TITLE INSURANCE

With most people trying to cut costs while trying to purchase a home many wonder if title insurance is necessary when buying or selling home.  Without title insurance in place it could cost you plenty of money if you discover a title defect after you purchased the property. 

Here in Colorado, the title insurance is usually purchased by the seller for the buyer at closing and the title insurance remains in place and it protects you the buyer for as long as you own the property. Of course, who purchases the insurance can be negotiated, although local custom usually prevails as determined in the Purchase Contract.    The cost of the policy is usually based on the selling price of the home and it protects you from financial loss derived from defects in the title of the property. 

Sometimes buyers think it’s too expensive to have an attorney look at the title work and a waste of their money and think they will look it over themselves in order to avoid paying for the attorney’s cost.   Most agents will tell you that you should have a professional take a look, just to be safe after taking into account the risks involved. 

Title companies search the title to the property to make sure there aren’t any defects in the chain of title…they also look at the liens and easements recorded against the property as well as establish who has a marketable title to the property.   Sometimes the title company discovers that when the property sold the last time to the current owner that one of the past sellers had not signed the deed transferring the title.  This means the previous seller still had rights to the property and if they didn’t relinquish any interest in the property, the property would still be hers.  If she hadn’t cooperated, the current owner could have made a claim against the title insurance company that issued the title insurance to him when they bought the property.   Luckily for the current seller of the property, she did sign. 

Title companies issue a preliminary title report, called the title insurance commitment,   it is not the actual policy as that doesn’t go into force until the property has transferred owners at closing, but it does show the results of the title search.  You and your real estate agent should take a careful look at the preliminary report to see if the property has a marketable title to the property is the same person who signed the Purchase Contract.  Also, check for all the liens secured against the property.  If you are using a Seller Agent to sell your property ask him/her for an O & E (Ownership & Encumbrance Reports) of the property, this shows all the outstanding debts secured by the property that will need to be cleared before the title of the property can transfer at Closing. 

Easements grant the right to use your property to someone other than the current owner.  Common easements are for sewer, drainage, snow storage, utilities.  If you have easements running through the prospective purchase property, ask the title company for a written copy of the easement and ask the seller to flag the easements on the property or to locate them on a copy of the parcel map or ILC…(Improvement location certificate).

Also included with your title search should be written copies of the CC&R’s, (covenants, conditions and restrictions) usually affecting condominium associations and planned-use developments.   These are the restrictions of your use of the property.  Make sure you understand how these will affect your ownership rights/interests before you complete the purchase. 

Your Buyer’s agent should have put a clause in the purchase contract asking the seller to cure all defects on the title before closing if any are found...and as always, ask an attorney or title officer if you have questions that remain unanswered before you sign the dotted line.     Happy house hunting!!