Title Insurance- Questions Every Homeowner should ask

Posted by Krystal Thompson on Friday, June 7th, 2019 at 7:12am.

 

Life insurance, car insurance, health insurance, and title insurance… wait, what? 

What is title insurance and why do you need it? Great questions!  We all know that insurances as a whole are intended to protect you if something unfortunate happens.  Title insurance is issued to protect both the lender and the buyer from loss or damages in the purchase of real estate.  There is a section in the Colorado Real Estate contracts that is specifically for title insurance.  It addresses who chooses the title company, who is paying the fees associated with the title and title insurance and finally the coverage that is requested on the property.  The most common type of title insurance is lenders title insurance, meaning that the borrower purchases coverage  that only covers the lender. 

Finding a great resource for cumbersome financial topics is key.  This particular topic isn't crazy cumbersome to the consumer but the lender is going to want their protection to be accurate.  According to Invetopedia.com "The title companies must do a search on every title in order to check for claims or liens of any kind against them before they can be issued. A title search is an examination of public records to determine and confirm a property's legal ownership, and find out whether there are any claims are on the property. Erroneous surveys and unresolved building code violations are two examples of blemishes that can make a title "dirty."

Key Takeaways:

  • Title insurance is a form of indemnity insurance that protects the holder from financial loss sustained from defects in a title to a property.
  • The most common claims filed against a title are back taxes that had been missed by a title company, liens (from mortgage loans, home equity lines of credit, easements), and conflicting wills)
  • A one-time fee paid for title insurance covers pricey administrative fees for deep searches of title data that could go back to the early 1800s.

A Basic Homeowners Basic Title Insurance Policy typically covers the following hazards:

  • Ownership by another party.
  • Incorrect signatures on documents, as well as forgery and fraud concerning title documents.
  • Defective recordation (flawed records or record-keeping).
  • Restrictive covenants (terms that reduce value or enjoyment), such as unrecorded easements.
  • Encumbrances or judgments against property, such as outstanding lawsuits or liens.

Now that basics are covered here are some great questions Every Homeowner should ask:

  1. Are title insurance prices regulated?  According to Land Title Guarantee Company “Title insurance companies and casualty insurance companies are classified by statute as “Type II” insurers, which means that rates are ultimately set in response to competition in the marketplace. Colorado’s legislature recognizes that fair competition in the open market ensures that Type II insurers will not enjoy unreasonably high long-run profits.
    • In the event that fair competition does not lead to fair rates, Colorado Revised Statutes §10-4-403 establishes the following important rating restrictions—that title insurance rates cannot be “excessive, inadequate, or unfairly discriminatory”:”
  1. How much coverage do I need?
    • Owner’s policies typically protect against a number of contingencies, such as fraud, forgery, undisclosed heirs and spousal claims. Sometimes a lender can require more coverage.  An ARM loan could be a situation where the lender requires more coverage to insure that they are first in line to be re-paid in the event of foreclosure.
  1. Who usually pays for title insurance?
    • This is determined in the contract to buy real estate.  It can be negotiated and depends on the market demand.
  1. Is the seller pushing a specific title company?
  • In CO the seller will have a title company picked already in the MLS.  This can be changed if you would like. The key is to have a reputable company to ensure that true research is conducted on the property, not just pulling most recent data. 

If you have further questions or concerns about your title insurance I have great resources I can refer you to so that all of your questions get answered by the best in the business!  Reach out to krystal@westandmainhomes.com

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