Special offer

Why Is Title Insurance Necessary for a Home Purchase? - Massachusetts Blog

By
Real Estate Agent with The Buyers' Counsel

Pen on a closing documentIn real estate there is a concept called "chain of title."  X sells to Y, Y to Z, and so on. 

By the time you arrive at your closing, a title examiner will have performed a title search which will include all documents involved in the chain-of-title.  This is also done to uncover any tax liens, judgments, mistakes in the record, undisclosed heirs or unknown easements. 

When the search has been completed, the examiner will write a letter of opinion expressing that the seller does indeed have good title.  This will satisfy the bank and will get you to your closing.  But, will it insure that you have no title problems in the future?  

According to the American Land Title Association (ALTA), about 25 percent of all residential real estate transactions have issues with the title.  Most are resolved prior to closing; however, some claims and challenges can crop up after you have become the new owner. 

Some of these include:

  • Forgery and impersonation
  • Lack of competency, capacity or legal authority of a part
  • Improper recording of deeds
  • Sudden appearance of someone claiming to have a prior interest in the property
  • Mechanic's liens
  • Undisclosed prior mortgage or lien
  • Encumbrances or judgments
  • Erroneous or inadequate legal descriptions

These are situations which could derail your ownership or cost you in legal fees to battle it out in court.

Unlike homeowner's insurance which is there to protect you against a possible future event, the purpose of title insurance is to protect you from an event which has already happened.  

There are two types of title insurance policies that you will be offered at your closing:

  • The Lenders' Policy protects the bank against possible title problems and you will be required to purchase this policy if you are financing your home.   It does not, however, protect your interests. 
  • For your protection you will need to buy an Owner's Policy.   

There are also policies that offer Extended Coverage which goes beyond the standard coverage. 

The cost of title insurance varies and correlates with your property's value.  The purchase is a one-time premium.  Once it is paid you never have to buy it again. 

Prior to your closing, talk with your attorney about title insurance, read the actual policy and make certain that you are doing enough to protect yourself and your home purchase.  

Related Posts:

Homeowners Insurance - Getting the Best Policy

Home Warranties, Are They Worthwhile?

Assessing the Value of a Home

What is Included in a Home Purchase?

The Importance of Being Pre-Approved

Claudette Millette, President, TheBuyersCounsel -  800-392-1446, E-mail    

Learn more about Massachusetts Home Buyer Representation in the Greater Boston and MetroWest Massachusetts - Serving Massachusetts Home Buyers Since 1992 

 Serving Home Buyers in:  Ashland, Holliston, Hopkinton, Natick, Newton, Northborough, Framingham, Sherborn, Southborough, Sudbury, Wayland, Westborough

Posted by

 

Comments (15)

John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Claudette - I always recommend that home buyers purchase an owners title policy. It's very inexpensive relative to the potential risks.  Having been in the home building business for 4 decades, I've seen many instances where title insurance could have saved purchasers thousands of dollars in legal fees.

Aug 16, 2009 08:56 AM
Claudette Millette
The Buyers' Counsel - Ashland, MA
Buyer, Broker - Metrowest Mass

Interesting, John.  Thanks for the comment.

Aug 16, 2009 09:19 AM
Kathryn Acciari
Central One Federal Credit Union - Shrewsbury, MA
Mortgage Loan Originator

Well-written, Claudette.  Can't tell you the number of times that buyers have become suspicious about the fee for title insurance (and Homestead), and I always say, "Get it!" 

Aug 16, 2009 10:34 AM
Christine McInerney
Great Life RE - Knoxville, TN
The McInerney Team, Knoxville TN Homes For Sale

After the title insurance for the mortgage is paid (as part of closing costs) owners policys are so small- it should be a no brainer.

Aug 16, 2009 10:54 AM
June Piper-Brandon
Coldwell Banker Realty - Columbia, MD
Creating Generational Wealth Through Homeownership

This is excellent information and should be shared with all.  I'm definitely going to reblog.  I've seen so many problems with the chain of title, things that happen later like mechanics liens and title companies that don't do things the right way.  Everyone should purchase title insurance as a matter of course.

Aug 16, 2009 10:59 AM
Claudette Millette
The Buyers' Counsel - Ashland, MA
Buyer, Broker - Metrowest Mass

Thank you for the comment, June, and re-blog away.  Regards, Claudette

 

Aug 16, 2009 11:22 AM
Anonymous
Amanda Reid

Very interesting and informative post.  Thanks, Claudette.  I understand that it varies, but is there a rule of thumb or general calculation to estimate the cost of the title insurance - i.e. a percentage of the value of the home? 

Aug 16, 2009 02:07 PM
#7
Anonymous
Amanda Reid

Very interesting and informative post.  Thanks, Claudette.  I understand that it varies, but is there a rule of thumb or general calculation to estimate the cost of the title insurance - i.e. a percentage of the value of the home? 

Aug 16, 2009 02:07 PM
#8
Anonymous
Amanda Reid

Very interesting and informative post.  Thanks, Claudette.  I understand that it varies, but is there a rule of thumb or general calculation to estimate the cost of the title insurance - i.e. a percentage of the value of the home? 

Aug 16, 2009 02:07 PM
#9
Anonymous
Amanda Reid

Very interesting and informative post.  Thanks, Claudette.  I understand that it varies, but is there a rule of thumb or general calculation to estimate the cost of the title insurance - i.e. a percentage of the value of the home? 

Aug 16, 2009 02:08 PM
#10
Anonymous
Amanda Reid

Very interesting and informative post.  Thanks, Claudette.  I understand that it varies, but is there a rule of thumb or general calculation to estimate the cost of the title insurance - i.e. a percentage of the value of the home? 

Aug 16, 2009 02:10 PM
#11
Anonymous
Amanda Reid

Very interesting and informative post.  Thanks, Claudette.  I understand that it varies, but is there a rule of thumb or general calculation to estimate the cost of the title insurance - i.e. a percentage of the value of the home? 

Aug 16, 2009 02:11 PM
#12
Claudette Millette
The Buyers' Counsel - Ashland, MA
Buyer, Broker - Metrowest Mass

Hi, Amanda:  The cost of title insurance varies in different locations of the country and also among title insurance companies.  I know of no set formula to calculate the cost and that is why it is wise to check with several companies. 

Aug 16, 2009 03:18 PM
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Claudette

Good information to share with clients who don't understand its value. Definitely worth repeating as a reminder for all of us.

Thanks!

Aug 16, 2009 07:22 PM
Irene Tron
Valparaiso, IN

Great information in a well-written post. 

Aug 17, 2009 06:25 AM