Title insurance?  What is that and why do I have to pay for it? This is a fairly common question that I hear come up from home sellers when discussing putting their home on the Denver real estate market.  It is often a sales cost that they didn’t figure in because they weren’t aware of it.  In fact, this came up again just recently.  So, I thought that I would write a post and try to answer this question in a simple and straightforward manner.

First, you may wonder, what is “title”. Well, title is referring to your right to ownership of the land and/or property that the title is referring to. So why do I need title insurance or to provide it to a buyer? Title insurance will protect you against certain kinds of damage caused by a defect in the title. In Colorado, for example, a standard title insurance policy will protect against things such as errors in deeds, forgery, fraudulent conveyances, mistakes in public records,
and errors in estate proceedings that have happened prior to the closing of
the transaction that the title policy insures. There is owner’s extended coverage which protects against further title issues and is generally recommended and made part of most contracts. Title insurance policies are important because they protect against possible non-recorded claims against your property and ensure free and clear ownership.

Consumers should know there are two different title insurance policies issued in most real estate transactions. The first type is an owner’s policy, which we discussed above and will protect the new owner from any covered claims to the property. The second type is a lender’s policy, which will protect the lender against loss of an unpaid loan balance in the event of a claim.  Of course, if there is no lender then there is no additional title cost that can make things confusing.

Who Pays for Title Insurance? As mentioned before, there are two types of policies: a lender’s policy and an owner’s policy. As far as the lender’s policy goes, it is usually paid for by the actual buyer of the real estate. This is the party getting the loan from the lender and as such, pays for this policy. The owner’s policy on the other hand, is paid for by the seller of the real estate. They are insuring that the buyer enjoy the home free and clear. Most contracts indicate that the seller will provide title insurance at the seller’s cost. This leads to some confusion at times when it comes to reading over the HUD, or closing statement, when all the final figures are prepared for closing.  The home buyer may wonder why they are paying the cost of title insurance when the contract says the home seller is. Well, now you understand that what the buyer is paying for is the lender’s policy.  Of course in real estate, almost everything is negotiable, but this is typically the way the policies are paid.

Title insurance coverage and requirements may vary from state to state, so if you are out side of Colorado you should talk to your local broker.

Flickr photo courtesy of: Marco Bellucci

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Steve Scheer, REALTOR®

Denver Realty Partners

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