Buyer’s Series: What’s so important about Title Insurance Anyway?

After a 75—minute visit to a UC Health Urgent Care facility during which my husband Jeremy was given intravenous pain meds and then sent home with a kidney stone, we received a bill in the mail for $4000. Seriously? Why do we even have Health Insurance? Public Service Announcement: NEVER visit a UC Health Urgent Care—another day, I will write a blog about the fleecing of Denver Metro families by these facilities.

Car insurance, Health insurance, Life Insurance, Dental Insurance, Home Insurance, Cell Phone Insurance, Pet Insurance, the list goes on and on. Might as well add another to the mix: Title Insurance. This type of insurance is actually pretty critical when you’re purchasing a home. Within your contract to buy a property, you will find a deadline called the “Record Title Deadline.” By this deadline, a title company, often chosen by the seller, will have combed through public records and provided the buyer with a report, displaying a list of any liens or judgements attached to the property you are purchasing.

Once, title came back on a property that my clients wanted to purchase stacked with judgments, unpaid taxes, contractor liens for work done on the house but not paid, and it was alarming. In fact, the sellers owed more than their house was selling for, so we knew they wouldn’t be able to proceed if the claims weren’t cleared up. At the seller’s prompting, the title company did some investigating and found out it was a case of mistaken identity and all of those judgements were tied to some other family with the same last name. Scary.

What exactly is Title Insurance?

In addition to the current owner of a property, there may be others who have rights or claims in and to the property. Those who may have an interest or lien on the property could be governmental bodies, contractors, lenders, judgement creditors, an HOA, the IRS, or other individuals/corporations. If you buy a property without checking on these potential interests, you might end up purchasing a property that has claims attached to it and they will remain there unless remedied. You could be buying a property plus all the baggage that goes along with it.

How does Title Insurance work—how does it protect me?

The title company searches public records for documents associated with the property you want to purchase. The title company then examines recorded documents to determine if there are any rights or claims that may have an impact upon the title such as unpaid taxes, unpaid contractor invoices, unsatisfied mortgages, judgments, tax liens, court actions, even easements. A list, if any, of these is provided to you by the title company and should be reviewed by you and your realtor. All of the defects and liens are either accepted, resolved, or remedied prior to closing. In essence, you want “clear title” before you finalize the purchase of your property.

There are two benefits to Title Insurance. You are protected against any recorded defects, liens, or encumbrances upon the title that are unreported to you and which are within the coverage of your policy. I advise my clients to purchase Owner’s Extended Coverage (OEC). Second, if there are defects that are not discoverable, or hidden by examination of public records (fraud, forgery, errors in records for example) and could provide basis for a claim after you’ve bought the property, you are still covered on such claims.

Title Insurance is different than other insurances because:

1. There’s only one payment (included in closing costs)- there are no annual payments to keep your Owner’s Title Insurance Policy in force.
2. It is more to protect the buyer from the past than the future. Usually a person thinks of insurance in terms of the payment of something that may presumably happen in the future, like a car accident or a broken arm. Title Insurance actually provides coverage for future claims or losses due to something that happened in the past- things that happened before the buyer even owned the property.

In the end, if a claim is made against your insured title, the title company will defend your title in court at no cost to you and will pay for settling the case, if it proves valid.

Tips:

One hopes that the seller will choose a reputable, established title company that can both effectively uncover defects and can honor your policy for years to come. Certainly, fledgling companies could go under and then the buyer is left with no insurance. If you ever have a question about the title company (the name is included in the MLS listing information that your realtor will have prior to writing on offer), ask your realtor what the best course of action is to move forward with the purchase.