Is Title Insurance worth it? 10 FAQ about real estate title and title insurance

 It’s February 5, 2024, and I know I’m late saying this, but Happy New Year!

Didn’t mean to post my new year’s post this late, sorry. January has kept me on my toes – between engaging clients for the new year, organizing a Chinese New Year’s celebration for the Singaporean community (I’ll blog about that later!), time has simply whizzed by.

I had no time to be still… until this present moment.

I’m in a plane, on my way back to Singapore. Peace and quiet for the next 13 hours before landing in Korea for my stopover. I love the disconnect. Plenty of time to get work done.

Also feeling a little melancholic as I type this. The last time I worked on a blog post in a plane had been Jan 2022, where I had boarded a last-minute flight to be with my father-in-law in Germany. My mother-law-passed that year. My heart still aches.

Well, parking that aside, I’m pleased to be putting out this informative post about Real Estate Title and Title Insurance.

Shoutout to Attorney David Silva of whom I owe such knowledge and eloquence. He deserves all the credit, because title isn’t an agent’s domain. I don’t know the intricacies of it; only that title has to be clean and marketable when property is passed, and I’ve basically differed to the attorneys on that.

But I’ve always wanted to know more! And sometimes my clients do too!

So here goes 10 frequently asked questions about real estate title and title insurance. Click on a topic below that interests you to skip to that part!

1. There is a “deed” to the property, and then there’s “title”, and “title insurance”. What’s the difference?

The deed to the property is a document that transfers the legal right to possession of the property from one owner to a subsequent owner. A land's "title" is technically all the deeds and encumbrances (liens, mortgages, attachments, etc.) throughout the years, basically tracking how it got transferred from owner to owner throughout time. Title Insurance is a type of insurance that covers your title a/k/a ownership to the property because of an alleged defect, it is peace of mind knowing that if a covered issue arises that the title insurance is there to protect your ownership rights and cover the associated costs (including legal fees) to either defend your claim of title or to fix whatever issue has arisen. There are two types of policies associated with Title Insurance: Owner’s Policy and a Lender’s Policy.  An Owner’s Policy protects the owner of the home’s title and a Lender’s Policy protects a lender most often dealing with priority of mortgages or liens on a property.

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2. How does title insurance work? 

Title insurance works like any other type of Insurance. When an issue arises, you can make a claim and the title company will evaluate your claim and respond to you with their opinion on whether it is a covered matter that they will undertake. If they deny the claim, you can challenge it the same way you would with any other insurance you may have. If the matter is a covered, the title company may undertake to fix the issue or they can issue different types of indemnity agreements to wait to see if the issue resolves itself. 

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3. What is the difference between “insurable”, “clean” and “marketable” title?

Joan: There’s often this clause in the P&S, “It is agreed that in the event of a title matter for which a title insurance company is willing to issue a so-called “clean” policy or provide “affirmative coverage” over a known defect or problem, BUYER may elect to accept same but shall not be required to do so, and shall have the right, at the option of their counsel, to deem title to the Premises unacceptable or unmarketable and to terminate this Agreement.” Explain in layperson’s terms please?

This language should be in every Purchase and Sale Agreement or Rider to it. Basically, what this means is if an issue is raised by a title examiner and the seller's title insurance company says that it is not an issue that needs to be addressed at this time and offers to issue a clean policy, wherein the issue is not excluded from coverage, they are basically saying just move forward. As buyer's counsel you need to inform your client of what that means and how it may cause issues later on when they go to sell. Here, if my office and title insurance underwriters think that it is a bigger issue, we can back out of the transaction based upon the opinion of counsel that the title is not acceptable. A clean policy would mean that if this issue arises in the future, it would potentially be a covered matter and not excluded under the policy. The terms “insurable”, “clean” and “marketable” are all words that can have different interpretations depending on what title company and/or attorney is reviewing it. There have been many times that I have believed a title to be unmarketable or not clean and another counsel or title company has disagreed with it. Basically, clean title is when there are no issues with the title- all liens are released or otherwise addressed, there are no missing interests or issues raised by the title examiner. This is often very rare to have an absolute clean title. Often there are issues but they are minor or they have expired by law or are covered under a title insurance policy. Marketable title means that you can transfer the property freely without someone having an issue with the title later. As a closing attorney we want to make sure our client will not have issues down the line and thus we always try to make sure we have clean marketable title for our clients.

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4. Of all possible cases of title issues, what is a rough percentage breakdown of the most common ones? E.g. 60% former lending institution no longer in existence and this cannot provide clarity on title.

Unfortunately, this is impossible to give a percentage for. Most often title issues are simply missing releases or discharges of record. What this means is that once a loan is paid off, the paperwork stating that it has been paid in full and satisfied was either lost or otherwise not recorded with the registry of deeds. Sometimes this is as easy as calling that bank and asking for them to issue a duplicate release. There are however, many other title issues that can be a lot more complicated from missing interests in title, e.g. if four persons were on the deed, and then in the next deed only three of those prior four persons are involved. Research is needed to see what happened to that other party, and whether their interest ever merged into that of those three people. Title issues can be very tricky and can torpedo a deal fairly quickly. Those are the worst calls to make to a potential buyer, telling them that the deal cannot go forward because of a title defect. The lender requires a title insurance policy and will not lend if a title insurance company will not issue a clean policy to the lender. 

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5. When a title search is run, how far back does the title examiner research into the history of the property?

Joan: Do title searches go back to the beginning of time, i.e. when the property was raw land? I’ve had a transaction where the title examiner looked at probate records all the way from the 1800s (took 3 weeks to retrieve it from storage in Worcester), and in another example I’ve had another examiner look at records of the last 50 years and said that’s all that is required. What is the standard, if any, or does it differ for each title company?

It really depends on the title examiner. We use a couple of different examiners but typically they will go back about 50 years or more depending on how many owners are in the chain of title. Their review not only looks at the registry of deeds but also probate records of past people that had an ownership interest. When requesting probate records it can sometimes be challenging as many of them are in storage and that can take a couple weeks for someone at the probate department to locate and then deliver the record to the county probate office. A 50-year look back is typically acceptable for an examination and with a refinance a two-owner run down is typically sufficient in that case. 

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6. Can you provide examples of how title insurance - or the lack of - has impacted your client?

I have more personal stories than many people would like to hear when it comes to title issues. I have been working with title insurance companies and title issues since roughly 2006. Prior to creating Silva Law LLC, the firm that I was working at was hired by a few of the title insurance companies to litigate title issues on behalf of owners. Today, my office along with a few other attorneys in MA are often hired by other law firms to fix title issues. It was a big relief to those property owners to hear that there were no out-of-pocket expenses needed from them and that all costs would be covered under their policy. Recently, I had a closing where thankfully the seller had an Owner's Title Insurance Policy as there was issue with regards to a prior owner’s deed that was conveyed by an executor of an estate under a power of sale. The issue was that consideration paid by the prior owner (as a buyer) was nominal and thus made for an improper exercise of the power of sale. For it to be a proper exercise it would have needed to be conveyed for considerable value, and not a hundred dollars. This type of issue created possible missing interests in multiple heirs of the estate. Luckily with the seller having an owner's title insurance policy, we were able to have the two title insurance companies talk and reach an agreement that allowed us to move forward with the transaction. Had the seller not had a policy, this deal would not have gone forward.  

I was also recently retained by a seller that did not have title insurance. Unfortunately, it was not an easy fix and we’ve had to retain counsel down in Delaware to seek a lift of a bankruptcy stay that would allow us to file suit in Massachusetts. We were able to resolve the issue, but it cost a whole lot more than it would have if the seller had purchased title insurance when they bought the property. 

Title issues gets a bit more complex when it comes to condominiums as the impact may be in a greater scale. A lot of problems can arise when condominium boards do not follow what the condo documents say. A past example was they deeded the same parking spot out to multiple different people over the years and the owners figured it out on their own with regards to who parks where. However, a new owner may not want to park in a different spot than their deed and therefore you need to force the condominium board to fix the issue by making a change. There’s a procedural timeline to making these changes.

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7. What happens if I’d successfully purchased a property with title insurance, but a defect in title was discovered in a later sale? Does that mean I can’t close my sale until said defect is resolved by my title insurance company? What if my title insurance company no longer exist… would I then be stuck in limbo? 

First the buyer’s counsel will notify the seller’s counsel of the title defect. If I am representing the seller in this situation, I would then assist my client in filing a claim or otherwise investigate what happened and why the issue wasn’t addressed at the initial closing. If there is a title issue, often it does mean that you can’t sell the property till it is addressed in one fashion or another. If it is a covered matter the seller’s title insurance company may issue an indemnification letter to the buyer’s title insurance company and the deal can move forward. Most title companies that are in business today have been around for a long time. It is very rare that you see a title insurance company that no longer exists- often, they merge with other companies. If a title company is no longer around or your issue isn’t covered by the policy, then sometimes what you can do is a hold back of funds while the issue is being addressed. It really all depends on what the issue is and if it is serious enough.

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8. Can I shop for title insurance in order to get the best quote?

No, unlike other insurance coverage where you can shop around for the best rate, in Massachusetts title insurance is a set price for all title insurance agencies - the fee is the same no matter the title insurance company, so it is always the best quote. Note that in closing disclosures title insurance is often reflected under the area of “Services you can shop for”. This can be misleading to a buyer but basically the lender is stating that they are free to use any Title Insurance Company. As a closing attorney we are typically an agent of one or two Title Insurance Companies. The cost of the owner and lender policies are based off a percentage of the purchase price of the property and, if applicable, loan amount that you are borrowing. When you buy the policies together you get a discount on the owner’s policy. As mentioned above since the Closing Attorney is an agent of the Title Insurance Company, which title insurance company you will have a policy with, is usually dependent on whom the closing attorney chooses.

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9. Is title insurance a one-time payment? How is the cost calculated?

For an Owner's Title Insurance Policy, it is a one-time payment at closing through the closing costs. The sum is calculated off the purchase price and loan amount using a standard amount per thousand- as of 2024, the amount is $2.50 per thousand for a Lender’s Policy, and if the Buyer elects to purchase an Owner’s Policy the cost for simultaneous coverage is $3.65 per thousand plus a flat fee of $175.00. The Lender's Title Insurance Policy is loan specific, so if you never refinance and keep the same loan, it would be a one-time payment as well. However, if you refinance you will need to get a new Lender's Title Insurance Policy regardless if you stay with the same lender you had before, or use a new lender for your refinance.

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10. Is title insurance worth it?

My answer is always YES! Take it from an attorney who knows how to fix title issues – even I bought owner's title insurance on my own home. It is peace of mind knowing that my ownership in the property is protected. 

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Acknowledgements

To Attorney David Silva,

For your bottomless patience and dedication to your clients; for your selfless teachings- thank you.

 

David M. Silva, Esq. 
Silva Law LLC 
Email: dsilva@silvalawllc.com
Mobile: 978-267-1818
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Attorney David Silva is a real estate conveyancing attorney who has been practicing since 2010. Attorney Silva began his legal career as a legal assistant at a Newton, Massachusetts law firm in 2006. He worked primarily in the real estate title curative department. Wherein, his  duties included performing legal research on various title issues including resolving outstanding liens, defects in succession of title, missing interests and homesteads to name a few. Upon graduating law school and passing the bar, Attorney Silva remained at the same firm wherein he represented major banking institutions in residential evictions throughout Massachusetts and cleared titles for homes, this included drafting complaints for complex title issues and working with outside counsel and title companies during litigation. Some years later he worked at a boutique law office in Lynnfield, Massachusetts wherein his focus was on real estate conveyancing and complex litigation resolving title issues. Since December of 2015 Attorney Silva has been operating his own real estate practice; Silva Law LLC, out of Woburn, Massachusetts. Silva Law LLC focuses on real estate conveyancing, title issues and landlord/tenant matters.

InvestingJoan BissdorfTitle, Title InsuranceComment