These are both very good questions. Let’s start with the first question and then the answer to the second question will be obvious.
What is Owner’s Title Insurance? It is Insurance that insures you against losses you may suffer as a result of issues affecting the title to your property. When you are buying a property in Massachusetts usually a title examination is completed that complies with MGL Ch 93 Sec 70. Based upon the result of this search a Title Insurance Policy can be issued and a Certification of Title may be issued to you. The Certification is dealing with the record title to your property. It is provided by the law firm closing your purchase. They may also be issuing the title insurance for the transaction.
They can issue two different types of policies. The policies issued in most transactions involving the purchase of real estate are:
- Owner’s Title Insurance and
- Lenders’ Title Insurance.
The Owner’s Policy protects you and the Lender’s Policy protects your lender. The lender will make you buy their policy, but your policy is optional. Even tough your interests may coincide with that of the lender their policy only protects them in the event of a loss. This often means not until they have acquired ownership of the property. At that point you no longer have an interest in the property.
When you buy your house, you are buying more than just the structure you will live in. You are also buying the property’s legal history. All the good and bad that comes along with it. Any title issue that impacts the property is now your problem. You may be able to look to the law firm that closed your purchase to address the issue or maybe not. There are numerous problems that can impact your ownership of your property that cannot be detected by a title exam and therefore are not addressed by the Certification. These title issues may be covered by your Owner’s Title Policy.
The Owner’s Policy will insure that:
- You are the legal owner of the property
- That there are no defects, liens or encumbrances effecting your property other than those listed on your policy
- In the event that there is a title defect, you may be able to convey your property to a potential buyer if they are willing to accept insurable title
If you are trying to refinance a loan policy may be issued
Things that are covered:
- Forgery and impersonation;
- Lack of competency, capacity or legal authority of a party;
- Deed not joined in by a necessary party (co-owner, heir, spouse, corporate officer, or business partner);
- Undisclosed (but recorded) prior mortgage or lien;
- Undisclosed (but recorded) easement or use restriction;
- Erroneous or inadequate legal descriptions;
- Lack of a right of access; and
Deed not properly recorded.
Things that may also be covered depending upon the type of Owner’s Policy you purchased:
- Off-record matters, such as claims for adverse possession or prescriptive easement;
- Deed to land with buildings encroaching on land of another;
- Incorrect survey;
- Silent (off-record) liens (such as mechanics’ or estate tax liens); and
- Pre-existing violations of subdivision laws, zoning ordinances or CC&R’s.
- Post-policy forgery;
- Forced removal of improvements due to lack of building permit (subject to deductible);
- Post-policy construction of improvements by a neighbor onto insured land; and
- Location and dimensions of insured land (survey not required).
Your Owner’s Policy will insure the entire value of the property. It will protect you from any legal action taken against you to enforce a lien or property right to your property. The amount of your coverage may increase each year for the first five years of your policy. It is automatically added to your policy with no additional premium due from you. Your policy will protect you during your entire ownership of the property. It may even protect your heirs depending upon the type of policy you purchased.
You should want to protect what maybe the largest investment of your life anyway that you can. The purchase of Owner’s Policy is that one-time investment that should not be missed. You will have the peace of mind that no matter what the issue that comes up with your property’s title you are protected, and the title company will defend your rights. It is no surprise that your lender requires it and so should you.