What is a Title Insurance Policy and Why Do You Need it?
A title insurance policy is designed to verify the chain of title of a home and protect those involved from unknown liens or human error that might emerge after a sale.
Home sellers typically pay for a policy to protect the buyer after the sale. And homebuyers who need a mortgage must provide a policy that protects their lender. Yes, two policies on the same home sale, doing the same thing – we know, it seems a little scammy.
But it’s necessary, especially in California.
Homes that sell without title insurance are hard to sell later. An uninsured sale leaves a “cloud” on the title, and most title insurance companies won’t insure them on future sales, unless the parties from the previous sale sign affidavits verify the previous transaction.
If the former owner died, that can prove difficult.Title companies look for the following on a property:
Ownership: Those named on title, starting with the current owner and moving backward.
Encumbrances: Evidence of liens (mortgages, property taxes, etc.) and whether they have been reconveyed (paid off).
Property Taxes: To ensure that property taxes are paid and current.
Easements: Rights of others to use the property. Examples most commonly include utility company rights to go on a property to repair equipment. Extreme cases might include a neighbor’s right to travel across the property for ingress and egress (coming and going).
CC&Rs: Covenants, conditions and restrictions of a community. These are the rules of the road that an owner must abide as a property owner. Homeowner associations have CC&Rs. But many neighborhoods have their own as well.
Title companies also research the background of the new buyer, just in case there are personal matters that could affect the property. They ask for a statement of information from the buyers and request a social security number. The search includes:
Marriage records: California is a community property state. If a person is buying a house on their own, a spouse must sign an interspousal deed surrending ownership.
Lawsuits and claims: If a buyer has legal judgments against them, the creditors could pursue repayment by attaching a lien to the property title after the purchase. A bank might have a problem loaning money in that case.
There are three main types of title insurance in California. Coverages include:
Basic Owner’s Policy
- Clear title to the property
- Forged signatures or impersonation
- Documents executed under invalid powers of attorney
- Mistakes in recording
- Misinterpretation of wills
- Deeds by minors or persons married but thought single
- Liens for unpaid estate, inheritance, income or gift taxes
- Fraud
Extended Owner’s Policy (often require a survey)
- All coverage of basic policy
- Post-sale forgery
- Building permit violations of previous owners
- Subdivision map act coverage
- Restrictive CC&R violations
- Mineral extraction
- Map inconsistencies
- Living trust extensions
- Enhanced encroachment
- Automatic inflation adjustments
Lender’s Policy
- Mechanic’s liens and unrecorded liens
- Unrecorded easements and rights-of-way
- Defects and other unrecorded documents
Thinking about selling your home? Want to know the best strategies to ensure you sell for the highest possible price? Call us today at 951-778-9700 or use the form below and ask for a 10-minute consultation.
Illustration courtesy of Stuart Miles | freedigitalphotos.net
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Title Insurance on Your Home Sale | Who Pays for Title Insurance | Selling a Home in Riverside CA | Brian Bean and Tim Hardin Dream Big