Opinion | Vail Law: Title and title insurance in Colorado
How you take yours matters.
The “yours” I am referring to in this instance is title.
Okay, but what exactly is that?
“Title” is how you tell who owns something. As pertains to real estate, title is the means whereby the owner of land has “just” possession of his or her property, “just possession” meaning the right to claim ownership in derogation of the claim of any other party.
Title assures the right to ownership of land and is the evidence of such ownership. One who holds the vested rights to a certain property is said to have title to the property. As title is essential to the unfettered ownership of land, it is reasonable and necessary that the right to ownership be insured against the claim of another party who may assert an interest in the land. That need forms the genesis and call of title insurance. We’ll get there in just a sec.
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First, though, how can one hold title?
Let me count the ways.
Most commonly, other than corporate, trust or other entity ownership of property, one may hold title in sole ownership (you and you alone), as tenants in common, as joint tenants, or as the holder of a life estate. In tenancy in common, one or more people own the property together, each with a divisible share. There is free alienability of each parties’ interest and no right of inheritance. With joint tenancies — the most common way for spouses to own property together — the co-owners have equal and indivisible shares. When one owner dies, their share automatically transfers to the surviving owner. Among other advantages, such ownership voids probate of the transferred share. With a life estate, the person in possession doesn’t really own the property but, instead, the person (a “life tenant”) has the right to use the property during his/her lifetime. When s/he passes, ownership automatically reverts to a “remainderman” who is the true owner.
Something that often surprises me when parties deal with title “insurance,” is that they fail to realized that it is, in fact, insurance. Anyone who has closed on the purchase of a property knows that — with rare exception — a title company becomes involved and will for a price search the records of title and issue a title policy or commitment.
The issuance of a policy of title insurance involves a thorough examination of the records by the title company to assure that one claiming an interest in real property in fact will be vested with the interest one will claim. Once researched, the title company then insures that ownership and agrees to defend any contrary claims. Most, if not all, title policies contain “exceptions” or circumstances against which the title company will not insure against a claim based upon those specific grounds.
Commonly, the exceptions to a title policy include certain “standard” exclusions. Among these are that the title company will not insure against taxes and assessments not certified in the County Treasurer’s office. Usually, the standard exceptions also exclude any facts, rights, interests or claims not shown by the public record that could have been ascertained by inspection of the property or by making inquiry to the person or persons in possession of the property. Standard exceptions also usually encompass easements or claims of easements not shown by the public record, discrepancies or conflicts in boundary lines, shortages in area, encroachments or other facts that could have been corrected by competent survey and inspection. Most times, the policy will further exclude all liens or rights to liens for services, labor or material furnished to the property that were not shown by the public records. Lastly, the standard exceptions generally do not insure against taxes and assessments for the current year.
Exceptions that are specific to the property often include certain specified easements, restriction and reservations, often pertaining to the subdivision in which the property is located. In developed areas, these can include utility easements that provide the various utility companies with access to maintain their “lines.” They may also include setback and/or specific building envelope location requirements and mineral rights.
At times, there is discovered a “defect” to title which, in essence, renders the property unmarketable. What “unmarketable” means is that an informed buyer would likely not purchase the property in light of “cloud” upon the title. Stated differently, marketable title means that the title is reasonably free from such doubts as will affect the market value of the property. Where a cloud arises, the seller usually has the right to try to “cure” the defect such that the property is not permanently taken out of the stream of commerce and rendered eternally untransferable.
In its barest form, title insurance is a contract of indemnity against loss caused by the title to real estate. In addition to indemnification against loss, title insurance policies require the insurer to provide a legal defense if the insured’s title is one day challenged.
A title policy is a single premium policy of insurance (in other words, premiums are paid only once) and is written to ensure that when one takes title to a parcel of real property, the purchaser in fact will own precisely what s/he thinks s/he has acquired.
