Title Insurance

Title insurance is an indemnity contract between you (or your lender) and a title insurer for past defects in a chain of title. More simply, title insurance is an agreement that should a problem arise in the ownership records of your property, your insurer will fix the problem, defend you against it, or compensate you for any losses.

Over the years, a home, and the land it stands on, may go through several ownership changes. The “chain of title” describes the history of ownership, with each person or entity listed who owned the land and/or building at a particular point in time. However, there can be unexpected problems in the chain of title that could emerge and cause trouble. For example, there may be unpaid real estate taxes, liens or an error in the legal description. Title insurance covers the insured party for any claims and/or legal fees that arise out of such problems.

There are two basic forms of title insurance: Owners and Lenders.

Owner’s title insurance covers your interests as owner of the property, and usually insures for the amount you paid to purchase the property. Owning a home can be your biggest asset and an owner’s title insurance policy protects your investment.

Lender’s title insurance covers your lender’s interests in your property and is usually issued in an amount equal to the loan amount. Whenever a loan is issued for the financing of a property, the lender acquires an interest in the property for as long as the loan is outstanding.

When people are involved in recording deed transfers and plotting land parcels, there are opportunities for mistakes to be made. Title searches help uncover those errors before a piece of property changes hands and looks to discover if the chain of title is broken, or if everything appears to be in order

In addition, title searchers also look for proof that any encumbrances – such as a previous mortgage or any liens on the property -- are paid off, and they look for easements (permission that has been given to use the land by someone who is not the owner), rights-of-way, CCR’s (Covenants, Conditions and Restrictions), and any other elements affecting title to the property.

Title insurance protects the involved parties against defects and human error related to the property title that a title search may uncover. When the title search is complete, title insurance protects the buyer and the lender by insuring clear title to the property.

While most insurance (auto, home, etc.) provides protection against future events (fires, tornados, hail damage, etc.), title insurance protects you against matters that have already occurred, and that were not caused by any wrongdoing on your part. For instance, if a lien was recorded prior to your purchase of the property, and it was not released or paid by the seller, title insurance would likely cover you regarding that lien. However, if a lien was placed on your property because you failed to pay your homeowners’ association dues, you would not be covered under title insurance.

Another difference between title insurance and other forms of insurance is the payment of premium. For most insurance products you pay an ongoing premium to continue coverage. With title insurance, you pay a one-time premium, usually at closing, and are covered for as long as you own the property.

Section 8, of the “Contract to Buy and Sell Real Estate (Residential),” allows the buyer and seller to negotiate who selects and who pays for the Owner’s title insurance policy. This Owner’s title insurance policy assures the buyer that the title is clear, meaning free of defects, errors, or any liens. Generally, the buyer pays for the Lender’s title insurance policy, insuring the lender’s interest in the property.

Most title insurance companies in Colorado offer discounted rates when both policies are issued at the same time and from the same company, so it is almost always one company issuing both policies in a transaction.

Both insurers (the company or firm who assumes the financial risk for insurance, also known as “underwriters” within the industry) and insurance agents (or agencies) have the ability to conduct title insurance business, perform searches necessary to determine insurability, and perform closings. However, any insurance contracts purchased from an insurance agency will be written on a particular insurance company’s policy form (also called the “underwriter’s paper”), as it is that company who provides the actual insurance.

Sometimes, an agency will have the ability to sell insurance for more than one insurance company. While agencies file their closing and settlement services fees with the Division of Insurance, it is only the insurance companies who have the ability to set the premiums (rates), which also must be filed with the Division.

The Division of Insurance encourages consumers to shop around before deciding on a title insurance company, agent or agency. The Division’s website gives consumers the ability to search for licensed entities and read about recent enforcement and market conduct actions taken by the Division of Insurance.

Colorado insurance laws require that all title entities have on display, and readily available for the public, copies of their current rates and fees that they have filed with the Division of Insurance, as required by Colorado Revised Statute (C.R.S.) § 10-11-118 (3), and Colorado Insurance Regulation 3-5-1, Section 5 (A). The Division also maintains publicly available copies of these filings.

The vast majority of title entities will provide quotes for their services. While other factors can and should be considered in the selection of a title entity - including customer services, title coverages, closing protections and location - publicly available rates and fees are a good place to start when comparison shopping.

The cost of title insurance and closing fees can range from $1,000 to $2,000, depending on the company and the value of the property or loan. The cost should include the title insurance premium and any related closing fees, as well as any processing costs. Consumers may benefit from comparing price quotes and service explanations from several providers.

Most title entities also provide closing and settlement services in connection with real estate transactions.

The following is an example of a typical real estate purchase transaction that would involve a title entity for closing and settlement services.

After a real estate contract has been signed and accepted by all parties, the parties will forward a signed copy of the contract, along with any earnest money, to the title entity that will be performing the insurance and closing work.

The title entity will then search the property records, identifying any mortgages or liens that need to be paid off. The title entity will issue a commitment for title insurance. The title commitment is a report that will identify the insurance company, and will detail the premiums owed for title insurance, requirements to be fulfilled prior to the issuance of a policy, and any specific exceptions to coverage that may have been identified (such as covenants, mineral or water rights, easements).

The title entity receives written instructions from all parties to the transaction and prepares a settlement statement. The settlement statement details all sides of the transaction, and shows all fees and premiums that are to be paid.

At the closing table, the parties to the transaction sign documents necessary to complete the real estate transaction.

After closing, the title entity disburses the money that was brought to closing (either by the buyer, seller, or money that was wired to the company by the lender), and pays off any outstanding liens, gives the seller any money that is due to them, and pays the insurer the premium for the property’s title insurance.

The title entity records the necessary documents with the appropriate county to show ownership and the lenders’ interest in the property.

After recording, title policies are issued, signed, and mailed. The owner’s policy is mailed to the buyer, often with a copy of their recorded deed, and the lender’s policy is mailed to the lender.

Your title policy is an important document -- evidencing the contract of insurance between the owner of the property and the title insurer -- and should be kept in a safe location in case any issues arise later.

Questions: dora_ins_compliance@state.co.us

• Get multiple quotes. Ask your real estate broker or mortgage broker for the names of a few title insurance companies or agents they have worked with in the past, not just one. While real estate brokers are required to provide the names of three title entities, they may refer you to an entity they have worked with extensively. This does not necessarily mean their services will be the best for your particular transaction.
• Find out if your friends and coworkers have had a good experience with a title entity.
• While you purchase title insurance from a title insurance entity, federal and state laws mandate that no one can require the purchase of title insurance from a specific company.
• Remember that price isn’t everything. Some companies use different software platforms that make working with them more convenient, but can also have the effect of raising their prices. Other companies may offer larger discounts off their base premiums depending on how long it has been since a property was last sold or refinanced.
• Don’t be afraid to ask a title entity to justify their services. What goes into their pricing? Why are they the safest or best company to use? What conveniences in the transaction can they offer? What kind of service do they offer after you’ve closed? Answers to these questions can make you feel comfortable that you’re not only getting the best price, but also the best value.
• Ask about the insurer (underwriter). The insurer is the company that assumes the risk. Rates and coverage may vary by company.

Title insurance is a product that most consumers will only purchase a few times in their lives. However, a little bit of research can save money now, as well as provide peace of mind that your investment is protected for the future.