What is Title Insurance?

What is Title Insurance?


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“Title” is your right of ownership in real estate, protected by the law.  It is evidence that you are in lawful possession of the property.  It is a collection of all the elements that constitute your legal right to own, possess, use, control, enjoy and dispose of your property.  You may take title in a number of ways and it is advisable to speak with a qualified real estate attorney if you have any questions.  For example:

  • Sole Ownership
    • A Single Man or Woman, an Unmarried Man or Woman or a Widow or Widower
    • A Married Man or Woman as His or Her Sole and Separate Property
    • A Domestic Partner as His or Her Sole and Separate Property
  • Co-Ownership
    • Community Property
    • Community Property with Right of Survivorship
    • Joint Tenancy
    • Tenancy in Common

 

In California, we use a Grant Deed for the seller of a property to guarantee two things:

  • The property has not been sold to anyone else
  • The property is not under any liens or restrictions that have not already been disclosed to the buyer

 

In order to make such a guarantee, the seller’s agent or assigned escrow officer must open a title order with a title company to perform a title search.  The title search looks for encumbrances or “liens” against the property that may cloud the title.  A lien is a claim against the property made by someone in order to secure payment of a debt.  There are two primary types of liens:

  • Voluntary Lien. This is where you knowingly enter into a contract to use your property as collateral to repay a debt; the most common being a mortgage which is simply a bank loan secured by the property.
  • Involuntary Lien. This can be a lot more problematic because it is not created by the homeowner.  Commonly, these are either tax liens (imposed by the government when property taxes are not paid) or construction liens (imposed by contractors when work is done to your property but the contractor has not been paid-in-full for their services).

 

Once the title company successfully completes the title search, they issue a Preliminary Report for the buyer’s review and approval.  The title company can then underwrite a title insurance policy to the buyer (Owner’s Policy, based on the full purchase price of home) and the lender (Lender’s Policy based on the value of loan) to protect against claims from defects in title, such as:

  • Another person claiming an ownership interest
  • Improperly recorded documents
  • Fraud or Forgery
  • Liens
  • Encroachments or Easements
  • Easements and other items that are specified in the insurance policy.

 

As part of the escrow closing process, the Grant Deed is signed by the seller and notarized by a notary public, as evidence that the signature is authentic.  When California was admitted to the union in 1850, one of the very first acts of the Legislature was to adopt a recording system by which evidence of title could be collected and maintained in a convenient and safe public place – this is our County Recorder’s Office.

 

In summary, when you purchase real estate, you and your lender must be assured there is clear title to the property and insure against any loss that could result from defects in the title.

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