August 21, 2018
How is Title Insurance Different from Other Forms of Insurance?
Sometimes when we’re discussing the necessity for title insurance, I’ll have a client question its utility. This question often comes out of a comparison with other types of insurance with which they are most familiar such as: car insurance, health insurance, life insurance, and so on. People generally recognize that what these types of insurance protect against are potential future catastrophes: an auto collision, a health crisis, a situation of financial instability for one’s loved ones following a death. So they wonder why would you need to protect title to home or land? However, therein lies the key difference between title insurance and most other forms of insurance.
What title insurance protects against isn’t a future catastrophe. Rather what it does is protect a present-day property owner from something that has happened in the past. While a catastrophic health problem is clear and present when it occurs, defects of title can take a long time to show up. They can be hidden deep in the crannies of history, generations back. They can be problems of forgery or title passed forward by a minor or by someone who was mentally incompetent … problems that manifest in all sorts of odd and unexpected ways.
For example, in Massachusetts, a particular issue arose several years ago following the massive number of foreclosures on homes during what is referred to as our recent Great Recession.
In U.S. Bank v. Ibanez, the Massachusetts Supreme Judicial Court held in favor of previous homeowners who had fallen behind in their payments. The banks who foreclosed on them did not have a clear chain of assignments of mortgage establishing their rights to foreclose on their collateral. This meant that the lenders didn’t actually have proof of ownership of their loans at the time they foreclosed on the properties.
This became an issue for the purchasers of these properties from the banks. If these borrowers had purchased title insurance at the time they bought their property, they would have been protected from this issue. We will get into this a little further in the next post.
There are other differences, too. For example, there is no termination date in title insurance. And it is a one-time, pay-and-you’re-done insurance. No annual fees or payments necessary.
Topouzis & Associates, P.C. is your bulwark against problems of the past. We do thorough title searches and ensure you are purchasing clear title to your property—and we back our services by offering title insurance from the most reputable insurance companies in the country.