Last week, I shared some information about why title insurance is so valuable. This week, I’ll share a few more compelling reasons to get the best title insurance you can afford. As a reminder, title insurance isn’t like other insurance. Instead of paying ongoing premiums for protection against some problem in the future, for a one-time fee, title insurance protects you against problems that may have occurred in the past. Without title insurance, you cannot be sure that your claim on a property has priority over someone else’s.
Last week I reviewed liens and easements. Here are a few more issues title insurance protects against.
Forgeries – A forgery occurs when someone misrepresents themselves and creates a counterfeit document. For example, true story, a woman with a gambling addiction forged her husband’s signature so she could borrow against the house to repay her gambling debt. When the couple’s house went into foreclosure, the husband was awfully surprised to see his signature in his wife’s handwriting encumbering the home.
Another true story involves an apartment complex with an onsite manager who, over a period of years, represented himself to the tenants to be the owner of the property. Once all the tenants acknowledged him as the owner, he listed the property for sale with a real estate broker. He received an acceptable offer on the property and the broker opened escrow. In the meantime, the manager mentioned to the broker that he had lost his wallet with his driver’s license, which was his proof of identification. When it came time to sign the escrow instructions and grant deed to the new buyer, the manager reminded the broker about his lack of identification and asked the broker to verify his identity to the notary, which the broker did. Long story short, the title company was then on the hook to the new buyer for the forged document. The title company, however, recovered their loss by winning a claim against the broker who vouched for the manager’s identity as the owner. Title insurance can protect you against attempting to buy a property from someone with no legal claim to it.
There are two main types of title insurance: CLTA and ALTA. California Land Title Association (CLTA) insurance is based on a review of documents: 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 based on a physical inspection or survey of the property, such as 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. ALTA policies cover boundary disputes, encroachment disputes, and other prescriptive easements, like evidence of road through a property that doesn’t show up on plat map or legal description.
Both types of policies can include several endorsements. There are probably 100 different endorsements you can get, everything from ensuring that there hasn’t been unpaid work by a contractor (mechanic’s lien endorsement) to zoning.
The title insurance process starts with a preliminary report, the “prelim” once the escrow closes, the policy is enacted. The prelim allows prospective buyers and lenders to address problems before the ownership of the property is transferred. A word to the wise: it’s best to get a prelim early so you have time to track down and address any problems, and be sure to read both the prelim and the policy because as with most legal documents, the big print giveth and the small print taketh away.
I know it’s tedious, but it is well worth the read. It would be a bummer to buy 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 property management or real estate, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.
Dick Selzer is a real estate broker who has been in the business for more than 45 years.