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The Effect of a Defect: From Sun Chronicle 1/23

January 31, 2011

This was my column that ran on Sunday, January 23 in The Sun Chronicle. I reprinted it here as enough people have asked me for it:

For most people, buying a home is one of the proudest moments of their lives. It is also one of the most stressful. The vision of being saddled with hundreds of thousands of dollars in mortgage debt is intimidating. When going through the real estate process, a large number of homebuyers do not hire someone to advise them such as a real estate attorney. As a result, no one is really looking out for the buyer’s best interests. For everyone who decides to buy a home on their own, I have one piece of advice: Buy an owner’s title insurance policy.
Before moving forward, here are two quick disclosures: Owner’s title insurance is optional in Massachusetts and lawyers make more money if you buy it. Having said that, buying an owner’s title policy is a one-time cost and it protects you against any title defects that may prevent you from either selling or refinancing your home.

If ever there was an event that should caution future real estate buyers who don’t get title insurance, it happened this month here in Massachusetts in a case called US Bank v. Ibanez. In a decision that made national headlines, the Supreme Judicial Court (Massachusetts’ highest court) came down on the foreclosure practices of banks who were selling mortgages to other banks without properly assigning ownership. In short, the Court found that these banks were foreclosing on mortgages that they did not own. The decision has shaken the foreclosure industry and the widespread impact of the Ibanez decision is still unknown. Hundreds, maybe thousands of mortgages across the state could be affected.

The biggest losers could be anyone in your community who bought a foreclosure in the last several years. As of now, it is very possible that they do not legally own their homes and are stuck in ownership limbo, unless they have title insurance. If so, they should be able to recover their investment from the insurance policy, which will be significantly easier and less costly than having to go to court against the big banks. For those that don’t have title insurance, there could be big problems ahead.

Buying a home is the largest investment most people will ever make – treat it as such. The Ibanez ruling is a cautionary tale to homeowners, present and future, urging them to protect themselves from anyone else that may claim ownership rights in the property. The additional cost is worth it for peace of mind.

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