I always see a glassed over look in the eyes of buyers when I talk to them about title insurance. Most Realtors just basically tell their clients “it’s something you are required to get” and don’t really explain it to their buyers or sellers for that matter.
Title insurance is one of those things you really don’t even think about until you go to buy your home. In Colorado, our approved contracts have a section all about title insurance, who picks it and who pays for it. It’s one of those things most people just accept as part of the deal. Especially when they see it on the column on the closing docs, which by the way are prepared by who…you guessed it! The title company.
What is this thing title insurance anyways?
Why do you even need title insurance in a real estate deal ways? Who is it protecting?
Title insurance basically protects you against ownership claims against that nice new shiny property you just purchased.
The nice thing about title insurance is you only pay it once at closing and this one time premium insures you as long as you and your family owns the home (property). No need for new premiums except when (sometimes anyways) you change title but that is something to discuss with your current title company or attorney. Be sure to ask them how transferring title will effect you title insurance.
The other nice thing about title insurance is that it covers you against things that have happened in the past that you don’t know about. Like cloud in title like forgery and shady things that may have happened even before electronic filing and things that you can’t control since they have already happened.
Is title insurance optional can’t we just save a little money and not get it after we review title?
Can we just review the title commitment and that be enough? Why do we need to still pay for the policy?
Not all problems with title will appear on the original title commitment. Sometimes people come out after years and try to take claim on a piece of land because their great, great, great grandfather owned it and didn’t legally sign over the deed. These are the things title is for.
Title also cover one thing we all know too well, human error, we are all just human..right…we make mistakes and title will usually insure you against most human error.
The banks will most likely force you to get title insurance on top of the policy they purchase. They really want to cover themselves in the event of a claim against the collateral they are holding until you pay off your mortgage. They want to be sure (since title insurance is relatively inexpensive) they are covered.
The lender’s title insurance policy protects the lender for the amount of the mortgage. Only an owner’s policy fully protects the buyer against title problems that arise after the home is purchased.
The other thing to know about title insurance when buying a home in the Denver Foothills is that there are a lot of properties with encroachments and easements. Between an ILC (survey) and a title insurance policy, you should be covered just in case.
Title insurance and what it does…
The title company that is determined to act as the title company in the real estate transaction will do an in depth search and examination of all recorded documents to determine who legally owns the property at the time of the title search, they make sure that it has been properly deeded they search for any types of liens that may be recorded on the property. There are many types of liens that can be put on a property.
The exemptions section has all these liens listed in them. They need to be satisfied before closing. If they are not the title company will not insure on those specific liens. One of the liens is usually the current mortgage on the property. So for example that will be satisfied at the closing table when the deal is funded.
Do I really, really need title insurance?
It has been said that up to 36% of all real estate transactions have a defect in their property’s title.
Title insurance protects against loss or damage against any future claims people may have against your ownership of the property. For how inexpensive it is you should really be happy to purchase it.
There are hundreds of ways title to your property can be clouded. Even if you don’t lose your property altogether, certain title problems can make it impossible for you to sell your property or pass title to your heirs. Here are just a few things covered by title insurance:
- Claims from someone using an aliases or fictitious name somewhere in the past on the title docs.
- Liens for unpaid estate, inheritance, income, or gift taxes that have been filed by the feds, state or local governments.
- Disputed or fraudulently obtained release of a mortgage document or prior loans and liens.
- An error on a tax payment.
- Forged deeds, releases, or wills.
- Someone impersonating of the real owner of a property. Someone selling your property that actually never really owned it.
- Undisclosed divorce by someone who conveys title of a deceased former spouse.
- Deed to or from a corporation before incorporation or after loss of a corporate charter.
- Undisclosed heirs who surface years or decades later.
- Documents or sale executed under invalid or expired powers of attorney.
- Misinterpretations of wills, or discovery of a later will after the first will goes through probate.
- Deed by minors, by someone of unsound mind, or by someone who is actually married representing themselves as single.
- Mistakes in recording, or deeds recorded but improperly indexed and therefore not discovered by a title search.