Title Insurance – What is it and do I Need It?

Title Insurance

What is Title Insurance?  Title insurance will help to protect your investment and will give you piece of mind that you will not lose your house due to a faulty title.  Title insurance is an often overlooked component of you real estate transaction that gets lost in the excitement of buying a new house.

How Much and Who Pays?  The approximate cost of title insurance for a house valued at $500,000 is $1,500.  While EVERYTHING in real estate is negotiable, it is customary in our area for the seller to pay for the owner’s (buyer’s) title insurance policy.

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What is Title Insurance?

When you buy a property in California, you want to be sure the seller has the right to sell it and that when the transaction closes, you actually own it.

Title insurance is a policy that protects property owners and lenders from losses that could result from disputes over ownership of a property’s title.  This could include fraud, liens against the property, or errors missed during a title search.

Title insurance is important because it protects you from title hazards that could threaten the financial investment you have made in your home or other property.

There are two types of title insurance:

Owner’s title insurance guarantees that the buyer has the right to the property.  It also covers the cost of any legal fees that arise if you have to defend your claim.  The cost is based on the price of the property.  It is issued for a one-time fee usually due when you are closing or settling the transaction.  Insurance benefits are paid only to the name that is on the policy.  Coverage lasts as long as you hold title to the property.

Lender’s title insurance protects the bank or other lending institution that issues your mortgage from any losses resulting from disputes over who owns the property.  A policy covers the amount of the loan and the cost is based on the amount of that loan.  Most lenders require this coverage, which ends when the mortgage is paid.

What’s covered?

Owner’s title insurance protects you from:

• Fraud associated with the title ownership
• Liens existing against the property at the time the policy was issued
• Mistakes in the public record that are not caught before the sale
• Inaccurate or conflicting wills and trusts related to the title
• Missing heirs who suddenly appear and claim to own the property
• Forged or misfiled deeds and other documents
• Errors or flaws in the title that are not discovered in the initial title examination

Lender’s title insurance covers the amount of the mortgage loan and protects the lender’s interest in the property if any of the above risks occur.

Why You Need Title Insurance:

Without the protection of an Owner’s Title Insurance Policy, you may be in jeopardy of losing your investment.  When purchasing your home, you are making the largest investment in your life.  Even the best title examination or search cannot protect your investment and home from matters not appearing in the public records, However, an Owner’s Title Insurance Policy can protect you from:

• Forged legal instruments (deeds, mortgages, wills, releases of mortgages)
• Legal documents improperly recorded
• Breaks in the chain of title
• Mistakes and omissions due to improper abstracting
• Inadequate legal descriptions
• False impersonation of the true property owner
• Undisclosed heirs
• Defective notary acknowledgements
• Issues involving improper marital status
• Adverse possession
• Utility easements
• Documents executed under false or expired powers of attorney
• Prescriptive rights in another not appearing of record and not disclosed by survey
• Deeds by minors
• Deeds and wills drafted by persons lacking legal capacity
• Errors in tax records
• Persons under duress while executing instruments to convey or establish title
• Conveyance by undisclosed spouses
• Real estate homestead exceptions
• Interests arising by deeds of fictitious parties
• Community issues regarding property
• Falsification of affidavits or heirship
• Matters regarding probate
• Misinterpretation of wills and other legal documents
• Issues of rightful possession of land
• Forfeitures of property due to criminal acts
• Improper modification of documents
• Deeds/Mortgages by foreigners who may lack legal capacity to hold title
• Rightful conveyances by corporate entities
• Issues involving the delivery of conveyance instruments

Fictional Example 1:  Jack and Jill—a lovely couple.  They made quite an impression on the Johnsons who purchased their home.  The Johnsons were much less impressed when they heard from Jack’s real wife.  It seems that Jill wasn’t Jack’s wife but his mistress, which meant that the deed of ownership she signed was invalid.  The Johnsons did finally meet Jack’s legitimate wife—in a court of law when she claimed her legal right to the property. (Because California is a community property state, even though Jack and his mistress owned the house, Jack’s wife may still have a legitimate claim to the property’s title. – TB)

Fictional Example 2:  A widow has seven sons.  One of her sons is presumed lost at sea and declared legally dead.  Upon the widow’s death, the remaining sons inherit her home, place it on the market, and sell it for a modest price to the Andersons.  The Andersons were delighted with their new home—until the son lost at sea returned from the dead.  It turns out the widow’s missing son decided years ago to start a new life elsewhere.  When he finally returned and found that the house had been sold, he promptly filed claim against the Andersons for his rightful share of the property.

If a claim is ever filed against your property, title insurance will, in accordance with the terms of your policy, assure you of legal defense and pay all court costs and related fees.  If the claim is found to be valid, you will be reimbursed for your actual loss up to the face amount of the policy.

The insurance premium for an Owner’s Policy is collected only once (usually at a discounted rate if written at the same time as the Lender Policy) and your coverage will remain consistent for as long as you or your heirs retain an interest in your property.