December 9, 2020

Buying a house is often the most important financial transaction of your life. You therefore want to make sure that after the purchase is completed, the title to the property is actually yours, and that no one else has any liens, claims, judgments, or encumbrances on the property. That is where title insurance comes in.

Title insurance protects purchasers and lenders against losses from any defects in title, such as someone challenging the title to your property after you have purchased it. Possible title defects include errors in public records, unknown liens, illegal records, missing heirs, undiscovered wills, forgeries, false impersonations, undiscovered encumbrances, and unknown easements.

Before escrow closes and issuing a title insurance policy, a title company will check for defects in the title by examining records documenting the chain of title. A title search determines who owns the property, any outstanding debts against it, and the condition of the title.

The terms of a specific title insurance policy will define what risks are covered and/or excluded. For losses that are covered, the title company will reimburse you (or your lender) up the face amount of the policy, plus legal expenses. Insurance premiums are paid only once, when escrow closes. Who pays for the premium is not set by law, but differs by custom and region. In southern California for instance, sellers customarily pay the premium for title insurance.

There are two basic types of title insurance policies available to property owners in California – standard coverage policies and extended coverage policies. Standard policies cover defects in title that are discoverable from the public records, as well as some additional limited risks, while extended coverage policies also insure against defects of title not reflected in the public record. You may also be able to purchase endorsements to cover additional risks.

In addition to the owner’s policy, lenders require their own title insurance in order to provide a loan. A lender’s policy does not protect the buyer, but rather makes sure the lender’s security interest has priority over others’ claims.

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This article is based on the law as of the date posted at the top of the article. This article does not constitute the provision of legal advice, and does not by itself create an attorney-client relationship with Eskridge Law.