What is Title Insurance?
Owners vs Lenders Policy
Most mortgage lenders require people to purchase a title insurance policy in the lender’s name. That policy is called the Mortgagee Policy and it is required to insure the validity of the mortgage as a lien on your property. But the policy you buy for the lender does not protect you. Owners desiring title protection must purchase a separate policy insuring their interests. The title insurance policy you buy for yourself is the Owner Policy.
Owner’s title insurance protects you against loss or damage arising from claims against your title and outstanding liens that predate your ownership. If there is a claim against your ownership, your insurer will defend your title and guarantees that similar coverage will be available to any subsequent owner or lender if a defect is discovered in a later title examination.
It can be difficult to understand what a title defect might be or how it would not be discovered prior to your closing. To start with, you should understand what the “title” is. Title to property is different from title to a motor vehicle. Rather, it is a legal opinion formed by an attorney based on a review of the records at the Registry of Deeds going back a minimum of 50 years. Since it is an opinion, there is always some possibility that a future attorney will reach a different opinion about the title even when reviewing the same records.
Additionally, defects can come to light that were not disclosed by the public records. For example, the title examination presumes that all the records are accurate, complete and properly indexed. Defects that are not disclosed by the public record, such as forgeries, fraudulent transfers, missing heirs, caps in indices, etc. may give rise to title claims that could not have been prevented by the most diligent title examination. Title insurance also provides coverage for errors made by registry staff, title examiners and attorneys.
Roughly one-third of titles reviewed each year have some sort of defect. The most common defect is an unreleased or improperly released mortgage (where the loan was paid in full, but the release was either not recorded or was incorrect). In that case, confirmatory or corrective documents are obtained and recorded to resolve the defect. Depending on the nature of the lien, the cost of curing these “paper” defects may be only a few hundred dollars, but in some cases, the costs can be substantially more. Your owner’s title insurance coverage will not only cover the costs of resolving this sort of minor defect, but will typically allow the parties to move forward with a transaction while the resolution is pending instead of requiring you to wait until the issue is fully resolved before you can complete a sale or refinance.
Some claims, of course, are for much more serious issues and can lead to protracted litigation and negotiations. In these cases, your title insurer bears the costs of defending your title. Even if the claim against the title is without merit. Without this coverage, you will bear the costs of defending your title and could ultimately lose your entire investment and/or your home.
Title defects present a classic scenario for spreading costs and risks by means of insurance. Title insurance premiums are calculated by offsetting the cost against the risk. You can obtain title insurance for a one-time up-front fee and your coverage will last as long as you and your heirs own the property. Of course, even if the probability of loss is very low, the person who happens to be the “one in a thousand” is not consoled by knowing how low the odds were.
Please feel free to call or email me with any questions or concerns. Have a great day!
Pauline Lee | (617) 965-1988 x205 | firstname.lastname@example.org | www.indmortgage.com