determine their rights and interests, and assuring that land transfer is expeditious and secure.”
  • Before a title insurance commitment/policy is prepared, a title search is performed in order to “locate potential problems so that they can be rectified and the transfer can proceed.”
  • “During the title search, title companies find and fix problems with the title in 25 percent of transactions – usually unbeknownst to the consumer or lender.”
  • “Title companies pay millions of dollars each year in claims.”
  • Title insurance is a policy of insurance protecting homeowners and lenders from financial loss in the event that certain covered issues arise regarding the anticipated rights to ownership of property. While Massachusetts closing attorneys search and certify each title to real estate before a closing, there are hidden title defects that even the most detailed title search may not reveal. In addition to protection from financial loss, title insurance pays the cost of attorneys helping you defend against any covered claim.
  • There are two types of title insurance, lender’s and owner’s policies. Lender’s policies are required by every public lender in the U.S., and are typically paid as part of closing costs.

Title insurance protects homeowners from financial loss in the event that certain covered problems develop regarding the rights to ownership of their property. While all borrowers of conventional mortgages will receive a certification of title by a Massachusetts real estate closing attorney that their title is “good, clear and marketable,” there can be a host of hidden, off-record title defects that even the most careful title search will not reveal. In addition to protection from financial loss, title insurance pays the cost of defending against any covered claim.

What Does Title Insurance Cost?

Unlike other types of insurance policies, title insurance is purchased just once. There are no monthly premiums. The Owner’s Title Insurance Policy will appear as a line item within your closing costs on the ALTA settlement statement and/or the bank’s Closing Disclosure (CD). Title insurance typically costs somewhere near $3-$4.5 per thousand of sales price of the price of the home, depending on what style policy you choose, standard of enhanced. This does not include title search, examination, settlement, recordation and other potential costs pursuant to the closing that must be charged by your title company.

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Title Defects:  What Does An Owner’s Policy Of Title Insurance Cover?

The recent foreclosure mess and the Massachusetts SJC ruling in U.S. Bank v. Ibanez are good examples of the importance of title insurance. Thousands titles in Massachusetts coming out of faulty foreclosures were rendered defective because of the Ibanez ruling. Those without owner’s title insurance were left to fix the title problems on their own at great expense. Those with title insurance, by contrast, were able to sell their property with the title insurer issuing “clean” policies over the defects.

Here are some other real examples of how title insurance protects you. Learning days before the closing that there are several un-discharged mortgages and liens on your property from an original owner. Fortunately, having an owner’s title insurance policy will allow closing to go forward as scheduled. In addition to undischarged mortgages, a owner’s policy of title insurance also covers many other types of title defects, including:

  • Faulty foreclosures
  • Forged deeds or impersonations
  • Incorrect legal descriptions
  • Recording cleric al errors

Some extended or enhanced coverage policy available from title insurance companies can also cover:

  • Building permit violations, filed or unfiled
  • Adverse claims or easements
  • Building issues
  • Faulty surveys
  • Pre-existing violations of subdivision, zoning laws, restrictive covenants.

Obtaining an owner’s title insurance policy at closing is in my mind not a question but a necessity.   Having this coverage in place for the life of your ownership at NO additional cost post-closing is invaluable.

Todd M. Gornstein, Esq.
246 East Main Street
Norton, Massachusetts  02766
Tel   508-622-1835
Fax 508-622-1834
toddg@gornsteinlaw.com

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RELATED ARTICLES:
Is Owners Title Insurance Worth The Cost?
Lenders and Owners Title Insurance

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