What Is Title Insurance and Why Do Buyers and Sellers Need It, Anyway?

Real_Estate_Today_bylineIn a real estate transaction, the seller’s biggest single expense after brokers’ commissions is typically the title insurance policy — a little understood cost of selling real estate.  What does it cover, and why is it required?

While most insurance protects you from future risks, title insurance protects you from past risks. Title insurance guarantees that you get title to property free and clear of any liens or claims of ownership. Since we consider this the responsibility of the seller, that is who pays for the title insurance,  although I understand that in some states it is common for buyers to pay for it.

Another difference between title insurance and other types of insurance is that the premium is paid only once for lifetime coverage.

Although it’s unusual for a claim to be made on a title policy, it does happen.  For example, I once had to file a claim regarding a building I purchased in 1991.  A year after closing, I received a “lis pendens” (suit pending) notice from a Texas lawyer. I simply forwarded it to Land Title, which had issued the title insurance policy, and they settled the matter at no expense or inconvenience to me.

Unless it’s a cash transaction, there is a “piggy-back” policy issued to protect the mortgage lender. This policy is for the amount of the loan, versus the owner’s policy that protects the buyer up to the full purchase price. Such policies cost less because they require no additional work by the title company, and are typically issued at the buyer’s expense.

There are two kinds of title companies. There are direct underwriters, such as Fidelity National Title or Stewart Title, while other title companies serve as agents for those larger companies. Since the policies are underwritten by those big national companies, you’re not really at risk by using an agent company. However, you could have a problem if the agent company  holding part or all of your down payment goes out of business prior to closing. Those funds are supposed to be segregated in escrow accounts, but when commingling or misuse of funds occurs — as it has in the past — it can be a big deal.

Since Colorado has a somewhat antiquated regulatory environment in this arena; it is recommended that buyers and sellers obtain a “Closing Protection Letter” (which typically costs $25) to better protect their monies throughout a real estate closing.

All title insurance rates and closing settlement fees are regulated by the Division of Insurance. However, these filed rates and fees can still vary substantially, because of various discount programs offered by each company. The cost of title policies can vary by $100 to over $1,500, depending on the transaction; and the fee for conducting a closing can range from $100 to  $750.  Because of these variations, I recommend that sellers visit www.CompareTitleCompanies.com before selecting their title company.

 

Daniels Gardens Fixer-Upper or Development Site

IMG_3526Daniels Gardens is a transitional neighborhood featuring a mix of early 20th century bungalows and more recent construction/architecture.  This home, at 1190 Vivian Street, and the recently-constructed modern duplex next door are a good example of that transition.  Although this 2-bedroom, 1-bathroom home with a full basement is livable as is – the sellers have been here for over 30 years – the 0.3 acre parcel certainly makes it a candidate for new construction.  With this in mind, other than replacing the hail-damaged roof (which was finished just last week), I’ve advised the sellers to not make any improvements to the home prior to placing it on the market. There is no garage, but the two sturdy sheds in the fully-fenced backyard offer plenty of storage space. Interior photos, as well as a narrated tour are available at www.DanielsGardenHome.info.  If you’d like to see the home, my co-listor, Norm Kowitz, will be holding an open house this Sunday, 11 to 2.  If you can’t make the open house, call Norm at 303-229-3891.  Listed at $295,000.

 

Just Listed: Solar-Powered Candlelight Valley Home

DSC_0346Candlelight Valley is a high-end subdivision located in southwest Arvada, bordered by Indiana  Street and 52nd Avenue and by the Van Bibber Open Space Park on the south. A trailhead to that park is just a couple blocks from this home at 5674 Fig Way. Built in 1999, this 4-bedroom, 4-bath home has a finished walk-out basement and sits on one of the neighborhood’s larger lots — over 1/3 acre. Everything about this home is top shelf — from the gourmet kitchen with marble floor, slab granite countertops and GE Monogram built-in refrigerator-freezer. The walk-out basement can serve as a mother-in-law apartment with its own kitchen. The expansive deck and covered patio with included hot tub provide additional entertainment possibilities. The little details are equally impressive, from the dark wood fireplace mantle to the temperature-controlled wine cellar and the wainscoting in the billiards room. Even if you’re just window-shopping, visit this home’s website at www.CandlelightValleyHome.info to be inspired by the magazine-quality interior photographs and the narrated video tour with drone footage. I’ll be holding it open this Saturday, May 26th, 11 a.m. to 2 p.m.   Listed at $840,000. 

 

Answering a Reader’s Question

Q. I want to get above my listing price. If I get a full-price offer, do I have to accept it?

A. My sellers occasionally ask this question because my listing strategy involves pricing a home at or near current, real-world market value, as opposed to some hoped-for higher price. Sometimes a seller says they don’t want to sell for any amount that’s not above the listing price and asks if they’re required to accept a full-price (or any) offer.

The answer is “no.” Sellers cannot be compelled to accept an offer, irrespective of the offered price.  I always explain this up front to prospective buyers (through their agent, if represented) who submit a full-price offer.  The Colorado real estate contract states that if the listing agent produces an offer that matches the terms specified, the seller owes the commission to the agent. To better serve my clients’ interests I insert an “additional provision” stating that they, as the seller, will not owe me a commission on any rejected offer.

At the same time, however, I point out that if the only offer(s) we receive are for full-price (or less), then we didn’t underprice the home, did we?

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Do you have a question you’d like answered here? Send it to Jim@GoldenRealEstate.com.

 

The General Assembly Allows the Regulation of HOA Managers to Lapse

Real_Estate_Today_bylineIt was a good day for Colorado’s 1.9 million HOA members on July 1, 2015, when all HOA managers were required to be fingerprinted, educated about their functions, and licensed by the Division of Real Estate.

However, like all such laws, the Community Association Manager (CAM) program had a 3-year sunset requirement, meaning that it had to be studied by the Department of Regulatory Affairs (DORA) for its effectiveness and renewed (or not) by the General Assembly (Colorado’s legislature).

So, DORA submitted its analysis of the program, recommending that it be renewed and improved, but on April 10, 2018, the Senate Committee on Finance voted 3-2 to “postpone indefinitely” (i.e., kill) HB18-1175, the bill to renew the program for another five years. It was a party-line vote, with all Republicans voting against renewal and both Democrats voting for renewal.

In DORA’s report recommending renewal, it was noted that, because the law was only two years old, “there is little data to rely on in determining how much harm related to management activities exists….”

“However, two Managers and one Management Company have already been disciplined for misconduct related to management activities. All of these cases were related to theft of association funds. Additionally, many of the complaints received by the Division and reported during the sunset review reflect the findings of the 2012 sunrise review [which suggested the law].

“Community Association Managers have access to association funds, which is often in the millions of dollars. An association relies on these funds to ensure the common areas, facilities and, in some cases, buildings are well maintained, and the loss or mismanagement of these funds can be devastating to a community. As a result, the owners may suffer large assessments in order to bring the reserves up to an amount necessary to pay for the daily operation of the community, which may include water bills, trash removal, landscaping and professional services, not to mention necessary upkeep such as repainting buildings, replacing old roofs, repairing driveways and any emergency situations that may arise.

“Ensuring Community Association Managers do not steal or mishandle association funds is an important reason to regulate the industry. The Division has the ability to audit the business records of Community Association Managers, and through these audits, the Division may uncover misconduct….

“In fiscal year 16-17, the Director issued one cease and desist order against a company and 11 cease and desist orders against individuals, and revoked one individual license.”

[End of excerpt from the DORA report.}

Colorado is known as a low-regulation state. In other words, if regulation is not deemed necessary for the public safety, the default is to not regulate an industry.

Mortgage brokers, for example, were not even registered in Colorado until the mid-2000s, and it was another couple years before they were fingerprinted and required to take classes and pass a state exam in order to be licensed. Prior to that, a felon who had studied up on identity crime while in prison could claim to be a mortgage broker as soon as he was released and begin taking financial information and Social Security numbers from unsuspecting homeowners or home buyers!

HOA members were able to breathe a sigh of relief when the state decided to license Community Association Managers in 2013, with full implementation by July 2015, and they should be concerned that a Senate committee killed renewal of it.

The actual end of the program doesn’t happen until July 1, 2019, which means the 2019 session of the General Assembly could pass a renewal of the CAM program in time to avoid a lapse in regulation.

 

Stop the Madness! We Should Never Allow Driverless Cars and Trucks

Real_Estate_Today_bylineFirst, let’s distinguish between “driverless” and “self-driving” cars. My Tesla is self-driving when I employ its autopilot features, but I must keep my hands on the steering wheel. “Driverless” means there’s no driver — also called “autonomous” cars.

I have driven over 75,000 miles using Tesla’s self-driving features, giving me plenty of time to imagine what it would be like to have the car drive itself without me ready to take control at any moment.

Tesla’s current autopilot features are two-fold. First, there is “traffic-aware cruise control,” which maintains a safe distance from vehicles ahead, including braking to a full stop when necessary. It also reads speed limit signs and alerts me when I’m going over the speed limit by an amount I specify. Then there’s “auto-steer,” which reads the highway lines and keeps the car centered in its lane.  The car will change lanes if I use the turn signal — but only if it’s safe and doesn’t involve crossing a solid line.

In my experience, these “driver assistance” features make for safer driving.  When auto-steer is used, the car reminds me to keep to my hands on the wheel.  The car will sound an alarm and display a message if it hasn’t sensed my hands on the wheel for a minute or two. If I ignore the instruction to put my hands back on the wheel within a minute,  auto-steer is disabled and I can’t use that feature again until I stop and put the car in Park.

DSC_0016I think it’s just fine that Tesla continues to improve the car’s driver assistance features, but I’m convinced that going full-driverless would be a big mistake. Accidents involving self-driving cars have recently made the news, although it has been reported that in each accident another, human-controlled car was at fault. In one video you can see a car careening diagonally towards you from across the highway.

We all have been taught the importance of driving defensively. What such videos demonstrate is that a self-driving car can’t drive “defensively.” A human driver could have seen those other cars coming and taken evasive action. A human could detect a ball coming into the street and look for a child chasing it.  A human could detect another driver driving erratically and know to keep a safe distance while perhaps contacting the police.

Current self-driving software depends on lane painting. More than once my Tesla’s auto-steer function has attempted to follow lines that would have taken me into oncoming vehicles if I hadn’t reacted immediately.

How would a driverless car negotiate an intersection when there’s a power failure and the traffic lights are dark?  How would it react to a cat, squirrel or debris on the roadway? How about potholes?  A lot of day-to-day driving entails making eye contact with other drivers and responding to other drivers doing unpredictable or illegal maneuvers.

What about an alternate merge where two lanes reduce to one lane?  Or an on-ramp where only one car should proceed on each green light – and merge while accelerating?

Would the driverless car slow down when a deer has finished crossing and look for others that may be lurking nearby, possibly obscured by foliage?    Would a driverless car be able to follow the hand gestures of a traffic cop or someone guiding cars into a grassy field for parking at a social event?

You may recall that the recently suspended driverless experiment was being conducted in Phoenix.  Why?  Probably because their roads are never covered by snow and are rarely obscured by rain.  How is a driverless vehicle going to negotiate a snow-packed roadway or visually detect black ice?

The number of possible hazards and surprises is so great that no geek in Silicon Valley would be able to tweak the software into predicting and handling all of them. As I drive my Tesla using auto-steer regularly, I have experienced numerous such scenarios, which is what inspired me to write a column on his subject.

Now, let’s talk about trucks. A couple of years ago, a self-driving Budweiser semi made a run from its Ft. Collins brewery to Colorado Springs — with CDOT vehicles and State Patrol cars surrounding it for safety. A trucker was in the cab for safety, but can you imagine that a driver might ever not be needed to monitor that truck’s operation?  Remember, airplanes can fly and land themselves on auto-pilot, but the FAA requires at least one pilot to be in his or her seat at all times — and pilots don’t have to watch for cars, pedestrians, animals, bicycles and potholes, or even other airplanes most of the time.

Truck drivers are known for their diligent communication and service to fellow truckers and motorists. They contribute to keeping our highways running smoothly, sometimes coming to the aid of fellow truckers or motorists. Let’s keep them on the job, and give them improved driver assistance features to make their driving safer, versus endangering the rest of us by removing them from their trucks.

Comment below to share your own thoughts on this topic.