Title Insurance – Five Things Beyond the Basics
By Jeff Cullers
March 30, 2022
If you are buying real estate and getting financing from an institutional lender, you will probably be buying title insurance. The Colorado Division of Insurance has a pretty good primer on title insurance here:
However, this link does not tell the whole story. Here are my thoughts to help title insurance consumers be more savvy:
- Many title insurance policies are practically useless. The title commitment and policy itself have a section titled Schedule B Part II. This is a list of exceptions, that is, all the potential risks to a property’s title that the policy will NOT cover. The first four are “standard” exceptions. These represent the kinds of risks for which a buyer would want insurance, and so their presence all but defeats the purpose of title insurance.
- Buy “OEC.” To make a title insurance policy worth buying, a smart buyer will ask for “Owners Extended Coverage” to eliminate the standard exceptions. The insurer will charge a relatively modest fee to do this, and may require additional documents.
- Study Schedule B. The rest of the items on Schedule B Part II are documents in the real property records that may impact the property. These are worth studying or hiring an attorney for advice. They will show limitations on what can be done with the property such as covenants and easements. If the buyer does not like what they see, they can likely pull out of the purchase transaction and get their earnest money back.
- Consider Insuring Over. If a buyer is not comfortable with an item in Schedule B, another option is to ask that the title company to insure over the item, that is, accept the risk of loss. The title company may do this, but will likely charge an additional fee and only if the risk of loss appears to be small.
- Do You Really Need It? If a buyer is paying cash or not working with a lender that requires title insurance, they should at least consider forgoing title insurance completely. This is because the risk of a catastrophic title failure for a condo or house in a subdivision is quite small, especially if the buyer plans to re-sell the property quickly.
I hope this is helpful for anyone seeking to understand title insurance beyond the basics!