How Title Insurance Works
In the state of California, government officials record all real estate transactions. Occasionally, records related to a property can indicate unpaid debt – we have seen “mechanics liens” and debts associated with bail bonds, just to name a few colorful examples. Since these types of debts or issues are associated with ownership in the property, homebuyers should be aware of the risks.
Buyers want homes that they will own “free and clear” aside from any mortgage-related funds. This is where title companies play an invaluable role.
When a buyer purchases title insurance for a property, the title company will scrutinize all available records that relate to the property. In particular, the company will work to identify any potential ownership issues – if discovered, the title company will attempt to resolve the issue.
Despite the rigorous search, there can be cases where problems arise after the homebuyer has purchased the property. This is when a title insurance policy is critical. Homebuyers who encounter these issues are grateful for the protection offered by title insurance.
Frequently Asked Questions
What is title insurance and why is it required?
Title insurance is a one-time cost insurance policy that protects homebuyers and lenders against title claims, such as undisclosed debts or ownership issues tied to a property. In California, it is required for nearly all mortgage loans. Common examples of title issues include mechanics liens and debts associated with bail bonds that were not resolved by a previous owner.
How does title insurance protect a homebuyer?
When you purchase title insurance, the title company thoroughly searches all available records related to the property to identify any potential ownership issues. If a problem is found, the title company will attempt to resolve it before closing. If an issue surfaces after the purchase, the title insurance policy covers valid claims and the cost of defending against them, protecting your ownership interest in the home.
What are the two types of title insurance policies?
There are two types of title insurance policies. The lender’s policy is required in most financed transactions and protects the lender until the loan is paid off or refinanced. The owner’s policy is typically optional and is paid for by the buyer. It is usually a one-time cost and provides coverage for as long as the owner or their heirs retain an interest in the property.
Who pays for title insurance in California, the buyer or the seller?
In California, it is customary for the buyer to pay for both the lender’s and owner’s title insurance policies. However, like many closing costs, this is negotiable and can be arranged differently between the buyer and seller depending on the terms of the transaction.
Is the owner’s title insurance policy worth the cost?
For most buyers, yes. The owner’s policy is typically a one-time cost that provides lasting protection for as long as you own the home. Given that title issues can surface unexpectedly after closing, having a policy in place means you are covered for valid claims and legal defense costs without additional out-of-pocket expenses.
Can title issues arise even after a thorough title search?
Yes. Despite a rigorous review of property records, problems can still surface after a home has been purchased. This is precisely why having an owner’s title insurance policy in place is so valuable. Buyers who encounter unexpected title claims after closing are protected by their policy, which covers both the cost of valid claims and the legal costs of defending against them.
Who Pays the Title Insurance, Buyers or Sellers?
So, who pays for title insurance in California? The buyer or seller? While this can vary from one transaction to the next, it is customary for the buyer to pay for title insurance – both insurance for the lender, as well as the buyer. Similar to many closing costs, these things can be negotiated between buyer and seller.
To recap, there are two different kinds of title insurance policies:
- The lender’s policy is required in most situations where the transaction is financed. This policy protects the lender or bank, typically until the loan has been paid off or refinanced.
- The owner’s policy is paid for by the buyer and is usually optional. In most cases, the cost of the owner’s title insurance policy is paid only once, though the coverage lasts as long as you own the home. While exact details can vary, this is typically how this coverage functions.
According to the American Land Title Association:
“An Owner’s Policy is typically issued in the amount of the real estate purchase price, and remains in effect for as long as the owner, or his or her heirs, retains an interest in the property. In addition to identifying risk before a transaction is completed, the Owner’s Policy will pay valid claims and all defense costs against attacks on the title.”
This blog covers the very basics of title insurance and aims to explain “who pays for title insurance in California.” For any additional questions you may have about title insurance in California or other mortgage-related inquiries, feel free to reach out to one of JVM Lending’s knowledgeable Client Advisors. You can reach our team 7-days a week either by phone at (855) 855-4491 or by email at jvmteam@jvmlending.com.
