Title insurance has become standardized in modern real estate transactions, and for good reason. Prior to title insurance, purchasers bore the risk of obtaining a clear title through employing conveyancers, such as lawyers dealing in the transfer of ownership of real property. Through the conveyancers, they would have to search all the title records and property abstracts to determine title ownership, and whether there were encumbrances on a particular property. Not only did this practice prove to be a cumbersome task, it also exposed unknowing buyers to potential loss – with no legal recourse.
Fast forward to today, and you cannot find a real estate transaction that has not used the services of a title insurance company. When you buy title insurance, the title company performs a comprehensive search of the title records to determine ownership of the subject property. The title company is also tasked with locating arears in taxes, liens, encumbrances, or other defects in title that may affect the insurability of such title.
Although the process has become more streamlined and accurate, title companies may still miss important information affecting the marketability of title. For example, there may have been past forgeries of title or filing errors, which may not be reflected in the information located by the title company. For this reason, the title insurance companies issue policies to cover such defects that might be discovered later.
Types of Title Insurance Policies
When one takes out a mortgage to purchase real property, his or her lender will require a title insurance policy to protect the lender’s interest. Such a policy will only protect a lender up to the value of the mortgage, and covers things like unrecorded liens and easements.
There are three primary types of title insurance policies available:
- Lender’s Policy
- Owner’s Policy
- Owner’s Extended Coverage
An Owner’s Policy protects an owner’s interest in title to real property, and pays for legal fees involved in defending a claim against title to the property. Such a policy is issued in the amount of the purchase price for the real property, and lasts the duration of one’s ownership interest, even through their ownership as well.
Importantly, Owner’s Policies have several “standard exceptions” to coverage, which exclude coverage for such things as easements, liens, encumbrances, and interests in title that are not shown in the public records. That is where Owner’s Extended Coverage (OEC) comes into play. With OEC, the standard exceptions are omitted, and the buyer is afforded greater coverage. Section 8.1.3 of the Colorado Real Estate Commission approved Purchase and Sale agreement provides parties to a transaction the option to require OEC and sets forth the party(s) responsible for the cost of such coverage. While the title company may have additional requirements that must be met before issuing this premium policy, the added coverage is well worth the extra effort and expense.
Need Help Navigating Your Title Insurance Policy?
At Jorgensen, Brownell & Pepin, P.C., our real estate lawyers are ready to help you navigate the complex world of title insurance, and determine what level of coverage would be suitable for protecting your interests. With a comprehensive understanding of real estate law, the market, and the missed legalities that can result in greater costs down the road, we can provide the seasoned guidance that you need during a real estate transaction.
Contact us today at (720) 809-8310 for a consultation!