A common question that I receive from buyers is about title insurance. What is the purpose, what does it cover, and do I really need it? Below is a brief overview that answers these questions and explains why it is well worth it to purchase title insurance at closing.
What is it? Title insurance protects real estate owners and lenders against any property loss or damage they might experience because of liens, encumbrances, or hidden defects in the title to the property. It involves a one-time payment at closing, and it covers homeowners for as long as they own the home. A title insurance policy does not guarantee that the title to a particular property is good. Rather, it is an agreement by a title insurance company to defend the insured if there is a claim of a title defect covered by the title policy and/or to indemnify the insured for actual loss or damage sustained because of a covered title defect. At closing a buyer may purchase a lender’s policy and/or an owner’s policy. Each title insurance policy is subject to specific terms, conditions, and exclusions, and we recommend reviewing all of this with the attorney you hire for closing.
Am I required to have title insurance? If you borrow money from a bank to purchase your property, you will be required to purchase a lender’s title insurance policy for the bank. This protects only the lender’s interest in the property. In order to separately protect your interest in a property, you must purchase owner’s title insurance. Owner’s title insurance is optional; however, it is recommended to purchase it. The insurance cost is a fraction of your investment in the property. An owner’s policy protects you for the purchase price of your home plus legal costs if a title or ownership issue arises.
How is Title Insurance different from Homeowner’s insurance? Homeowner’s insurance policies cover you in the event of future physical damage to your property or for claims filed for damages to others. These policies do not cover claims against the title of your home or other claims that are from before you received the title to the property.
What does Title Insurance cover? Title insurance protects against claims based on defects. Defects are things such as another person claiming an ownership interest, improperly recorded documents, fraud, forgery, liens, encroachments, easements, and other items that are specified in the insurance policy. Although a closing attorney in Massachusetts conducts a 50-year title examination of a property as part of closing, title defects can be missed.
How much does title insurance cost? Your lender and closing attorney will include estimates for the cost of title insurance as part of closing costs. Title insurance is a one-time premium paid at closing and calculated based on your home's purchase price. The cost in Massachusetts is generally $4.00 per thousand of the purchase price. Title insurance provides coverage for as long as you or your heirs own the property.
The above is provided for informational purposes only and does not replace discussing it further with a licensed attorney. Andrew McKinney Real Estate is happy to provide recommended attorneys to discuss Title insurance in greater detail.
Attorney Andrew McKinney, formally of Buyers Brokers Only, LLC is an exclusive real estate agent with 13 years of experience in the Boston area having completed over $250 million in transactions. Andrew works with buyers and sellers at all market segments in Boston and the surrounding cities and towns including Cambridge, Somerville, Brookline, Newton Needham, Arlington, Belmont, Watertown, Medford and Melrose. As an attorney and an MBA, Andrew brings a unique skill set and level of professionalism that sets him apart from other agents in the area.