People often have questions about the merits of obtaining title insurance when they buy a new home. Today, I’m pleased to have guest columnist and real estate attorney Ali Alavi of Alavi + Braza, P.C. with us to explain the importance of title insurance.
Here are a few key takeaways from the conversation:
The lender’s title insurance provides no protection to the homeowner. “If you’re buying a home, you will need to decide whether or not to purchase an owner’s policy of title insurance that protects your interests in the property,” said Ali Alavi. “This is one of the most important decisions you will have to make with respect to the purchase of your home. Unfortunately while you, the buyer, must pay to purchase the lender’s title insurance policy, the lender’s title insurance policy only protects the lender and offers no protection to you. At the closing, however, you will be given the opportunity to pay a one-time premium to obtain owner’s title insurance, which does benefit you, and your heirs, for as long as you have an interest in the property.”
Lenders know the importance of title insurance
If you are getting a loan in connection with your purchase, the lender will require that they receive a lender’s policy of title insurance that, in most cases, will be paid for by you. “Lenders are sophisticated real estate investors and they understand the issues and problems that can affect the title to any given property,” Alavi explains. “That is why every lender requires a loan policy that protects their interest in the property.”
“An owner’s policy is your best protection against potential title defects that could deprive you of your ownership rights. For as long as you or your heirs own the property, an owner’s policy will protect against numerous “hidden” defects that could not be discovered even with the most thorough title examination. Owner’s coverage gives you peace of mind by protecting the title to your home against forged documents; missing signatures; unknown creditors; mistakes in the public records; and undisclosed or missing heirs.”
There are things that homeowners have no control over, such as the court system that could provide a decision that would render the ownership of their home as defective or plain invalid.
This is why attorneys advise home buyers to get owner’s title insurance.
“An owner’s policy can now protect you against matters that did not exist when you purchased your home but may occur afterwards, such as: encroachment onto your property by a neighbor; or forgery of a mortgage on your property due to identity theft,” explains Alavi. “Owner’s title insurance will also protect you when you want to refinance or sell your home. If a defect is discovered at that time, the title insurance company will enable the sale or refinancing to go through by offering to insure the new buyer or lender against the defect. In addition, all work to remove the defect, including representation of the owner in a lawsuit to establish title or to remove the defect, will be paid for by the title insurance company.
Owner’s title insurance could save you thousands of dollars in legal costs.
A recent Massachusetts court case highlights just how important it is to purchase an owner’s policy. In US Bank National Association v. Ibanez, 458 Mass. 637 (2011), the Massachusetts Supreme Judicial Court upheld a lower court decision that effectively invalidated thousands of titles in Massachusetts. “The bottom line is that titles to certain properties that were subject to foreclosure are invalid if the foreclosing lenders did not possess an assignment of the mortgage in advance of the advertising of the foreclosure in the newspaper,” explains Alavi.
“The Court’s ruling not only affected current foreclosures but also foreclosures that took place years ago,” Alavi said. “As a result, a person who purchased a property in 2010 that was incorrectly foreclosed upon back in the 1980s does not actually own the property now. If that person did not purchase an owner’s policy of title insurance when they purchased the property, they will not be able to sell the property and their options, if any, are limited. If that person did purchase an owner’s policy when they bought the property in 2010, despite the earlier invalid foreclosure and despite the Court’s ruling, their title insurance company will authorize the issuance of a new policy to a potential new buyer.”
Before you close on your new home, ask about title insurance and how it protects your home ownership.
Reprinted from my MetroWest Daily News column in the Metrowest Homes publication, a real estate resource for residents of Dover, Holliston, Hopkinton, Sherborn, Southborough, Sudbury, Wayland, Westborough, Weston & beyond.