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Marketable Title or NOT?
By Dan Smith

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Marketable Title or Not?

Almost everyone who has ever bought a piece of real estate has also purchased title insurance, to insure the marketable title to that property. Homeowner’s insurance protects a homeowner against unforeseen loss due to things like fire or theft. Title insurance is supposed to protect homeowner’s against loss due to unmarketable title. So what does that mean exactly? Well for example, most homeowners in this area of Colorado do not own the mineral rights to the property their house sits on. Technically speaking, the owner of those mineral rights could decide they want to start mining operations on your property. (Never mind the regulatory restrictions that would likely prevent this from happening) At this point your property would become worthless and certainly unmarketable. You would naturally fill a claim with your title insurance company and expect to be compensated in that instance.
Fast forward to today’s cautionary tale, about a past client’s experience with her title insurance company. In order to protect the identities of the parties let’s call her Barbara and her title insurance company Continental Occidental National title insurance company (CON). Barbara had a great Realtor (we’ll call Phil) and she did a careful review of her title commitment issued from CON prior to her closing. She paid close attention to the “exclusions” sections of the commitment, to see what things would not be covered by title insurance. Everything seemed straight forward and so she closed on the purchase of her single family attached property. (That means the house was attached to one other unit by a common wall, but had separate legal descriptions) All seemed well and good and Barbara was excited to be a homeowner for her very first time.
Months later, her next door neighbor dropped by with some bad news she had just uncovered. It turns out that the property they shared by a common wall had been improperly subdivided. So Barbara called CON to see if they could help her address this loss due to unmarketable title. However, CON informed her that they don’t insure that type of loss. They referred her to the exclusions section of the title policy, which Barbara had just recently received in her mail. CON referred her to Section 1(a) which excludes from coverage “any loss or damage, costs, attorneys’ fees or expenses which arise by reason of any law, ordinance or governmental regulation (including but not limited to building and zoning laws,…”. Barbara immediately compared the policy exclusions to the commitment she had received prior to closing. The exclusions listed on the commitment did not include this new exclusion that showed up on the actual policy.
Well that didn’t seem right to Barbara, so she called Phil to see what advice he could give. Needless to say, Phil was shocked by CON’s response and started to do his own research into the matter. He went down to the county clerk’s office and pulled title records on his own and discovered a document recorded in 1984 that was the source of the current problem. So not only had CON added an exclusion to the policy, but they had failed to provide the readily found document that made the title unmarketable long before Barbara made her purchase. Had CON provided this document before the purchase and specified the exclusion at the time of commitment, it seems unlikely that Barbara would have purchased the property. Certainly Phil would have done his best to discourage it, or at least would have recommended a “Law/Ordinance” endorsement to the policy. That endorsement would have prevented the exclusion from appearing on the final policy.
So what have we learned? Is CON a totally unscrupulous, unethical and morally bankrupt company? I sure think so. Did they clearly violate insurance law by adding an undisclosed exclusion to the final policy? I will leave that answer to Barbara’s new attorney. I think one of the lessons here is that it pays to have good Realtor on your side. Phil researched title on his own and discovered the document CON overlooked. He helped draft the revised claim, and helped find an attorney for Barbara. Knowing Phil personally, I can tell you it is only a matter of time until Barbara has good and marketable title. Finally, it may be a good idea for anyone buying a property that had been converted from one legal form (a duplex for instance) to another (separately described attached single family residences), to consider adding a “Law/Ordinance” endorsement to their title policy. I know I had never heard of such an endorsement until now, but it will sure be a recommendation of mine moving forward.
For expert advice on this or any other type of home financing needs, call the professional. Dan Smith can be reached at 303-674-0201. Or visit his web site at

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