No. There is no legal requirement in Massachusetts that a homeowner or soon-to-be homeowner purchase title insurance. However, many if not most lenders will require title insurance as a prerequisite to the funding of a mortgage.
What is Title Insurance?
Title insurance is a form of insurance which protects either the lender or buyer or both parties from challenges to the title or defects that exist on the title that were missed during the title search process. To thoroughly understand how title to a home works and why title insurance is necessary, some explanation of the process is needed.
First, prior to the closing date (the day on which money is exchanged between the buyer and seller of a home in exchange for the property itself) an attorney or possibly a person with title searching experience (and then reviewed by a closing attorney) will comb through the registry of deeds to uncover any possible defects on the title.
“What type of issues might create a defect on a title in Massachusetts?”, you might ask. Here are common defects that could create problems for a buyer of property:
- Mechanic’s Liens – while not only applying to mechanics, in Massachusetts a service provider such as a construction contractor (either general or subcontractor), other professional service providers, and providers of rental equipment and other materials can file a lien against the home. In addition, homeowner’s associations, unpaid property taxes, and potentially other taxes can be a source of a lien on a home. When a lien exists on a home that goes unnoticed by the buyer’s attorney or other agent performing a title search, the buyer will likely have to incur expenses to remove the lien from the property. Title insurance provides a means of affording these expenses to remove a lien that has gone unnoticed in the title search.
- Encroachments – sometimes a shed, fence or other property belonging to the neighboring property will be later found to be encroaching upon the property to which title is sought. If an encroachment is discovered early in the home buying process, that is, prior to closing, the matter will likely be resolved between the parties prior to the deal going through. It is possible however, for such an issue to go undiscovered. For example, a neighbor’s fence may be placed on one border with the home buyer’s property and presumed as the actual borderline. However, a later property line survey could discover that the fence is in the wrong location. If the neighbor refuses to relocated the fence or disputes the results of the survey, a day in court may be the only option to resolve the matter. Here, title insurance could help with some of the costs associated with arriving at a resolution.
- Deeds that are Lost, Forged, or Filed Incorrectly – Imagine the nightmare of a deed that exists on a home that is about to be purchased which is unknown to both the buyer and seller of the home. You may wonder how such a mistake could occur, how a deed for the same property but with two different owners could exist. Well, it is possible for the current homeowner to have a deed that was acquired in good faith and is “legitimate,” but if the previous homeowner deeded the same home to a different person, that other deed may be recorded or held by the other person. When a confusing mess like this occurs, whether due to fraudulent behavior or for some other reason, the matter will likely be the source of extensive litigation to resolve. Title insurance is invaluable for occasions such as these.
- Fraud – What would happen if the seller of the current property or even the previous seller of a home forged mortgage documents to make those documents appear to have been paid in full? I’ll inform you…litigation would happen, lots of it. Here, title insurance can be an essential component of dealing with the fallout from fraud.
It should be clear to the reader that while not required in all situations, title insurance can make the difference between having to fund expensive litigation or having the insurance company fund such litigation when a defect on title occurs. While ideally, a good real estate attorney will have vetted the title to such an extent that most defects will have been discovered prior to the closing on a home, it is possible for some defects to be hidden. It is these hidden title defects that are worth protecting oneself from, in my opinion.
Please see the article on the “Types of Title Insurance Available in Massachusetts” for more information on this topic, including the average cost of title insurance in Massachusetts.
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