Prior to your closing, your attorney will examine an abstract which includes copies of all documents with recorded transactions involving the property.   This is done to uncover any tax liens, judgments, mistakes in the record, undisclosed heirs or unknown easements.  Problems such as these are referred to as encumbrances.   If there are any encumbrances on the title, the seller will have to try to clear them before being able to transfer the property to anyone.

     Following the title examination, an attorney will write a letter of opinion expressing that the seller does indeed have good title.  Only then will an insurance company agree to provide title insurance for the property.

    Since the property you are buying will usually have a history of previous owners and transactions it's impossible to guaranty that nothing from the house's history will ever pose a problem to you.    Even though a title search has been done, this does not negate the possibility of  title claims arising from the past.   Title problems are rare occurrences, but, as is the case with all types of insurance, you don't want to be without it when those rare instances happen to you. 

    Following are two examples which illustrate the value of title insurance.

     Several years ago, one of my clients was preparing for his ownership of a three-family home.  Two weeks prior to the closing I received a call from his attorney to inform me that the transfer would not, in fact, be taking place.  During the title examination the attorney had  discovered a lien on the property.  It was a $60,000 loan that had been taken out against the equity by a previous owner.  The lien had not shown up at a title search which had been conducted five years prior for its previous sale which was, obviously, an error made by that title examiner.

     The seller embarked on a search for the individual who had owned the property and had taken out the $60,000 loan using it as collateral.  The situation could not be resolved since the person was never found and the money never repaid.  Unfortunately, that seller had not taken out an owner's title policy when he purchased the property.  If he had, the title insurance company would have paid the $60,000 and the seller would have been free to sell to my client.  Since this problem could not be rectified, I had to find another property for my client  to purchase.

     Another occurrence which demonstrated the value of title insurance happened in the case of  The  Wampanoag Indians vs. the Town of Mashpee.  

     Mashpee, which is located on Cape Cod,  was originally a province that early English settlers had promised to the Indians who lived there.  In the 1970's, with the population soaring and buildings consuming most of the open space, the members of the Wampanoag Tribe filed a lawsuit to get back the much of the town that they felt had been taken from them a long time ago.  

    As the court battle went on from 1976 to 1978, angry and confused property owners in Mashpee had to face the possibility that they could lose their homes.  There were, more than likely, two groups who were nervously awaiting the outcome of this case:  home owners who had no title insurance, and title insurance companies holding policies for the rest of the town.

     The town of Mashpee was well-represented by the law firm of Hale & Dorr and they won the case in 1978, but during those two years many property owners were unable to sell due to clouds that were hovering over their titles.

      There are other situations that could hold your title for ransom.  Suppose that a year from now,  someone comes forward and claims he has inherited the property from a passing relative and that the seller who sold it to you had no right to do so.  Or, perhaps the seller took out a second mortgage two days before the closing after the title search had been done.   In addition, there are mechanic's liens.  If the seller had work done to the property and neglected to pay the contractor, the law allows the  contractor to place a mechanic's lien against the property for the amount of money that is owed.

     Even if the home you are buying is new construction, you need the protection of a title insurance.   You may well be the first owner of your new home, however, the land that it is built on is another matter.  Builders often purchase land with existing structures with the intention of  demolishing the structure in order to build a new home.  That original home and the land that it was on would certainly have a history of  owners dating back into the distant past.       

     Unlike homeowner's insurance which is there to protect you against a possible future event, title insurance is there to protect you from an event which has already happened.   For a one-time fee which is paid at the closing, title insurance is well worth the protection.