Real estate title insurance very simply is an insured statement of the conditions of one’s title or ownership rights to a certain piece of real estate. The policy guarantees that the property being purchased or mortgaged is free from undisclosed liens or rights and it guarantees additionally that any confusion as to rights of ownership will be resolved in favor of the party owning the real estate or the title insurance company will be liable for loss in value to the policy holder up to the policy limits.
A buyer purchasing real estate is offered the opportunity to purchase an owner’s policy of title insurance by the settlement agent, attorney, escrow company or title agent conducting the real estate closing. For example, you decide to purchase a house in Boston and are obtaining a mortgage to help you finance the purchase from a bank or mortgage company. That institution will require an examination of the title to the property and have the party reviewing the title issue to them a lender’s policy of title insurance insuring that the property is or will be owned by the purchaser and that there are no defects, liens or encumbrances on the property which would adversely affect the marketability of its mortgage.
Since the settlement agent, attorney, escrow agent or title agent is already issuing a lender’s policy of title insurance, the buyer has the opportunity at that time to obtain an owner’s policy of title insurance at a cost substantially less than the buyer would pay if the policy was not written simultaneously with the lender’s policy.
The owner’s policy of title insurance ensures that the owner has good marketable title to the property free of any encumbrances or liens that would adversely affect the property, except those made known to the buyer, and ensures to the owner that if any such liens, encumbrances, defects or other title problems become known, the title insurer will defend the buyer’s title to the property.
In many instances we are asked whether or not title insurance is necessary or advisable for the owner to purchase. We recommend the purchase of the title insurance for some very simple reasons. First, the premium for purchase of the title insurance policy is a one time charge. Since the purchaser is usually borrowing money to finance the purchase, the majority of the cost of the title insurance policy that the owner would receive has been paid through the premiums for the lender’s policy which is required by the loan. Usually for a few hundred dollars or less the owner can insure against a variety of problems which could occur in the future. These items include forged documents in the chain of title, signatures of mentally incompetent persons or minors which are unknown to the party reviewing the title, mistakes or inaccuracies in recording of legal documents of title at the appropriate place or recording or registration of title, fraud in the execution or in the handling of the recording or indexing of recorded documents, undisclosed or missing heirs, fraud in the execution or in the handling of a transaction in the prior chain of title, invalid divorces or misrepresentation of marital status of the parties signing the documents, and most importantly clerical errors in the public records and claims of parties unknown because their claims have not been filed in any indices of public record. The enhanced policies such as First American’s Eagle Policy go well beyond these simple coverages and provide coverage for a host of issues that can affect property both prior to and after you purchase it.
Even though the buyer may be asked to pay for the lender’s title insurance protection, the lender’s policy of title insurance does not protect the buyer and a claim can only be made if the lender suffers a financial loss because of a title defect that adversely affects a foreclosure of the buyer’s mortgage. There have been many defects in titles which could not be revealed by an examination of the public records. These defects usually arise at a time after the transaction has taken place and purchasers can suffer significant losses as a result of them. That is why owner’s title insurance makes a great deal of sense.