California most real estate transactions are closed with the
issuance of a title insurance policy in favor of the owner,
the lender or both. Many homebuyers erroneously assume that
when they purchase a piece of real property, possession of the
deed to the property is all they need to prove ownership. Not
so, because hidden hazards may attach to real estate. Forgeries,
faulty surveys, hidden liens, the false representation of ownership
of a married person as being single are just a few examples
of factors which may cloud the title to real property ownership.
A property owner's greatest protection is a policy of title
is Title Insurance?
Title insurance assures
property owners that they are acquiring marketable title. Unlike
casualty insurance policies which insure against future events,
title insurance is designed to eliminate risk or loss caused
by defects in title from past events. Title insurance provides
coverage only for title problems which were already in existence
at the time the policy was issued.
A title insurance
policy is a contract of indemnity which guarantees that the
title is as reported, and if it is not and the owner is damaged,
the title policy covers the insured for his/her loss up to the
face amount of the policy.
The Title Search
Issuing a title policy
is an extensive and exacting process. Title companies work to
eliminate risks by performing a painstaking search of the public
records or the title company's own "plant," where
public records, laws and court decisions pertaining to the property
and the parties to the escrow are maintained, to determine the
current recorded ownership, any recorded liens or encumbrances,
or other matters of record which could affect the title to the
property. Once a title search is complete, the title company
issues a preliminary report detailing the current status of
The preliminary report
contains vital information which may affect the willingness
and the ability of the parties to close the escrow: ownership
of the subject property the manner which the current owners
hold title, matters of record which specifically affect the
subject property or the owners of the property, as well as a
legal description of the property and an informational plot
The preliminary report
indicates the type of title insurance offered by the title company
and the exclusions and exceptions from coverage subject to which
the policy will be issued, such as recorded deeds of trust,
easements, agreements, and covenants, conditions and restrictions
What to Look For
Agent should review
the preliminary report as soon as it arrives, with particular
attention to certain areas:
- Verify the ownership
vesting. Be certain the names on the report are the same as
the names on the purchase contract. Sometimes the name of
an unexpected owner will appear (i.e. a previous spouse or
relative who died), and corrective documents may be required.
- Verify the property
address. The plat map and legal description should match the
address. An owner could own two properties adjacent to or
across the street from each other, causing confusion in identifying
the correct property.
- Read the informational
notes for pertinent items about the property, i.e., transfer
taxes, monument fees, homeowners' association fees, etc.
- Carefully review
the exceptions. Common exceptions include current taxes, bonds,
deeds of trust, Mello-Roos assessment district items, CC&R's
and easements. Be sure the CC&R's or existing easements
don't interfere with the buyer's future plans. For example,
an easement across the backyard could have a profound effect
on the buyer's ability to add a swimming pool later.
- ALWAYS look for surprises. If you can't locate an easement;
if an unexpected deed of trust shows up; if you see an item
you weren't aware of before, immediately call the escrow officer
or title company to discuss the matter. The title company
should be a problem solver, and top notch escrow officers
and title companies go out of their way to resolve quickly
the majority of "red flag" areas. However, the responsibility
for early detection and resolution of problems falls on the
entire escrow team: the agents, the escrow and title companies
and sometimes the buyers and sellers as well.
Not all risks can
be eliminated by a title search, since certain "hidden
defects" like forgeries, identity of persons, incapacity,
incompetence and failure to comply with the law, cannot be disclosed
by an examination of the public records. Where the preliminary
report is an offer to insure under certain circumstances, the
title policy is a contract, providing coverage against such
Just a few of the
many title risks covered in the California Land Title Association
(CLTA) standard coverage policy in the event of a loss include
a lack of a right of access to and from the land and a number
of recorded defects:
- A forged signature
on a deed.
of the real owner.
- Mistakes in interpretation
of wills or other legal documents.
- Deeds delivered
without the consent of the grantor.
- Undisclosed or
- Deeds and mortgages
signed by persons of unsound mind, by minors, or by persons
supposedly single but actually married.
- Recording mistakes
and missed recorded documents.
- Errors in copying
In addition to indentifying
the insured against losses which result from a covered claim,
the policy also provides for legal fees and defense against
future claims against the property.
and lender's policies provide broader coverage and are available
through the American Land Title Association (ALTA). Coverage
is extended to certain matters that are off-record but which
are generally discoverable by an inspection of the property
or by questioning the parties in possession, such as:
- Unrecorded liens
- Unrecorded easements.
- Unrecorded rights
of parties in possession.
discrepancies or conflicts in the boundary lines.
ALTA policies are
available for lenders or owners, and a "plain language"
ALTA residential policy is also available for residential property
of one to four units.
and sellers should not assume that all title policies and title
companies are the same. They're not, and it is important to
ask questions of your title company to determine the type and
cost of coverage available.