The decision to purchase a home (or other real property) or refinance is probably the largest and most important financial decision you will make. You and your lender will want to make sure that title to the property is indeed yours and that, unknown to you, no one else has liens, claims, or encumbrances on your property. Title insurance guarantees you or your lender against losses from any defects in title that may exist in the public records at the time you purchase that property, and certain other risks described in the title insurance policy.
Possible title defects include:
Errors in public records
Unknown Liens
Illegal Records
Missing heirs
Forgeries
Undiscovered encumbrances
Unknown easements
Bounders/ Survey Dispute
Undiscovered wills
False impersonation
Before issuing a title insurance policy, title companies check for defects in your title by examining title plants (a database of property information) or public records including deeds, mortgages, wills, divorce decrees, court judgments, tax records, liens, encumbrances, bail bonds and maps. The title search determines who owns the property, what outstanding debts are against it, and the condition of the title. You should receive the results of this search, which describes the title of the property you are purchasing or refinancing and includes a preliminary title report or commitment.
Title companies also handle property closings and hold money in an escrow account until the purchase is complete.
What Is Title Insurance?
Title insurance is a contractual obligation that protects against losses that occur when title to a property is not free and clear of defects (e.g. liens, encumbrances and defects that were unknown when the title policy was issued). Title insurance also guarantees loan priority. The terms of the policy define what risks are covered and what risks are excluded from coverage. The title insurer will reimburse you or your lender for losses that are covered, up to the face amount of the policy, and any related legal expenses. This protection is effective as of the issue date of the policy and covers defects arising prior to your ownership. Title companies issue policies on all types of real and personal property. Two types of title insurance policies for real property are the most common – a lender’s policy and an owner’s policy.
How Does Title Insurance Differ from Homeowner’s Insurance?
Title insurance protects against losses due to defects in title. Before issuing a title insurance policy, title companies search and examine title plants or public records to identify liens, claims or encumbrances on the property, and alert you to possible title defects. The premium cost is a one-time fee payable at the time of escrow closing.In contrast, homeowner’s insurance insures your house and contents and may provide coverage for losses due to fire or lightning, theft, vandalism, and personal liability claims brought against you, the policyholder. Homeowner’s premiums are often billed monthly, quarterly or annually and installment payment options are often available. Title insurers in California are not permitted to provide homeowners insurance to you.
Save Money by Comparing Rates
Under California law, every title insurer, underwritten title company (agent for one or more title insurance companies), and controlled escrow company must file its schedule of rates, forms, and rate modifications with the Insurance Commissioner. Since each company’s loss experience and expenses differ, the rates will differ as well, so you can save money by comparing rates.
Competing title insurers and underwritten title companies may offer different costs or services for title insurance required. You may choose one company for escrow services and another for title insurance.
The person who pays for the policy selects the title insurance company. Be sure that any title company you select meets your standards and those of your lender. Ultimately, the choice of which title insurance company to select is yours. You may want to contact more than one title insurer or underwritten title company to compare costs and services. You can visit our website at www.insurance.ca.gov for a list of California Department of Insurance licensed title insurers and underwritten title companies.
Discounts
Title insurance companies may offer discounts for title insurance and escrow, such as:
For first-time buyers,
A “short-term rate” for a property that has been resold within the last five years,
Concurrent rate if the company is providing both the owner’s and the lender’s title insurance policies in the transaction,
A subdivision bulk rate for homes being purchased in a new subdivision,
Refinancing discounts, and
Short-term financing rates and other discounts that may be available.
The availability of discounts, the amount of the discounts and the applicability of the discounts may vary by company. Be sure to ask the company or its title marketing representative what discounts are available.
In the case of a refinance, if you have an existing title insurance policy, you may be entitled to a reissue or refinance discount. Also, if the previous owner of the house can provide proof of an owner's policy, the new owner may be eligible for a reissue discount on an owner's and lender's policy
Who does Title Insurance protect
Title insurance protects you and your lender if someone challenges the title to your property. This may be in the form of an alleged title defect, which was unknown to you at the time you purchased the property, but came to light at some future date during your ownership of the property. A title insurance policy contains provisions for the payment of losses which result from a covered claim. The title insurance policy also covers legal fees in defense of a claim against your property. Coverage can benefit the homeowner or the bank or mortgage company (lender).
Choice of Title Insurer
The choice of which title insurer to use belongs to the person who pays for the policy. Federal law, the Real Estate Settlement Procedures Act (RESPA) of 1974 (Public Law 93-533), prohibits the seller from requiring you to purchase title insurance from any particular company. Please visit the Consumer Financial Protection Bureau internet site at www.cfpb.gov for additional information on RESPA and title insurance.
What Does Title Insurance Cover?
Two basic types of title insurance policies are available to owners of real property in California: (1) a standard coverage policy and (2) an extended coverage policy.
A standard policy insures primarily against defects in title which are discoverable through an examination of the public record. This includes defects in title or recorded liens or encumbrances, such as unpaid taxes or assessments, and defects due to lack of access to an open street. A standard policy also covers an additional, limited number of risks that are not discoverable through a search of the title plant or public records.
The extended policy provides greater coverage than the standard policy. Generally, the extended policy provides the same coverage as the standard policy, but also insures against defects, liens, encumbrances, easements, and encroachments and conflicts in boundary lines that are not reflected in the public records. Since an extended policy covers many "off-record" defects in title, the insurer will typically require a survey of the property to be insured.
Since title insurance is required by your lender, the lender should specify the type of lenders policy required.
Endorsement Options
You may also purchase, at an additional cost, optional endorsements to cover risks that are not included in the standard or extended coverage title insurance policies. Endorsements are available to provide coverage against environmental protection liens, enforcement of covenants, conditions and restrictions, damage due to water and mineral development, accuracy of boundaries, and other potential risks. Endorsements may also add additional named insureds, such as your inter vivos trust (which some call a "living trust").Be sure to discuss available optional endorsements with your title company or its title marketing representative. Certain endorsements are required by the lender and will be automatically ordered by the title or escrow company.
Who Should Purchase Title Insurance?
There are two types of policyholders of title insurance, and policies differ accordingly: (1) an owner’s policy (standard and extended) and (2) a lender’s policy. Lenders will require their own title insurance as a condition of your loan. A lender’s policy insures that the lender’s security interest in the property has priority over claims that others may have in your property. A lender’s policy does not protect you. Similarly, the prior owner’s policy does not protect you, either. If you want to protect yourself from claims by others against your new home, you will need an owner’s policy. An owner’s policy insures the buyer for as long as he or she owns the property. This protection is limited to the value of the property at the time of a claim. It is usually less expensive to purchase a lender’s policy and owner’s policy at the same time from the same title insurer. Contact your title insurer for additional information.
How Much Title Insurance Will I need?
The home buyer should insure the full purchase price of the property; the lender only requires title insurance to cover the amount of your loan.
Who Pays the Premium for the Title Policy?
In California, settlement practices vary from locality to locality.
The party that pays the title premium is a matter of local custom and practice and not set by law. Depending upon the region, the premium for a title insurance policy can be paid by the buyer or the seller or split between both parties. In Southern California, the seller customarily pays the premium for title insurance.
It has been the practice in Northern California that the buyer customarily pays the premium for title insurance, or occasionally the premium is split between buyer and seller. In almost every county, the buyer pays the lender’s policy premium. The parties are free to negotiate a different allocation of fees. Your title company or escrow company can advise you as to who normally pays the premium in your area.
How is the Premium Determined and When is it Paid?
Title insurance premiums are based on the dollar amount of coverage provided. Every title insurance company is required to file its schedule of rates and forms with the Insurance Commissioner.
Premiums are paid only once, at the close of escrow. There are no continuing premiums like other types of insurance.
Terms for Title Insurance
Ancillary Fees
These fees may not be included in the services listed above:
Wire
Courier
Carrier
Notary
Government Taxes
Reverse Mortgage
Short Sale
Real Estate Owned (REO)
Outside signing service
Please visit the Consumer Financial Protection Bureau internet site at www.cfpb.gov for additional information on the Real Estate Settlement Procedures Act (RESPA) and disclosure requirements regarding these ancillary fees.
Escrow Loan Fee
The fee tied to the loan fee for a sale or purchase of a home. Some escrow companies require this fee. For a refinance, it is the fee paid for the escrow of a refinance transaction.
Escrow Sale Fee
The fee paid for the escrow process involved in a home purchase. It is not applicable to refinancing a home.
Foreclosure
If a homeowner can’t afford the house, he may decide to relinquish ownership and give the house to the bank that holds the mortgage
Lender’s Policy
When you refinance your home or take out a new mortgage, the lender seeks protection for its investment by requiring the purchase of a lender’s title insurance policy to protect against losses resulting from claims made by others against your new home.
Owner’s Policy
An owner’s policy provides assurance that the title insurance company will stand behind the owner if a covered title problem arises after the home is purchased. It is issued in the amount of the real estate purchase.
Reverse Mortgage
A special type of home loan that lets you covert a portion of the equity in your home into cash. (source hud.gov)
Short Sale
A home being sold for less than the mortgage, with the lender agreeing to take the lesser amount to settle the loan.
Title Insurer
Title insurer means any company issuing title policies as insurer, guarantor or indemnitor. A title insurer must have a certificate of authority from the CDI to issue title insurance policies in California.
Title Lender’s Policy Fee
The fee charged for a lender’s title insurance policy that protects the lender’s security interest in the property.
Title Marketing Representative
An individual employed by a title insurer, underwritten title company, or controlled escrow company whose primary duty is to market, offer, solicit, negotiate, or sell title insurance. Title marketing representatives must be registered with the CDI.
Title Owner’s Policy Fee
The fee paid for the owner’s title insurance policy that protects the buyer of the home; not applicable in a refinance.
Title Plant
A data base of organized data files with information on land and improved real properties compiled and used by title insurance companies to perform title searches.
Underwritten Title Company
Any corporation engaged in the business of preparing title searches, title examinations, title reports, certificates or abstracts of title upon the basis of which a title insurer writes title policies. An underwritten title company must be licensed by the CDI.
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