As part of finalizing most real estate transactions, the buyer must secure a title insurance policy. While the process usually seems simple enough, buyers and sellers may find that obtaining title insurance can be one of the trickiest aspects of any real estate transaction and can often be the thing that derails the transaction. In this post, we discuss the purpose of obtaining title insurance, the process of obtaining title insurance, the effect of not obtaining title insurance and a property owners’ legal options where defects in title are preventing parties from being able to obtain title insurance.
The Purpose and Effect of Title Insurance.
Generally, lenders require the buyer to obtain a title insurance policy before they will provide a loan. In a real estate transaction, a buyer only obtains whatever interest the seller has in the property. Therefore, title insurance companies insure against losses resulting from differences between the actual title and record title as of the date title is insured. (Dollinger DeAnza Associates v. Chicago Title Ins. Co., (2011) 199 Cal. App. 4th 1132, 1145 (internal citations omitted).) Thus, by issuing a title insurance policy, the title company is agreeing to indemnify the buyer for losses incurred as a result of defects in or encumbrances on the title. (Id.) In other words, the title insurance company will indemnify the buyer, up to a certain point, for legal fees incurred when defending against someone else’s claim of title or monetary losses resulting from defects in title.
Obtaining Title Insurance
Title insurance companies issue title insurance on the basis of and the quality of a public records investigation concerning the status of the title. (Quelimane Co., Inc. v. Stewart Title Guar. Co. (1998) 19 C4th 26, 41.) These searches are usually referred to as the “Preliminary Title Report”. However, a preliminary title report is not the equivalent of a title insurance policy. Rather, preliminary title reports are reports on the status of title meant to state in advance the precise risks that the title insurance company is willing to assume. (Rosen v. Nations Title Ins. Co., (1997) 56 Cal. App. 4th 1489, 1499-500; 2,022 Ranch, L.L.C. v. Superior Court (2003) 113 Cal. App. 4th 1377, 1382, (disapproved of on other grounds by Costco Wholesale Corp. v. Superior Court (2009) 47 Cal. 4th 725).) In other words, the title insurance company conducts a public record search and then decides whether they are willing to provide insurance coverage and to what extent.
Failure to Obtain Title Insurance
Where the preliminary title report turns up defects in title, the buyer may be unable to obtain an adequate title insurance policy. As a result, the lender is unlikely to provide financing and the parties will be unable to close escrow.
Legal Options Where Preliminary Title Report Shows Defects in Title
What should a property owner do when the preliminary title report shows a defect in title? In most cases, the property owner has a range of legal options. One of the most common options pursued by property owners are quiet title actions. The object of a quiet title action is to settle and determine all conflicting claims to the property and to decide who is entitled to an ownership interest in the property. (Western Aggregates, Inc. v. County of Yuba (2002) 101 CA4th 278, 305 (internal quotes omitted).) Essentially, the goal of the quiet title action is to get a court order showing that the buyer has free and clear title as against all those who may be claiming an adverse interest in the property.
We have experience obtaining quiet title judgments and can help you with any issues concerning defects in title to property that you may be dealing with.
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