Morse & Newell

Why Title Insurance? 

by Richard P. Morse, Jr., Esquire

as published in the Cape and Islands Board of Realtors Monthly News Letter

I recently conducted a closing during which the broker advised the buyers that they did not need title insurance since the property in question was registered land. The buyers were not represented by an attorney. I questioned why the broker would offer the buyers any advice since her agency was with the sellers. I also wondered if she knew the potential liability she was exposing herself to in the event that the buyers took her advice (they did) and there was a later title problem.

When buyers on Cape Cod decide not to request an owners title insurance policy, they are making a bet that their title will be accepted by the next owner or mortgagee. While the odds are better on registered land, the risk is not insignificant. All registered and unregistered titles in the entire town of Mashpee were frozen for approximately three years in the late 70's by the Wampanoag Tribe and it's (lis pendens). Only people who had purchased an owners title insurance policy could sell or mortgage their property as insurers agreed to issue new policies on property already insured. Those without title insurance nervously awaited the outcome of the litigation.

In the mid 80's when everone was a developer and all lawyers were Real Estate Lawyers, there was a sale of registered land in which the bank's lawyer managed to record the documents on the unregistered side of the Registry. In effect, the "owners" had no title - a fact I discovered when I did the title five years later. They did, however, have a title insurance policy and the problem was eventually resolved at the title insurance company's expense.

Approximately 10 years ago, I became aware of a residence that was registered land with apparently a clean title based on it's certificate of title. An attorney examining the title for a prospective purchaser searched back several certificates and discovered that the title came through a foreclosure that was faulty. Notice of the foreclosure had to be published in a newspaper located in the Town wherein the property is located and the foreclosing lawyer was unaware that such a newspaper existed in Sandwich at that time. The registered title was bad, there was no title insurance, and the sale was not consummated. The owners were "on their own" in terms of resolving this serious title problem.

Other major threats to registered land titles consist of forgeries and Registry employee errors. The chance of a forgery in a title is the same when comparing registered and unregistered titles. Also, a registered title can only be relied on to the extent that Registry employees have been accurate in noting and bringing forward all encumbrances on the Certificate of Title. I have seen several instances where information on the Certificate of Title is inaccurate and must be corrected.

Generally at a closing on a residential property, an attorney will issue a certification of title. The certification usually is limited to a fifty-year title search and covers only matters that appear in proper sequence in the search. Inevitably, a real estate attorney will have a title he or she certified called into question. At this point in time the pending sale may fall through. While most attorneys will try to resolve problems immediately, it may not be possible. If the claim is substantial it will be turned over to the attorney's malpractice insurer. At this point, the present owner would have to hire a lawyer to sue in order to resolve the matter. The malpractice insurer would defend the real estate lawyer and damages (not including attorney's fees) would be paid to the owner only if the real estate lawyer was found to be negligent.

The uncertainties and expense of such a situation could have been avoided by the owner if he had purchased a Title Insurance Policy. First of all, his sale would, in all likelihood, have gone through since most Title Insurance Companies will issue a new owner a Title Insurance Policy while the claim is being addressed and remedied at the Title Insurance Company's expense. Secondly, if there was a complete failure of title, the owner would likely be reimbursed the present day value of his property, since most Title Insurance Companies attach Inflation Riders to their Owner's Policies. (An attorney's Certification is limited to the original purchase price of the property.)

Barnstable County is a very unusual area of the country when it comes to doing a title search. Almost all of the land records were destroyed in a fire in the late 1820's. Probate proceedings were skipped fifty to a hundred years ago for worthless wood lots that, in this day and age, have become very valuable. What older deeds do exist describe land delineated by stone walls and trees that no longer exist. It is extremely important for a buyer or his bank to engage a careful, competent real estate attorney to perform a proper analysis of title - attorneys that advertise one day notice on closings should be questioned on the extent of their search. In addition, conservative buyers will supplement the attorney's certification of title by purchasing an Owners Title Insurance Policy.


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