What is Title Insurance and What Does It Cover?

Title insurance is insurance that protects homeowners and lenders from actual financial loss in the event that unknown defects in your title may potentially be discovered in the future. Your current closing may go forward because the title defect went unnoticed, but when you try to sell your property down the road the title defect may be discovered. If a title insurance policy was purchased, then the insurance company will hire an attorney to investigate and determine whether there is, in fact, a title issue. If there is, then the insurance company may be obligated to take whatever action is required to correct the problem.

In Massachusetts, there are two types of title insurance, one covering the mortgage lender and one covering the homeowner. Lender’s policies are required by most every public mortgage lender in the U.S., and are typically paid as part of closing costs.  Homeowner’s policies are optional and paid for by home buyers.

An Owner’s Policy protects the buyer up to the purchase price.  This is especially important when you have made a substantial down payment, resulting in substantial equity in the property. Owners’ title insurance is a one- time premium paid at the time of closing.  It remains in effect as long as you own the property.

In addition to undischarged mortgages and the sudden appearance of unknown or missing heirs claiming an interest in the property, an owner’s policy of title insurance also covers a myriad of other types of title defects, including faulty foreclosures, forged deeds, incorrect legal or boundary descriptions, and recording errors.

There is also an extended or enhanced coverage policy available from all major title insurance companies which cover building permit violations, prescriptive easements, building encroachments, incorrect surveys and pre-existing violations of subdivision, zoning laws, restrictive covenants.

A buyer who did not purchase title insurance would need to hire a real estate lawyer at their own expense, and incur whatever the necessary costs to resolve the title issue.