Title Insurance- what is it and why is it needed?

 Property Deeds

When one sells or buys real property it must have a clean and clear title.  After reading an article in today's Boston Globe I thought I would blog about what this means.  The heading on the article in the business section was "Can you help me get my $20,000 back".  The subject of discussion was about a couple who learned the hard way that there was a cloud on the title of a condo they were in process of selling.  The mortgage on the condo had transferred to a few different financial institutions since issuance and although paid off the record of discharge had not been properly assigned.  Due to numerous changing of hands between the final lending institutions the paper trail got lost and was not realized.  This made the sale process extremely difficult until resolution several stressful months later. For more details click here.  

For those new to the housing market you may be asking what is Title?:

Title is the legal document that identifies the owner of given property.  It establishes legal ownership of real or personal property. Title Insurance protects the owner from anyone who may try to take the property.  When there is a transfer of ownership from one owner to another or when an owner finances a property the lender will have a lien on the title until the mortgage is paid in full.  The Massachusetts Government website provides very useful information on title insurance recommendations and requirements here.  In the situation mentioned the mortgage was paid in full but the documentation did not reflect this discharge.

Now lets explain what a Deed is: A Property deed is the written document used to transfer real estate from a seller (grantor) to a buyer (grantee).  This document is prepared as part of the closing process when a home is sold and will be initiated by the lender.  The deed for the above transfer could not be completed without the bank discharge.  Realtor.com explains the process of this in more detail. There are five primary types of deeds.

Lastly Title Insurance is important to protect the owner against any financial challenge to the rights to a Title.  A home owner can buy a title insurance policy for a few hundred dollars to guarentee they are buying a title that is free and clear from another parties claims. In the situation above I am not sure if title insurance would have made a difference for a clerical error. In other instances where this is a true defect or falsification on the title the insurance would mitigate financial risk.  A defect on the title is called a cloud. Claims may include a tax or mechanics lien against a property. In rare instances someone may forge a deed to falsely transfer the property to another owner without the owners awareness. Attached is a link to learn more about the necessary steps to protect ones property assets  click here. 

It is important to have the right professionals in place for each step of the home buying process.  I am always happy to introduce my clients to both reputable lenders and legal counsel.    If you would like more information please feel free to contact me.

Wendy is a Realtor with Coldwell Banker Needham. She is available to help sellers prepare for the prospect of selling a home either virtually or in person.  For more information please email her at wendy.bornstein@nemoves.com or check her website at www.wendybcb.com.