You’re in the market to buy a home and up pops “title insurance” in the buying process. Are you stumped and not sure exactly why you need to get it?

Here’s a Q&A that should clear up any uncertainty.

What is Title Insurance?

• Title insurance protects against what may have happened in the PAST with the home and property you are about to purchase.
• It’s different than life, property, or mortgage insurance, which protect against losses from future events.
•  A title search is not 100% and the insurance is your protection. It will protect the insured from any problems that may arise once the policy is purchased, including any claims and legal fees.
• You pay a onetime fee at settlement unlike other insurances in which you may pay monthly or yearly over the course of owning your home.

Why is this important?

The home you want to purchase may have had several owners before you, and the land may have had even more.

 Something in the past may have occurred that could cause you problems now, such as a forged signature in transferring the title, or unpaid real estate taxes and other liens. Maybe a subcontractor never got paid when the home was expanded.

You never know what may be lurking in the financial on goings of the previous owners.

Who does it protect … the lender or the owner?

It gets a little confusing since two policies will need to be purchased, one for the lender and one for you, the owner.

• One policy will only cover the lender’s loss not yours. Because you’re getting a mortgage, a lender requires protection for an amount equal to the loan. Just like mortgage insurance, title insurance protects the lender, but you pay the premium, which is one payment made upfront.
• The other is an owner’s title policy. It will protect your equity in your home and property. In some areas, sellers pay for the owner policy to show good faith in the title. In other areas, borrowers must buy it. Usually, it is an add-on to the lender’s policy and the cost is relatively small.

When does the coverage begin and end?

Standard title insurance only covers events in the past.

Coverage ends on the day the policy is issued and extends backwards in time. Only claims that occurred prior to the date of the policy will be covered.

If a subcontractor you hired while you’re in your home makes a lien, then you aren’t protected by the standard title insurance policy. It occurred after the policy date; an expanded policy could protect you (see question below).

How long do I need coverage?

Your owner’s policy protects you as long as you or any of your heirs have an obligation to the property. When the property is sold, the lender will require the new purchasers to get a policy. That way, the lender will be protected from any claims or liens against the property that may have occurred since the date of the previous policy (or when you owned the property).

But if you have a lien on your property and it’s found during the title search, then you need to settle the claim before you sell.

What is the expanded coverage of the ALTA Homeowner’s Policy of Title Insurance?

The ALTA Homeowner’s Policy of Title Insurance in California offers expanded coverage beyond the standard ALTA policy. This policy provides homeowners with more comprehensive protection against title issues. Here are some key aspects of the expanded coverage:

• Post-Policy Forgery: Coverage for forgery or impersonation that occurs after the policy date.
• Post-Policy Encroachments: Coverage for encroachments, including structures built by neighbors after the policy date.
• Zoning Violations: Protection against losses due to the inability to use the property as a single-family residence due to zoning violations.
• Subdivision Law Violations: Coverage for losses arising from the violation of subdivision laws.
• Building Permit Violations: Coverage for losses due to the lack of a building permit for a structure built on the property before the policy date.
• Covenants, Conditions, and Restrictions (CC&Rs): Protection against losses from the violation of CC&Rs existing before the policy date.
• Enhanced Access Coverage: Assurance of access to the property from a public street.
• Mechanics’ Liens: Coverage for mechanics’ liens arising from work contracted by previous owners.
• Supplemental Taxes: Coverage for supplemental or escape assessments due to omitted property tax assessments.
• Living Trusts: Coverage extends to trusts, allowing the property to be transferred into a trust without losing coverage.
• Encroachment of Boundary Walls or Fences: Coverage for encroachments onto or from adjoining property.
• Damage from Mineral Extraction: Protection against damage to structures due to mineral extraction activities.
• Neighbor’s Structures Encroaching: Coverage for losses if a neighbor’s structure encroaches onto the insured land.
• Violations of Building Setback Lines: Coverage for losses from violations of building setback lines recorded in the public records.
• Increased Policy Amount: Coverage amount increases to reflect inflation or increases in property value.
• Automatic Coverage for New Improvements: Automatically includes coverage for new structures built on the property.

These expanded coverages provide homeowners with enhanced protection and peace of mind, ensuring broader safety against potential title issues that may arise during their ownership.

How do I buy title insurance?

To buy title insurance in California, first choose a reputable title company, often recommended by your real estate agent or lender. Open an escrow account where the title company will conduct a title search to identify any issues with the property’s title. Review the preliminary title report for any problems, which the seller typically resolves. Select the appropriate title insurance policy, commonly the ALTA Homeowner’s Policy for expanded coverage. Pay for the insurance, usually a one-time premium at closing, where you will finalize the transaction and receive your policy, ensuring protection against title defects.

Can I deduct title insurance premiums on my taxes?

No, not according to current tax codes, but always check with your tax advisor.

Talk to the Experts

This article is just an intro into what to know about title insurance.  When it comes time to get title insurance, you should always discuss your policy with the title company and their licensed title insurance providers. I’ll introduce you when it comes time!