Do I have to buy Title Insurance for my Home?

I get this question very often. While some buyers are familiar with Title Insurance, many are not, and the subject rarely comes up until near the closing. Here's some things everyone should know about Title insurance.

 

What is Title Insurance?

Title Insurance is insurance that the title to your home is free of issues or encumbrances. Since the Title gives you the right to own and sell your home, having a clean Title is very, very important. Although most buyers pay the bank to 'examine' the title and make sure it is clean for just this reason, not all examinations catch everything at time of purchase, and there are things that can happen after you purchase a home, that can leave defects or clouds on the title. Most Title Insurance covers these things. Title Insurance is NOT Insurance on the home itself, so it does NOT cover things like falling tree limbs, theft, and fire.

Will Title Insurance cover me from Every Issue that might affect my Title?

No, like all insurance products, there are limitations as to what is covered and what is not covered. These are good discussions to have with the person who is selling you Title Insurance. 

Who Sells Title Insurance?

In Massachusetts, only attorneys can sell Title Insurance. You can not buy Title Insurance from an Insurance company in most cases, despite the name. Many real estate attorneys will sell you your policies when you close on the property. They don't do it for free, just like everyone else who sells something as part of their job (myself included!). It is important to understand that the person selling you Title Insurance is compensated when you purchase it.

What do I need to Purchase for Title Insurance

Although every situation is different, and you should consult an attorney to determine your coverage needs, most people have mortgages and must purchase Title insurance to protect the bank. (Banks universally think Title insurance is a good idea and worth the cost). This is general called Lender's Title Insurance.  In addition to the bank's policy, most homeowners purchase an OWNER's Policy as well.

How Does the Bank's Title Insurance usually Work when I Purchase it?

The Bank's Title Insurance is a policy that the BUYER purchases on the BANK's behalf, and only the BANK can file a claim under this policy. Banks typically require full coverage on the amount that you have mortgaged, not the amount you paid.

How Does the Owner's Title Insurance usually Work when I Purchase it?

The owner's policy is more straight forward - it protects you and your financial interests in the property. Since owner's policies typically cover the mortgage amount AND your equity in the home (added together this is the full purchase price) they are often more expensive than the bank's policies.

What are the things Homeowners Title Insurance can cover?

Here is a good overview given by a Massachusetts Attorney

Do I Need Owners Title Insurance?

Each situation is different, and the state of Massachusetts has determine that advice about whether you need/don't need Title Insurance should come from an attorney. I am not an attorney, and since I desire to stay out of trouble, I won't be answer that question here. Having said that, different properties have different risk factors, and the amount of personal equity relative to your total net worth is also part of the equation that is worth discussing with an attorney. Factors worth discussing may included whether your development or HOA is complete, as new construction carries certain additional Title Risks, whether your property is going/gone through probate, or foreclosure, and how many times it has been bought and sold are all factors.

How much is Homeowners Title Insurance and How is it Priced?

Homeowners insurance costs depend on who is selling it, but it is often priced in terms of $/thousand, and is in the high $3s. That means a $300,000 mortgage could cost 300*$3.65 or $1095. The policy is as good for as long as you own the home, and never needs to be renewed. However, if you refinance, even with the same bank, you will have to purchase lender's title insurance again.

Is Title Insurance Expensive?

Personally, I don't like the way Title Insurance is packaged and priced. I think Title insurance was a VERY good deal back in the day when people bought a home and stayed put for 25 years, and never refinanced. But those days are long gone, so I think the business model needs to change with the times. Regardless, change is hard, and there seems little impetus to change the status quo. Like most insurance products, we all wish we didn't have to pay them, or pay as much for them, and since most of us don't file (significant) claims, it can feel like a waste. But all insurance feels like that (People who don't get into car accidents probably don't like spending $1000/year insuring their car). It's worth remembering though that insurance is designed to have everyone pay something so that large scale incidents/claims don't impact certain individuals. If you find yourself in a situation where your title to your most expensive asset has a big problem, you will thank your lucky stars you bought title insurance. Just as you would if a tree falls on your car and you are insured for it. Are the chances high that you will file a significant claim? No, and thank goodness they are not - or Title insurance would be much more expensive.

I only have to buy one Title Insurance policy - it's good forever right?

Yes - and no. It's good until you refinance. Once you re-finance, you will have to buy it again, if you wish to remain covered.