Title Insurance

Unlike casualty insurance which protects against future acts.  Title insurance (which insures a home owner) provides coverage for future claims or future losses due to title defects, errors or omissions that were not disclosed or which are created by any existing rights or claims or some past event (i.e., event prior to the acquisition of the property), and protects against possible title problems that can hinder the transfer of real property or make it unmarketable.

Those who may have an interest in or lien upon the property could be governmental bodies, contractors, lenders, judgment creditors, the Internal Revenue Service, or various other individuals or corporations including the owner, the owner's family, and the owner's heirs.  These rights or claims remain attached to the title and to the property until they are extinguished.

A policy, usually issued by a title insurance company, provides an indemnity for the home buyer and lender's interests against errors in the title search.  A Title Insurance Policy protects borrowers from claims  - made against an insured title, by: Defending the title, in court if necessary, at no cost to the Title holder, and by bearing the cost of settling the case, if it proves valid, in order to protect your title and maintain your possession of your property.  Additionally, it is insurance that if any undiscovered claims covered by your policy arises out of the past to threaten your ownership of real estate, it will be disposed of, or you will be reimbursed exactly as your title insurance policy provides.

The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller.  The premiums are determined primarily by the loan amount and are regulated by local agencies.  This policy protects you from buying a home and later having a lien placed on your home for a debt incurred by the previous owner. 

The mortgage lender is concerned about the quality of the title because the property is to be security for the new mortgage loan.  The mortgage lender requires assurance that it has a valid first (or another acceptable priority) mortgage lien on the property.

1st Mortgage (first lien position) - A real estate loan with a lien (i.e., mortgage or deed of trust) on the subject property that has priority over any subsequently lien or financial encumbrances.  First lien is payid first in bankruptcy for example).

Second Mortgage
A mortgage made subsequent to another and subordinate to the first one (first mortgage takes priority).

All mortgage lenders require a title insurance policy

        How Title "Insures"

Title Search
An examination performed by a title company of the public records, including court decisions, the existence of recorded defects, liens or encumbrances upon the title such as unpaid taxes, unsatisfied mortgages, judgments and tax liens against the current or past owners, easements, and restrictions, associated with the property then determines if there are any rights or claims that may have an impact upon the title to the property and then the title agent prepares an Abstract of Title.

Abstract of Title
The title examiner prepares a summary or condensation of the essential parts of all recorded instruments which affect a particular piece of real estate, arranged in the order in which they were recorded and then the title agent prepares a binder.

Binder
A title insurance binder is the written commitment of a title insurance company to insure title to the property subject to the conditions and exclusions shown on the binder that is reported to the home buyers.  Decisions regarding the legal sufficiency of title or questions requiring legal interpretation must be resolved by a licensed attorney at law.

Title Report
Any recorded defects, liens and encumbrances, etc. are reported to the home buyers prior to purchase of the property.  Once reported, these matters can be accepted, resolved or extinguished prior to the closing of the transaction.  In addition, buyers are protected against any recorded defects, liens or encumbrances upon the title that are unreported, which are within the coverage of the particular policy issued in the transaction. 

Undiscovered Claims against the Title
"Hidden Risks" are those matters, rights or claims that are not shown by the public records and, therefore, are not discoverable by a search and examination of those public records.  Matters such as forgery, incompetence or incapacity of the parties, fraudulent impersonation, and unknown errors in the records are examples of "hidden risks" which could provide a basis for a claim after purchase of the property.  The Title company can provide insurance coverage for such claims.

        Title Insurance Products

Policies

• ALTA (The American Land Title Association) Owner's Policy

• ALTA Plain Language Owner's Policy (1-4 family residences) OPAC (Owner's Policy At Closing)

• ALTA Mortgagee Policy

• ALTA Construction Loan Policy

• ALTA Short Form Residential Loan Policy

• O&E Search - O&E's (Ownership and Encumbrances) provide the last deed of conveyance and any encumbrances on a property.

• Commitments - A list of instructions of what must be done before we can guarantee or insure a title as marketable or a loan as being in a certain position or having a certain priority.

Guarantees

• Title Guarantee

• Mortgage Guarantee

• Foreclosure Guarantee

• Public Trustee Sale Guarantee

• Subdivision Guarantee

• Litigation Guarantee

         Frequently Used Colorado Title Endorsements
(MTG is Based out of Colorado)

Form GE-1 - Gap Protection - Insured against loss by reason of recorded deed or encumbrances which appear subsequent to commitment date, but prior to the effective date of the policy.  Note: automatically provided by Title Company at closing.

Form 100 - Comprehensive Lender's Endorsement - Assures Lender that: There are no present or future violation of covenants; No encroachments onto insured property or of insured property onto adjoining lands; No damage to existing improvements, including lawns, shrubbery or trees due to an encroachment onto any easements shown in Schedule B

Form 140.1 (8.1) - Environmental Protection - Insures against any loss to the Lender by reason of lack of priority of the insured mortgage over State or Federal statutory environmental protection lien.

Form 100.29 - Mineral - Minimum of $50.00.
Insures against loss by damage to existing improvements which is the result of the extraction of minerals.

Form 100.30 & Form 100.31 - Mineral - Similar to 100.29 except coverage is limited to physical damage.

Form 103.1 - Encroachment
Encroachment of improvement into easement. Insures right of use or maintenance.

Form 103.2 - Encroachments (adjoining property) - Protects insured - if improvements on insured property which are partially located on adjoining property must be removed from adjoining property.

Form 103.3 - Encroachments (easements) - Insures against loss or damage resulting from forced removal of an encroachment onto an easement resulting from various uses of the easement.

Form 115.1 - Condominium - Insures that: The property insured is a condominium; The condominium has been properly created and is in accordance with state condominium statutes; The CCR's of the condo declaration are not presently violated and contain no reversion or forfeiture clause; The condo unit is separately taxed; No impermissible encroachments exist; Insures over lien for condo assessments and any right of first refusal.

Form 115.2 - P.U.D. - Insures no present violations of CCR's and that said CCR's do not contain a reversion or forfeiture clause and insures over liens for assessments, encroachments and right of first refusal.

Form 130 - Extra Protection - Insures against the following: Certain mechanics liens concerning the improvements completed before the date of the policy; Forced removal of the principal dwelling due to zoning violations. Note: Pre-printed mechanics lien exception is not deleted.

Form 130.2 - Owner's Extended Coverage
Provides: Mechanics lien protection; Survey protection; Owner's inflation coverage; "Gap" protection; Covenant and restriction protection; Plain Language Coverage. Note: Pre-printed mechanics lien exception is deleted.

See Mortgaage Insurance for explainations & payment calculations for mortgages exceeding 80% of home value.

• FHA - Mortgage Insurance Premium (MIP)
• Conventional - Private Mortgage Insurance (PMI)
• VA Funding Fee

Also see: Homeowners Insurance for important info. on personal property and calamities.