Title insurance is a type of insurance that protects both lenders and property buyers from financial losses related to problems with the title to a property. Here’s how it works in California:
1. **Title Search**: When you buy a property, a title company conducts a thorough title search to examine public records and verify the property’s legal ownership history. This search aims to uncover any liens, encumbrances, or other issues that could affect the property’s ownership.
2. **Title Report**: The title company provides a title report to the parties involved in the transaction. This report outlines the current state of the property’s title, including any issues discovered during the title search.
3. **Title Insurance Policies**:
– A. **Lender’s Title Insurance**: Most lenders in California require the buyer to purchase a lender’s title insurance policy to protect their interest in the property. This policy covers the amount of the loan and lasts until the loan is paid off.
– B. **Owner’s Title Insurance**: While not required, it is advisable for buyers to purchase an owner’s title insurance policy to protect their investment in the property. This policy is typically paid for as a one-time premium at the time of purchase and remains in effect as long as the owner or their heirs have an interest in the property.
4. **Protection**: Title insurance protects against various potential issues, including:
-A. **Forgery**: If someone forges a signature on a deed, mortgage, or release of lien, the title insurance policy would cover any resulting losses.
– B. **Hidden Defects**: It can protect against undiscovered title defects, such as undisclosed heirs, conflicting wills, or mistakes in public records.
– C. **Liens**: It covers financial claims or liens against the property, which were not known at the time of purchase.
5. **Cost**: The cost of title insurance in California varies depending on the property’s purchase price, location, and the title insurance company chosen. The buyer typically pays for both the lender’s and owner’s policies as part of the closing costs.
6. **Choice of Title Company**: In California, the choice of title insurance company is generally left to the party responsible for paying the title insurance premium. However, it’s customary for the buyer to choose the title company for the owner’s policy.
Title insurance is essential because it provides peace of mind to property buyers and lenders, ensuring that they have legal recourse and financial protection in case title issues arise after the property purchase. It is a standard part of the home buying process in California and is designed to minimize risks associated with property ownership.