Unlike life or casualty insurance which insure on future events, title insurance insures against past events. It ensures the ownership of the property and all matters pertaining to its past history.
Public records are examined in order to provide title insurance. These records include those in the County Recorder’s office, any taxing authority that levies taxes or assessments on real property or income, county courts, and U.S. District Court records for the county in which the property is located.
The title company must examine, classify and summarize every document affecting the property and the status of any owners. This material is called a title search, and it is reviewed by a title officer who then writes his opinion as to the documents of record.
The opinion initially takes the form of a preliminary title report. It later takes the form of a policy of title insurance, which insures the ownership of the property and discloses any matters to which the ownership is subject.
The Title Insurance Policy
The title policy describes the condition of title, taxes, any conditions, and restrictions on the use of the property, easements, or other matters that may be shown as exceptions to the policy. If an insured sustains a loss due to any incorrectness of the policy information, the title insurer may be liable to such loss up to the face amount of the policy.
The premium rates are based on the amount of liability assumed, which is generally the sales price, and the seller usually pays this in Southern California.
If the buyer obtains a loan, then the buyer pays an additional premium to insure the loan amount for the lender. The premium is a one-time charge and the policy remains in effect as long as the insured or its heirs retain ownership. All real estate titles should be insured.
Typical Title Insurance Coverage
Some of the covered risks include:
- forgery of a deed
- deeds made by legally incompetent individuals
- heirs presumed dead who appear and recover the property
- legal expenses to defend court actions regarding title issues, etc.
There are also various expanded forms of title insurance that include coverage for fence encroachments, boundary disputes, and many other risks that may occur after an escrow has closed. The buyer generally pays a slightly greater premium for this greater coverage.