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What is title insurance and do I need it?

Title insurance protects the policyholder (typically the property owner and/or the mortgage lender) against losses that arise from title defects that affect the right to use or own the property. Generally, the title insurer will defend the policyholder and pay monetary damages according to the provisions of the policy. The premium is typically paid in a lump sum, often after title to the property has been examined. But most title insurance policies contain coverage exceptions and exclusions, so it’s important to understand exactly what is covered by the policy.

Title is the measure of your rights in property. You can acquire property many different ways, such as through gift, inheritance, or purchase, but you generally obtain only the rights or title the conveyor had in the property. That’s why, before acquiring property, it’s wise to have the title examined by an attorney or title company. Typically you’ll receive a written report from the title examiner describing the property, the breadth of the examination, and any title defects or liens discovered.

Most mortgage lenders require you to take out lenders title insurance, which protects the lender’s interest in the property. Lenders coverage is limited to the amount of the loan and gradually decreases as the loan is paid off, so it doesn’t protect your equity interest in the property. As a result, you should consider purchasing a separate owner’s policy. However, you are not required to use the title insurance carrier offered by the lender. The Real Estate Settlement Procedures Act entitles a homeowner to use the title insurance company of his or her choice.

There are several different situations that can affect a property’s title, from unpaid liens and mortgages to violation of zoning laws, to defective or improperly drafted deeds. Recently, with the proliferation of mortgage foreclosures, some lenders have faced legal challenges to foreclosure proceedings. Imagine if title to the home you bought from the bank was not properly foreclosed on and the prior owners claim they still own the property? Title insurance may help protect you in this nightmarish situation.

IMPORTANT DISCLOSURESBroadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

This communication is strictly intended for individuals residing in the state(s) of MA. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2012.



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