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Why you need title insurance

By Paul F. Alphen - Posted on 02 December 2014

In Massachusetts, by law, a Massachusetts attorney must perform every real estate closing. We know that there are lenders who from time to time ignore the law and the Real Estate Bar Association for Massachusetts and others are working to eliminate such unlawful practices. When you purchase property in Massachusetts and borrow money from an institutional lender, the customary practice is to have the lender’s attorney examine the records of the registry of deeds regarding the property for the period of at least fifty (50) years. The examination of the record title is a specialized skill as the recorded documents not maintained by owner or by property address or by lot number, they are simply recorded in books in the order in which they are delivered to the registry. Additionally, some older descriptions of land may start with a farmer’s description of the land “running by the stone wall to land of Jones” etc, and then followed later in time by one or more plans of land changing the dimensions of the lot. Often the most complicated part of a title examination is making a determination if old mortgages and other liens were properly paid off and discharged of record. Frequently errors are buried in the detail of paper work prepared by mortgage lenders who no longer exist and specialized skills are required to obtain the proper documentation.

Your lender will also require that you purchase a title insurance policy to protect the interest of the lender in the event a defect in the record title is discovered during your period of ownership. Chicago Title Insurance Company describes some of the risks that are protected by title insurance policies as follows:

“The title to the property that you have purchased could be seriously threatened or lost completely by hazards which are considered ‘hidden risks.’ ‘Hidden Risks’ are those matters, rights or claims that are not shown by the public records and, therefore, are not discoverable by a search and examination of those public records. Matters such as forgery, incompetency or incapacity of the parties, fraudulent impersonation, and unknown errors in the records are examples of "hidden risks" which could provide a basis for a claim after you have purchased the property. In order to protect you against this possibility, Chicago Title provides insurance coverage for such claims. This is the second benefit you receive from title insurance. If a claim is made against your insured title, Chicago Title Insurance Company protects you by: (1) Defending your title, if necessary; and (2) Bearing the cost of settling the case, if it proves valid, in order to protect your title and maintain your possession of your property.”

Of course, title insurance protection only applies to you if you purchase an Owner’s Policy of Title Insurance. The lender’s policy protects the lender, not the owner. The premium for an Owner’s Policy is paid once at the closing and provides protection for as long as you own the property. We are fond of saying that in the off chance a title problem arises regarding your property, all you have to do is pass the problem to the insurance company, but if you don’t have an Owner’s Policy, the price you would have paid for title insurance will be less than your initial consultation with an attorney in the event a problem arises and you have to retain your own attorney to defend your title.