Recording Title, Title Insurance, and Owner’s Extended Coverage: 3 Tips for Buying Colorado Residential Real Estate

The purchase of a home in Colorado is a significant financial and emotional investment. Besides finding your dream property and securing financing, it’s crucial to grasp the intricate legal world of property titles. Most homeowners don’t realize that while homeowner’s insurance protects against future events, title insurance offers a distinct and essential safeguard against unforeseen issues already present in the property’s ownership history. These issues could jeopardize your legal ownership or hinder future resale.

Neglecting title defects can have severe consequences, including costly litigation, the loss of your home, or the inability to sell in the future. Hidden liens, forged transfers, and errors in public records can emerge years after a sale. Equipping yourself with knowledge about recording your deed, obtaining the appropriate title insurance, and purchasing Owner’s Extended Coverage will be key to safeguarding your investment and achieving absolute peace of mind as you navigate the complex process of buying residential real estate in Colorado.

Colorado's "Race-Notice" Recording Statute

One of the cornerstones of protecting your ownership in Colorado is its “race-notice” recording statute. This statute requires that when two parties claim to own the same property from the same seller, the party that purchased the property “in good faith” (meaning without knowledge of a previous sale) and recorded their deed in the county where the property is located will have a valid legal title. This is a crucial distinction from other states where being the last or first purchaser could potentially determine ownership. For instance, if an unscrupulous owner were to mistakenly or knowingly sell their property to Buyer 1 and then, in another transaction, sell the same property to Buyer 2, Colorado’s race-notice provision ensures that whoever records first, provided they were a good-faith purchaser for valuable consideration, will legally own the property.

The risk to homeowners is evident: even if you purchase your home, if you delay recording your deed with the county clerk, you may inadvertently jeopardize your ownership in the event of subsequent fraud or a prior, unknown transfer. Although such instances are rare, failing to record first can have severe consequences, transforming your dream house into a legal dispute. Recording your deed accurately and promptly upon closing is not merely a formal procedure; it is an essential legal action that safeguards your property rights and prevents potential challenges to your title in the future.

Understanding Title Insurance

When buying a home in Colorado, you’ll likely encounter title insurance. Most homeowners mistakenly believe that their lender’s mandatory title insurance policy fully protects them. This is a major misconception and a risky gamble. A lender’s title insurance policy only covers their financial interest in the property. If a title issue arises that threatens the lender’s security, their policy will compensate them, but it won’t cover the homeowner’s investment or equity.

For homeowners, it’s crucial to obtain a separate owner’s title insurance policy. This policy safeguards your financial interest in the property up to its purchase price, protecting you from losses due to covered title defects.

However, the title commitment, an initial document outlining the terms of your eventual title insurance policy, can make things more complicated. Schedule B of the commitment lists “requirements” (what you need to do to get coverage) and “exceptions” (what the policy won’t cover).

Standard or basic owner’s policies in Colorado often have several pre-set exceptions that leave homeowners vulnerable. These typically include claims by occupants not reflected in public records (like an unrecorded lease or ownership), unrecorded easements (like a neighbor’s right to cross your property without documentation), survey matters (like boundary line disputes or encroachments), unrecorded mechanics’ liens (like a contractor’s unpaid work claim not filed), and the “gap” period (the short time between the title commitment’s effective date and the recording of your deed).

For homeowners, these exceptions represent significant hidden risks that could arise after closing, potentially leading to costly conflicts or reduced property value.

The Strategic Value of Owner's Extended Coverage (OEC)

With the limitations of a standard owner’s title insurance policy, gaining complete protection requires knowledge and strategic thinking about Owner’s Extended Coverage (OEC). OEC expands coverage by “deleting” certain standard exceptions on Schedule B of the title commitment. This means OEC defends against “hidden” defects like claims from parties in possession, newly created easements not recorded, survey matters, and unrecorded mechanics’ liens, which are explicitly excluded from a standard policy.

Choosing OEC isn’t always straightforward. While the standard Colorado real estate purchase contract allows buyers to opt-in to OEC and negotiate payment (buyer, seller, or split), the availability and cost of OEC can vary. Not all insurers agree to remove all exceptions, especially if the property has specific risks (e.g., an insurer may decline to cover mechanics’ liens if the property recently underwent extensive renovations). Additionally, securing OEC may involve other homeowner obligations, such as providing affidavits or obtaining a new, updated survey. These technical requirements and potential negotiating points emphasize the crucial need for homeowners to be well-informed or have a seasoned legal representative knowledgeable about these complex layers of protection. This ensures that their life’s largest investment is safeguarded from unexpected and potentially devastating title defects.

GLO offers comprehensive legal assistance to homeowners during the home-buying process. Our experienced attorneys guide homeowners through the intricacies of property ownership, ensuring your interests are protected. We provide competitive guidance on the importance of promptly and accurately recording your deed to safeguard your ownership rights under Colorado’s “race-notice” statute. Our staff explains title insurance, the distinction between lender’s and owner’s policies, and thoroughly reviews your title commitment to identify potential risks and exceptions. We advise you on the strategic benefits of Owner’s Extended Coverage (OEC) and negotiate with sellers and coordinate with title insurers on your behalf to provide the maximum protection for your property. Whether you have questions about a complex title matter, need assistance in reviewing closing documents, or simply want to simplify the home-buying process, GLO offers the expertise to protect your property rights and bring peace of mind to your new home. Read how GLO can help in your situation by visiting The Importance of Title Review and Title Insurance in Real Estate Transactions.

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GLO has prepared this blog to provide general information on legal issues that may be of interest. This blog does not provide legal advice for any specific situation and this does not create an attorney-client relationship between any reader and GLO or its attorneys. GLO engages clients only through specific signed fee agreements. GLO does not guarantee any results