Title insurance provides protection to a property owner or lender by identifying all recorded liens and encumbrances that affect the Property and insuring against any records that are not specified in the title insurance commitment or policy.
The title insurer carefully researches the public records for all recorded documents regarding current and prior ownership of the Property to determine the current status of the title. The title search includes review of public and court records, property tax records, legal descriptions, liens, and claims. The title search may include such documents as deeds, mortgages, wills, judgments, divorce decrees, liens, and assessments relative to the Property.
A title search is used to determine the insurable interest and any title defects which will have to be resolved before title is transferred or a loan or refinance can occur.
Even after a thorough title search, the possibility of risks remain. Records may not reflect claims of missing heirs, forgeries, improperly probated wills, clerical errors in recording legal documents, confusion due to similar or identical names, deeds executed under expired or false powers of attorney, unsatisfied claims not shown in the records, mistaken interpretation of wills and trusts, or even any encroachments. An ALTA survey based on the title insurance commitment can help determine this information. Hidden risks and the potential for title defects make the purchase of a title insurance policy a prudent investment for a Buyer and is usually required by a Lender.
There are two basic types of title insurance policies.
An Owner’s Title Insurance Policy is usually issued in the amount of the purchase price. The party who pays the title insurance premium is negotiated in the Real Estate Contract and the party who pays the title insurance premium usually selects the title insurance company. The Owner’s Title Policy is in effect for as long as the insured has an interest in the insured real property – even after the Property has been sold by the insured. Only an Owner’s Title Policy fully protects the buyer if a problem arises with the title that was not uncovered during the title search. An Owner’s Title Policy may also pay for any approved legal fees involved in defending a claim against the policy owners title.
Lenders Title Insurance is also called a Loan Policy or Mortgagee Policy. Most lenders require a Loan Policy as a condition for making a loan secured by real property. A Loan Policy is usually based on the amount of your loan and it protects the lender’s security interest in the real property from any insured title defect.
Prices for title insurance are regulated by the State of Colorado and the approved fees schedule is not subject to negotiation.
An Owners Title Policy guarantees the liens and encumbrances which affect a piece of real property. If the Owners Title Policy is wrong, then the Owner must make a claim and is entitled to recover damages from the Title Insurance Company’s underwriter.
Occasionally, in spite of a thorough title search, defects, problems and hazards can emerge after closing. Things such as mistakes in the public record, previously undisclosed heirs or a forged document could possible impair the title. An Owner’s Title Insurance Policy offers financial protection against such risks.
When you refinance a loan for your Property, you are in effect obtaining a new loan even if you stay with your original lender. Your lender will require Lender’s Title Insurance Policy, at your expense as the borrower, to protect their security interest in your real property. You will not need to purchase a new Owner’s Title Policy; the one the seller provided when you bought the property is good for as long as you and your heirs have an interest in the property.
If it has been less than five years since you bought your house or last refinanced it, ask for a reissue or discount rate. Discounts are not available in every case and you may have to meet certain criteria to be eligible, so be sure to ask.
Construction of a new home raises title considerations for the lender and buyer. Often in new construction the legal description will change. A title search will uncover any existing liens and a survey will determine the boundaries of the property. In addition, builders might have situations arise where they to fail to pay subcontractors and suppliers; which could result in the filing of a mechanic’s lien on the property you are buying. Again, lenders want to be sure the property has clear title and they are encumbering the correct property. Purchasing an Owner’s Title Insurance Policy with survey protection and purchasing a Lender’s Title Insurance Policy will protect against these potential problems and defend a covered claim.