Most people are trying to cut
costs these days. Some even wonder if it's necessary to pay for title insurance
when they buy or sell a home.
Skimping here could end up costing plenty if you
discover a title defect after you own the property. Title insurance is paid for
once at closing and covers the property for as long as you own it.
It protects
the purchaser from financial loss deriving from defects in the title to the
property. The premium cost varies depending on the title insurance company, and
is usually based on the purchase price. Who pays the title insurance premium
often depends on local custom and can vary from one county to the next. For
instance, if you were to sell a home in Los Angeles County, where the seller usually
pays for title insurance, and buy in Alameda County, where the buyers usually
pay, you'll pay for title insurance twice during one move. Buyers typically pay
the premium to cover their lender's interest in the property.
The payment of
title insurance is not set by law and can be negotiated between the buyer and
seller, although local custom usually prevails. Whatever is agreed to in the
purchase agreement will dictate who pays the premium. A buyer who was an
attorney thought title insurance was expensive and a waste of money. Given his
legal expertise, he decided he'd search the title record himself to avoid
paying the title premium. In the end, his agent talked him out of the
do-it-yourself approach based on the risks involved. Title insurance companies
search the title to a property to make sure that there aren't any defects in
the chain of title.
They also look for liens and easements recorded against the
property, as well as establish who has marketable title to the property. In one
case, the title company discovered when searching the chain of title that when
the property sold to the current owner, an heir to the estate had not signed
the deed transferring title. This meant that person still had rights to the
property. Fortunately, the title company located the heir, who was reputable.
She relinquished any interest she had in the property. If the heir hadn't been
cooperative, the current owner could have made a claim against the title
insurance company that issued title insurance to him when he bought the
property.
Title companies usually issue a preliminary title report, which is an
offer to provide title insurance on the property. It is not the insurance
policy, but it shows the results of the title search. You and your real estate
agent or real estate attorney should examine the preliminary report carefully
to make sure the person who has marketable title to the property is the person
who signed the purchase agreement. Also check for liens secured against the
property. Easements grant the right to use the property to someone other than
the owner. Common easements are for utilities, sewer, and drainage. Ask the
title company to provide written copies of any easement and CC&Rs
(covenants, conditions and restrictions), and to locate the easements in color
on a copy of the parcel map.
You can't build over an easement. Both CC&Rs,
typically found in condominiums and planned-use developments, and easements
restrict your use of the property. Make sure you understand how these will
affect your ownership interests before you complete a purchase. If you find
defects in the title, make it a condition of the purchase that the seller cures
the defects before closing. Make sure that your purchase agreement includes a
clause that gives you that right. THE CLOSING: Ask your title officer, REALTOR®
or attorney for answers to any title-related questions.
