When a house, building or other real property is bought and sold, all the parties involved want to be sure the “title” or transfer of ownership is clear. Title insurance protects the owner and the lender against loss arising from problems connected to the title to the property.
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, other 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.
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. There are two basic forms of title insurance: Owners and Lenders.
Owners’s title insurance covers your interest 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.
Lenders 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.
Federal and state laws mandate that no one can require the purchase of title insurance from a specific company.
The above information is on the Colorado Department of Regulatory Agencies Division of Insurance. For more information, please visit the DORA website by clicking here.
