When you purchase a home, your Realtor will list title insurance among the required expenses. Why is it so important? Because without it, you cannot be sure that your claim on the property has priority over someone else’s (and you won’t get a loan). According to the American Land Title Association (ALTA), title problems occur in about a third of residential real estate transactions, with the main problems being existing liens, unpaid mortgages, and recording errors like incorrect names, addresses, or legal descriptions. (Just to clarify, a lien is a legal right to a property belonging to another person.)
Title insurance is different from other types of insurance because you’re really paying for the research. With most insurance, your premium is based problems happening in the future. With title insurance, you’re paying to see if a problem has already occurred. This explains why title companies will do research on the property and present you with a preliminary report. The research divulges all the publicly available knowledge about the title of the property, and tells you whether the title company will insure your ownership (or lien) on the property subject to those conditions.
There are two main types of title insurance: CLTA and ALTA. California Land Title Association (CLTA) insurance includes recorded easements, deeds of trusts, a legal description, recorded owner(s), and whether property taxes are paid. American Land Title Association (ALTA) 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 easements, and precisely where the property lines fall with regard to property improvements or roadways, new or anticipated.
Unlike many other types of insurance, you only have to pay for title insurance once—when you purchase the property—and it lasts for the duration of your ownership. Typically, you’ll buy a policy for yourself, and one for the lender. This way, if a problem occurs and someone else can legitimately claim to own the home, the lender can recoup legal fees and/or his investment—and you can, too.
Given that only about 15 percent of title-related records are digitized, title companies expend considerable efforts to gain all the publicly available information about a given property. As a result, claims are relatively low.
When you get your title report, be sure to read it. This may sound silly, but you’d be surprised how many homebuyers skim it and don’t worry too much if they don’t understand the details. My advice to you is to 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, you should run to the nearest title insurance company and immediately sign up for title insurance.
Locally, you have three options: Redwood Title Company, Fidelity Title Company, and First American Title Company (First American is in Lake County). All are reputable, and as the person paying for the insurance, you get to decide which company to go with. 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 you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit 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 40 years.