When purchasing a home in Massachusetts, title insurance is one of the many expenses buyers are likely to incur at closing.
What is Title Insurance?
Title insurance protects the homeowner and the lender from financial losses when the property has a title "defect." A defect in the title refers to a legal claim or ownership issue that may arise that could affect the homeowner's legal right to own and occupy the property.
Title insurance in Massachusetts is divided into two policies: the owner's policy and the lender's policy. The buyer purchases the owner's policy to protect their investment in the property. The lender also obtains a title insurance policy, typically paid for by the homebuyer, that insures the lender's investment in the property.
Why is Title Insurance Important?
Buying a home is a big deal. It is one of the most significant financial investments a person will ever make. Title insurance protects against the potential risks of owning a home. The following are just a few possible issues:
- Undisclosed heirs: If there is an unknown heir to the property, they could potentially have a legal claim to the property, resulting in a loss of investment for the homeowner.
- Liens or encumbrances: A lien is a legal claim against the property, such as a mortgage or unpaid taxes. Encumbrances refer to any limitations on the use of the property, such as zoning laws or deed restrictions. Title insurance can protect against financial losses resulting from these claims.
- Forged or fraudulent documents: If a document related to the title is forged or fraudulent, the homeowner may risk losing their investment in the property.
- Errors in public records: Mistakes in public records, such as incorrect property boundaries or incorrect names on deeds, can result in unexpected legal claims against the property. Title insurance can protect against losses resulting from these and other errors.
Claims from various issues, such as the ones outlined above, don't usually arise during one's ownership of a home but more often occur when a homeowner tries to sell their home. Suppose the problem is discovered when you are selling the property. In that case, the title insurance company usually agrees to insure the future homebuyer or lender so that the sale can move forward.
How is Title Insurance Purchased?
Unlike most other states, only licensed attorneys may "certify" title in Massachusetts, so title insurance is typically purchased through an attorney. Attorneys receive a commission, about 70 percent of the premium cost.
Title insurance premiums are paid once at closing, unlike the annual premiums paid for homeowners insurance. The coverage is valid throughout one's ownership.
What Does Title Insurance Cost in Massachusetts?
Title insurance is a one-time premium paid at closing and calculated based on your home's purchase price. "Standard" coverage costs $3.65 per $1,000 in home value. "Enhanced" coverage policies cost $4.00 per thousand and have become the new standard because of improved coverage and inflation protection.
There is a discount when you purchase both lender's coverage – required by mortgage lenders – and owner's coverage simultaneously. First-time homebuyers typically receive a 10 percent discount.
Title insurance provides coverage for as long as you or your heirs own the property.
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