What Is Title Insurance and Why Does It Matter?

If you don’t spend much of your time buying and selling homes, you probably don’t have a clear sense of what title insurance is or why it’s important. Like many types of insurance, it’s not important–unless it is, and then it’s crucial.

People can have unrecorded or unofficial rights to your property, so it’s important to be aware of these. Title insurance is typically a guarantee from the insurance company that your ownership of (or lien on) a property is senior to other claims on the property. If there are other claims (recorded liens), a title report will reveal them and the title insurance will indicate where your ownership falls on the list with respect to other claims on the property.

Just to clarify, a lien is a legal right relative to property belonging to another person until a debt owed by that person is paid.

Some liens are unrecorded. For example, the owner of a home may borrow money from Aunt Mathilda and offer her a deed a trust to secure the loan, but not record the transaction through the Assessor’s Office. If a buyer or lender is aware of the unrecorded lien, they are beholden to it. “Unrecorded” doesn’t mean “invalid.”

When it comes to title insurance, there are two main types: CLTA and ALTA. California Land Title Association insurance includes recorded easements, deeds of trusts, a legal description, recorded owner(s), and whether property taxes are paid. American Land Title Association insurance is more comprehensive (and expensive). In addition to the elements included with CLTA insurance, ALTA insurance includes information like whether structures are built within the property lines, whether there are obvious signs of prescriptive easements (pathways used by the public – I’ll talk about these in more detail next week), and precisely where the property lines fall with regard to property improvements or roadways, new or anticipated.

Title insurance is different from other types of insurance because you’re really paying for the research. With most insurance, your premium is based on the worst coming to pass. With title insurance, you’re paying to see if something has already happened. This explains why title companies will do research on the property and present you with a preliminary report. The research discloses to you the condition of publicly available knowledge about the title of the property and tells you that the title company will insure your ownership or lien on the property subject to those conditions.

My advice to you is to read the report and ask questions. Talk to your realtor or the title company. If you’re buying a property for cash, you can opt out of title insurance, but I wouldn’t recommend it. If the seller suggests saving some money by skipping the title insurance, your sixth sense should hear sirens and see warning lights flashing wildly. Run (don’t walk) to the nearest title insurance company and sign up for title insurance.

In Ukiah, you have three options: Redwood Title Company, Fidelity Title Company, and First American Title Company. All are reputable. Redwood Title is independently owned and locally operated; the other two are company-owned and provide jobs for local folks. Policies from all three are underwritten by title insurers, so they’re all secure.

The long and short of it is this: title insurance will generally prevent you from buying a property (or lending money secured by a property) only to find out there are back taxes or recorded liens which weren’t paid; or worse yet, that the deed you were given was not signed by the true owner of the property and therefore what you paid for is worthless.

If there’s something you would like me to write about or if you have questions about real estate or property management, feel free to contact me at rselzer@selzerrealty.com or visit our website at www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 35 years.

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