Some questions and answers about title insurance

Tammy Flesher

What is title insurance and why is it important for those who buy and sell property?

As defined by the Colorado Department of Regulatory Agencies, title insurance protects from past events related to the ownership of property. Title insurance also helps to ensure the seller can transfer the title to you and offer protection if a problem with the title arises after you buy or refinance property. Unlike other kinds of policies that insure against unforeseen future events, title policies insure against past events affecting the rights to real property. For a single premium, the title policy provides protection as long as the buyer owns the property. The premium depends on the type of coverage you or your lender request.

Why is title insurance important? Title insurance is recommended on any home no matter how new or apparently secure.The land the house is built on likely has had many previous owners. Claims against any former owners can be filed against the property and present owner. Fraud, missing heirs, old liens and other hazards can materialize like ghosts out of the past. Title insurance protects the current owner against these claims and title defects. A title insurance policy is your shield of protection and will defend current ownership against loss as outlined by the policy. Its protection and peace of mind last as long as the current owners and their heirs remain in ownership.

Who’s covered? There are two basic title insurance policies: an owner’s policy and lender’s policy. Owner’s title insurance is generally issued for the purchase price. It protects purchasers and their heirs as long as they own the property. Lenders’ title insurance is often required as security for their investments in properties. The borrower typically pays for the lender’s policy, which is issued for the loan amount.

How does a title company eliminate risk? An essential part of the title insurance process is eliminating risk before insuring, reducing the possibility of claim or loss. Title insurers examine a property’s public records, looking for matters affecting the title to the real property. These records include assessments, civil and probate court records, debt and other burdens, deeds, easements, maintenance agreements and restrictions to the property.

What are some hidden hazards? Even the most careful examination can’t disclose hidden hazards to the title. Hidden hazards can emerge after the completion of a real estate purchase, creating an unpleasant and sometimes costly surprise. Some examples include deeds executed under expired or fabricated powers of attorney or by people with unsound minds, fraud, forged documents, gaps in the chain of title, invalid divorces, mistakes in public records and undisclosed heirs claiming an interest in the property.While many of these hidden hazards might not be revealed by routine title examination, they still could be covered under the terms of a title insurance policy.

When and how is a title insurance process initiated? A commitment for title insurance contains the conditions under which the title company issues a particular type of title insurance policy. Shortly after escrow is opened, the title company will begin producing the commitment for title insurance. This process calls for the assembly and review of certain recorded matters relative to both property and the parties to the transactions. Examples of recorded matters include a deed of trust recorded against the property and parties to the transactions. These recorded matters are listed numerically as requirements and exceptions in the title commitment. However, they will remain exceptions from title insurance coverage unless eliminated or released before the transfer of title.