The buyer’s or lender’s attorney typically issues the title insurance policy, insuring the quality of title to the real estate involved which sets forth the exceptions to the title, following the closing and recording with the Registry of Deeds or the Land Court. The lender’s title policy is known as the Loan Policy and the buyer’s title insurance policy is known as the Owner’s Policy. Lenders always require that the borrower obtain, and pay for, the Loan Policy 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 closing attorney is already issuing a lender’s policy of title insurance, the buyer has the opportunity at that time to obtain an owner’s policy at a cost substantially less than the buyer would pay if the policy were not written simultaneously with the lender’s.
Even though the buyer will be required to pay for the lender’s title insurance protection, the lender’s title policy 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.
Nearly all buyers choose to acquire the Owner’s title insurance when they purchase their property. If their property is later refinanced, there is no need to purchase another Owner’s title insurance policy, as this will carry forward to protect the owner throughout the entire period of ownership. The Lender will require a new Loan Policy at the time of refinance, since the title insurance policy insures the title to the property as of the date and time that the deed and/or mortgage is recorded. Any subsequent Loan policies are issued at a lower refinance rate by the title insurer.
We recommend the purchase of Owner’s title insurance because the policy will insure against many title defects which could not be found by an examination of the public records. These defects usually aren’t known until after the closing has taken place and purchasers can face significant financial losses as a result. Some of these are:
- Forgeries of deeds and other documents, such as powers of attorney
- Fraud (misrepresentation) in connection with the execution of documents in the chain of title
- Undue influence (improper pressure) on a grantor (seller)
- False impersonation by those claiming to be owners of the property
- Incorrect representation of marital status of a grantor (seller)
- In some cases, undisclosed or missing heirs, wills not properly probated or misinterpreted
- Signatures by minors or mentally incompetent grantors
- In some cases, inadequate surveys or incorrect legal descriptions
- Incorrect indexing at Registries of Deeds
- Clerical errors in public records and recording of documents and claims of parties that were unknown because their claims were not indexed correctly
There are also enhanced policies that may be purchased that go well beyond the basic coverage and provide coverage for a host of very significant issues such as zoning and building permit violations, encroachments and defects in title that can affect property both prior to and after a closing. In addition, there is no extra charge for an inflation rider which is added to every policy and which will increase coverage as required, up to 50 percent in addition to the present coverage. Unlike other kinds of insurance, title insurance has a one-time charge when the policy is issued, and no additional premium payments due afterward.
