Purchasing a home is a significant investment and one that should not be taken lightly. As a homebuyer, it is important to protect your investment from potential risks arising after closing the deal. One way to do this is by purchasing owner’s title insurance. In this blog post, we will discuss what owner’s title insurance is, what it covers, and why it is important for homebuyers to have.
What is Owner’s Title Insurance?
Before understanding owner’s title insurance, knowing what “title” means is essential. Title refers to the legal right to own, use, and sell a piece of land, and it reflects all previous owners and transfers, including rights granted by other parties like mortgages and easements. Owner’s title insurance is an insurance policy that protects home buyers against a total or partial loss of their home and land due to title defects. The policy covers the buyer for as long as they remain the property owner, and it is paid for through a one-time fee, unlike a homeowner’s insurance policy, which is paid each year.
What Does Owner’s Title Insurance Cover?
Owner’s title insurance provides protection against undisclosed problems with the title, which can result in financial losses due to title defects, liens, or other matters. The title insurance company will typically defend the homeowner against a lawsuit attacking their title or reimburse them for any actual money lost. It can also be used to clear up title issues. Before issuing an owner’s title insurance policy, the closing attorney will complete a title exam to detect, prevent, and eliminate risks and losses caused by title problems. Public records are examined to document the chain of title to the property and to identify all outstanding claims.
Owner’s Title Insurance vs. Homeowner’s Insurance
It is important to note that owner’s title insurance differs from homeowner’s insurance. Homeowner’s insurance protects against damage to the physical property and personal belongings due to perils like theft, fire, or weather damage. On the other hand, owner’s title insurance protects home buyers against title defects and related issues that may arise during the real estate closing process.
Consider the following example to understand the importance of having a Massachusetts owner’s title insurance policy. If you bought a home and never purchased a home owner’s insurance policy, and that home burned down one week later, you would still be able to rebuild on the land. While this would undoubtedly be a challenge, it would not be a total loss.
Now, assume that you never purchased an owner’s title insurance policy, and one week after your closing there is a knock at your door. It turns out that many years ago a previous owner left this property to his best friend under his Will and it was recently discovered that the person who made this Will was incompetent at the time. Further, because of this, the Will has been determined invalid. Additionally, assume that under Massachusetts Intestacy Laws, his grandchild, who is now on your doorstep, is the true owner of the property on which you closed. Unlike before, when the house burned down, and you could at least rebuild, you now have a complete loss. You have no ownership rights in this land and no policy to protect you.
Lender’s Title Insurance vs. Owner’s Title Insurance
When you buy a home with a mortgage, your lender will mandate that you purchase a lender’s title insurance policy. However, this policy only safeguards the lender’s interest in the property and does not offer any protection to you as the homebuyer. To secure yourself against potential financial losses arising from title defects, obtaining an owner’s title insurance policy can be essential. With this policy in place, you are protected against many issues for as long as you remain the owner of the property.
Examples of Title Defects
Title defects can arise due to a variety of reasons, including unpaid taxes, forged deeds, a lien filed by someone who completed construction on the house, or any other countless situations. Even though public records are analyzed during each title exam, many issues may be impossible to discover, even with the most meticulous search. The following are examples of title defects that may make a property worthless and could result in a complete failure of title:
- Someone has presented themselves as the true owner of the land, but actually is not.
- Forged title documents exist.
- People may claim to have “power of attorney” but don’t really have the legal authority to act for another person.
- Deeds have been delivered after the death of one of the people involved, without the pre-written consent of the deceased.
- It is discovered that a Will isn’t legally valid.
- A deed is to or from a defunct corporation.
- Heirs may be missing or not disclosed in title documentation.
- Wills were misinterpreted.
- Deeds were made by people of unsound mind.
- Deeds were made by minors.
- Deeds were made by non-citizens.
- Erroneous reports were furnished by tax officials.
- Estates were executed with key people absent.
- There is an undisclosed divorce of a spouse who claims to be an heir.
- Children were born or adopted after the date of a Will that involved the property.
- Surviving children were omitted from a Will that involved the property.
- Mistakes were made in recording legal documents.
- Title records were falsified.
- Creditors make claims against a property that was sold by heirs or other people named in a Will.
- Deeds were made under duress as a last option to foreclosure.
- Easements (limited rights for other parties to use the land) exist that were not located by a survey.
- A deed incorrectly identifies public property as private property.
- There are errors in tax records.
- There are deeds from a bigamous couple.
- Representations on legal documents (e.g., Notary seals) are invalid or incorrect.
Resolving Title Issues
If a title defect is discovered, owner’s title insurance can also be used to clear up the issue. The insurance company will work to resolve the issue and protect your investment. This can involve paying for legal fees or reimbursing you for any financial losses resulting from the title defect.
In conclusion, owner’s title insurance is an essential aspect of the home-buying process. It protects your investment and ensures that you have clear title to your property. Without owner’s title insurance, you run the risk of losing your investment if a title defect is discovered. Title defects can cause significant financial losses, and owner’s title insurance is the best way to protect yourself against these losses. Contact our office if our closing attorneys can help you with your purchase or sale in Massachusetts.