Do You Need Title Insurance? Four Reasons You Do.

In Buyers by Doug Phelps

Ownership in a home might seem straightforward, but there are actually myriad ways in which title to – and ownership of – a property can be jeopardized. Title insurance exists to help ensure that any issues to a clean transfer of title don’t affect your home ownership rights.

Just what does title insurance do?

Land is permanent but ownership of it or the improvements on it is not. Every property starts out with rights that its owner can expect. Over time, with each new possession of a property, events can take place that affect the title to it, such as building a house or other structure on it, refinancing, a mechanic’s lien, an encroachment by a neighbor, or the marriage, divorce or death of an owner.

When a buyer and seller agree on a property purchase transaction, a title insurance company searches public records to see if there are any outstanding matters that could affect the new buyer’s rights. Records are researched in municipal and county facilities and other information storehouses. These records include recorded documents, judgments, liens, taxes, utility assessments and other matters that could affect the property ownership. This process, called a “title search”, provides warnings of title flaws that must be corrected before a property can change hands.

A title insurance policy is what people buying a house usually think of when they think of title insurance. There are two kinds of policies – one for owners and one for lenders. An Owner’s Policy is assurance that the title company will stand monetarily and with legal defense if a problem arises after buying a property; to pay for any valid claims and covering the costs of defending an attack on the transfer of title. In Colorado, an Owner’s Policy is an automatic part of a sales contract, in an amount equal to the purchase price, and the premium is paid by the party in the transaction who selects the title insurance company – usually the seller. In other states this policy is not an automatic part of a transaction.

Anytime a loan is involved in the purchase of a property, a mortgage lender also has a great financial interest. They also rely on title insurance to ensure that they won’t be impacted by title problems down the road. A Lender’s Policy covers a lender for the amount of the loan.

When a title company discovers title issues in the public record, it works to remedy them with the seller before closing. However, some ownership complications aren’t revealed in public records and might appear in other ways to impair the ownership in the property. To help protect a buyer in these events, Owner’s Extended Coverage by a title company commits them to insure for unrecorded issues and unforeseen problems. The cost to add this extension to an Owner’s Policy is nominal, and worth it.

A title insurance premium is paid once and provides coverage that lasts the entire time that an owner or legal heirs own the property – whether it is for seven years or 70.