When closing on a home, people often ask do I need owner’s title insurance. The answer depends on how risk-averse someone is. Buying a home is usually the single most significant investment you can make and an owner’s title insurance policy protects you against a total or partial loss of your home and land. If you are closing on a home in Massachusetts, and you don’t have an owner’s title insurance policy, it can be expensive to address potential issues.
Owner’s title insurance protects you for as long as remain the owner of a property, for a one-time fee. It is not paid each year like a homeowner’s insurance policy. Before you understand owners’ title insurance, you need to understand what “title” means. Title is a term that includ’e all of the owner’s legal rights to own, use and sell a piece of land. It reflects all previous owners and transfers, including rights previously granted by other parties, such as mortgages and easements. Should there be a problem with the title, ownership of your land could be in question and you could lose your home after your real estate closing.
Unpaid taxes, forged deeds, a lien filed by someone who completed construction on the house, or any other countless situations, could cause a significant problem (see Examples below). Even if a new home buyer were to lose the land over a title defect, he or she might still be responsible for repaying the mortgage. That’s why it’s important to have owner’s title insurance.
What Owner's Title Insurance Covers
Owner’s title insurance is insurance against undisclosed problems with the title, and it protects you against financial losses resulting from title defects, liens, or other matters. Owner’s title insurance will defend you against a lawsuit attacking your title or reimburse you for actual money lost. It can also be used to clear up the title issue. Before a Massachusetts owner’s title insurance policy is issued, which is done through the closing attorney, a title exam will be completed and reviewed by the closing attorney to detect, prevent, and eliminate risks and losses caused by title problems. Public records need to be examined to document the chain of title to the property and to identify all outstanding claims. ‘
Owner's Title Insurance vs. Homeowner's Insurance
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 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
Your mortgage lender knows about the risk of title defects and will require you to purchase a title insurance policy for protection, which is called a lender’s title insurance policy. This mandatory policy protects the lender against any title problems that may affect the repayment of the loan. The owner’s title insurance policy and the lender’s title insurance policy are two different policies and the premiums for both are paid by the home buyer. However, this lender’s title insurance policy provides no protection for the home buyer.
New Construction and Owner's Title Insurance
Even if your home hasn’t had previous owners, the land it stands on has. It has been there forever. An owner’s title insurance policy insures you as the owner of a specific piece of property. It protects your property rights and ensures, for example, that your builder hasn’t used it as collateral on another loan, that there are no unidentified problematic easements affecting your property, etc.
Examples of Title Defects
The list below shows why having an owner’s title insurance policy is important. Even though public records are analyzed during each title exam for a sale of real estate, many problems are impossible to discover—even with the most meticulous search. Any of the title issues listed below can make your house, condominium, and its land worthless and could result in a complete failure of title. An owner’s title insurance policy generally protects you from financial loss caused by such title issues:
- 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.
- There is a spouse who is supposedly, but not legally, divorced from someone involved in the proceedings.
- 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.
- The property was condemned but there is no official record of the condemnation.
Conclusion
Massachusetts owner’s title insurance is optional and it can be waived at closing. The issue is, similar to a home insurance policy, if it has been waived and an issue later occurs, it can be an expensive proposition. Owner’s title insurance policies are issued by the closing attorney in Massachusetts who does receive a portion of the premium for issuing the policy. While an owner’s title insurance policy is typically advised, seek independent counsel if you have any doubts about impartiality. Additional information can also be found at mass.gov.
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