Updated on January 11, 2024
If you are buying or selling real property in the state of California, you will at some point encounter the concept of title insurance. In fact, real estate brokers typically use standardized purchase and deposit forms, which include express provisions for the issuance of title insurance as a condition of purchase. But what is this so-called title insurance? What is it used for? Is it mandatory for me to get title insurance? What Does title insurance mean to the Average Home Buyer
Usually when you think of insurance, like home insurance or car insurance, you are thinking about a policy which will protect you from some harm which may happen in the future — a car accident or house fire, for example. These policies are usually valid for a year, unless you pay a renewal fee.
Title insurance is somewhat different from car and home insurance. For one thing, title insurance will protect the buyer for as long as the buyer owns the property and often times even after they sell to transfer it.
Another difference is that title insurance does not promise to protect you from some future harm that may occur.
Rather, title insurance is a promise that the title to the property is clear (subject to certain identified exceptions in the title report) on the date of purchase, and if it is not, the insurer will indemnify the buyer from any resulting loss.
It is important to remember, though, that a title insurance policy does not insure the value of the property, but only the condition of its legal title.
There are several moving parts to purchasing real property. One important part involves title insurance. Imagine a scenario where you owned your property for several years and someone unexpectedly comes along and informs you that they have rights to your property. These types of scenarios are not that uncommon. This is the very purpose of title insurance. To protect you against unforeseen claims to your property.
These unexpected claims, or rather encumbrances, can range from easements that prevent you from using a portion of your property, to unreleased mortgages and liens that have the same ability as your mortgagee to foreclose on your house for failure to pay.
As such, before you close on the purchase of your property, it is critically important for you to inspect the property’s title. Generally, there are two ways to go about this. You can inspect the property’s title by searching through the records maintained by the county recorder of deeds and other public databases.
Or, you can do what most people do and contract a local title company to perform the title search for you. The company’s title search would then culminate into a report (usually referred to as the preliminary title report), which discloses all of the property’s recorded encumbrances and claims. Significantly, the preliminary title report is usually the instrument the title company bases its policy on.
That policy will then insure you against undiscovered claims and encumbrances that where not uncovered by the title search. For this reason, title insurance is unlike most conventional insurance policies. Title insurance insures backwards; it insures against unknown claims prior to the policy date. Whereas your average conventional policy insures against claims occurring after the policy date.
Title insurance is based on contract principles. Thus, it is very important that you review and understand your title insurance policy to know what exactly is being covered. Schorr Law’s real estate attorneys in Los Angeles have significant experience with title reports and title insurance.
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By Randy Aguirre, Esq.