Title Insurance and Standard Exceptions
Title Insurance, what is it? Exceptions, what do they mean? Buyers, sellers, realtors and lenders all ask the same questions at one time or another.
A policy of title insurance is issued in most real estate transactions in Colorado. Unlike casualty insurance, which protects against future acts, title insurance protects against loss or damage resulting from defects that may have occurred in the past.
A commitment for title insurance is issued at the beginning of the buying, selling, or refinancing process. Its purpose is to report the status of the title and the conditions under which the company will issue a policy once the transaction has closed.
The process begins with the title insurance company searching public records to determine and disclose the current facts relating to the ownership of a piece of real estate, such as:
l. Who currently owns the property.
2. Any liens or encumbrances against the property or its owners.
3. Easements, and/or restrictions.
4. Other recorded interest.
The standard exceptions are generally the most requested deletions to be covered or deleted from the final title policy. Here is how they may appear on the commitment and a brief ‘laymen’ language explanation.
1. Any facts, rights, interest, or claims which are not shown by the public records, but could be determined by inspecting the land or by asking the property owners. This clause refers to unrecorded and unauthorized use of property that could result in adverse possession.
2. Easements or claims of easements not shown by public records. This clause is more specific to unrecorded easements, i.e. an unrecorded utility line, ditches, etc.
3. Discrepancies, conflicts in boundary lines, shortage in area, encroachments, and any facts which a correct survey and inspection of the land would disclose and which are not shown by the public records. This clause refers to conflicts resulting from fence lines or other encroachments from an adjoining property onto the property in question, and also the same from the property in question onto an adjoining property.
4. A lien or right to a lien for services, labor, or material heretofore or hereafter furnished imposed by law and not shown by the public records. This clause refers to mechanic’s liens. Colorado mechanic’s lien statutes provide rights for payment for work performed on a property.
When all the information is gathered, the buyer, seller, real estate broker, attorney, lender and settlement agent can work toward closing the transaction. When the proper documents to transfer title have been recorded, a title insurance policy is issued to the new owner and/or lender.
Although there are alternatives, title insurance is the most widely used method to protect the interest of the new owner or lender.
Disclaimer: This information is designed to provide accurate and authoritative information regarding the subject matter covered. It is distributed with the understanding that the publisher does not engage in rendering legal, accounting, or other professional service. If legal or accounting advice or other expert assistance is required, the services of a competent professional should be sought.
For more information, contact Andrea Ohde at (970) 471-5233 at First American Heritage Title Company. Visit us on our website at http://www.fahtco.com.
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