Consumer Advisory: Title Insurance - What is it and why do you need it?
And when should you ask questions?
DENVER (March 30, 2018) – With the recent news in Denver about deeds, covenants and titles related to affordable homes, the Colorado Division of Insurance, part of the Department of Regulatory Agencies (DORA), offers the following insights to unveil some of the mysteries that surround Title Insurance.
“Unlike other forms of insurance like health, homeowners or auto, Title Insurance is unlikely to be something that consumers have experience with until they begin the process of purchasing a home,” said Neil Derr, Title Insurance Analyst for the Division. “It isn’t something that requires a monthly premium, and it doesn’t have an annual open enrollment or renewal that grabs your attention every year. And most people who buy title insurance will only do it once or twice in their lives.”
Because of this, it’s worth spending time to learn some basics.
What is Title Insurance?
While homeowners and auto insurance provide protection against future events such as fires, tornadoes, hail damage and collisions, Title Insurance provides protection from past events concerning the ownership of property.
When you buy property, the seller transfers the title to the property to you. Title to property means legal ownership of that property. A problem with the title could prevent the seller from transferring the property title to a buyer or prevent a lender from issuing a mortgage loan.
If you borrow money to buy property, or if you refinance your mortgage, you have to buy a loan title policy because the lender requires it. You pay the premium once for each new loan title policy (also known as a lender’s title policy). This loan policy protects the lender and stays in force as long as the mortgage loan exists.
Why do you need Title Insurance?
Title insurance helps to make sure the seller can transfer a title to you. It also may help protect you if a problem with the title comes up after you buy or refinance a property. Title insurance does not guarantee there aren’t any problems with a title, but instead guarantees there are no unresolved issues with the title that would prevent a sale or refinance of a property. The title insurance policy is the title insurance company’s promise to address problems missed during the title search, such as an unreleased Deed of Trust to ensure the property is clear of any outstanding defects or liens. Or if issues with the title cannot be fixed, the policy may pay your lender.
If issues are discovered with the title, your homeowners insurance does not cover them.
Should I compare premiums for Title Insurance?
In Colorado, title insurers compete on price -- they are not all the same -- and you should shop around to compare premiums and service. You can ask the title company about possible discounted rates they may offer.
You can also purchase an owner’s title policy when you buy a property, but you are not required to. This policy gives you protection above the protection of the loan title policy. An owner’s policy, if purchased at the time you buy a property, stays in force -- keeps protecting you -- for as long as you own the property, and can even protect you when you no longer own the property.
It is also important to know that whoever has negotiated to pay for the title insurance, the buyer or the seller, can choose where they buy the insurance. Be careful if you are told: “If you choose another title agent, your closing may be delayed,” or “We’ll give you a discount on [something else] if you use our title agent.” You cannot be forced into using a particular company.
What is the process to get Title Insurance?
The path to Title Insurance includes a title search, title commitment and title insurance policy.
During a title search, the title agent or title insurance company searches public records for any problems with the title. Most title problems found in a search must be fixed before an insurer will issue a title insurance policy. Some things that can create a title problem would include the following.
- Someone other than the seller (for a purchase) or you (for a refinance) has a legal right to the property. An example might be a lien from a contractor.
- A tax lien for unpaid taxes
- A mistake in the land records that show what is part of the propertyT
Once a title search is finished, you will get a title commitment. The title commitment is the insurance company’s promise to issue a title insurance policy under certain conditions. This document is the insurer’s offer to write a policy upon payment of the premium. The commitment lists possible problems with the title — problems that title insurance will not cover.
Title insurance policy
The title company is required to provide you with your policy within 90 days of the close of the sale. As with any important documents, keep the policy someplace safe (such as a fireproof box), because you will need to provide a copy of the policy if you ever have a claim.
Asking questions about Title Insurance
There are many misunderstandings and myths out there about title insurance. As the consumer, you have a right to ask questions about the process, the premiums and the services you’ll buy. Check out our FAQs About Title Insurance, where some key questions include the following.
- When shopping for 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.
- 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.
The Colorado Division of Insurance regulates title insurance and its agents and insurers doing business in the state. If you have further questions about title insurance and title agents, the processes or terminology, or you think you have a complaint related to an agent, a policy or a claim, contact our experts - 303-894-7490 / 1-800-930-3745 (outside of the Denver metro area) / DORA_insurance@state.co.us, or start the complaint process at our page to Ask a Question / Make a Complaint.
Other useful links
- Division of Insurance Title Insurance Consumer Tool - Covers not only the basics, but the ins and outs of title insurance.
- Division of Insurance Title Insurance FAQs - Addresses the most common questions.
- Know Before You Owe - Information from the U.S. Consumer Financial Protection Bureau that covers the process of buying a home and getting a mortgage.
The Colorado Division of Insurance (DOI), part of the Department of Regulatory Agencies (DORA) regulates the insurance industry and assists consumers and other stakeholders with insurance issues. Visit dora.colorado.gov/insurance for more information or call 303-894-7499 / toll free 800-930-3745.
DORA is dedicated to preserving the integrity of the marketplace and is committed to promoting a fair and competitive business environment in Colorado. Consumer protection is our mission. Visit dora.colorado.gov for more information or call 303-894-7855 / toll free 1-800-886-7675.