To Buy or Not to Buy – Unwrapping Title Insurance

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Title insurance is one of the great mysteries when buying or selling real property.

In California, rarely does someone purchase residential real property without title insurance included.  Almost as rarely does the Buyer know why title insurance is being purchased and what coverage the insurance provides.

Basic title insurance questions include: do I need title insurance; who pays the premium; and what does the insurance do for me?

The answer to the first two questions are simple . . . yes, Buyers in California need title insurance to be certain that they are buying property with marketable title and, generally, the Seller pays the premium for the Buyer’s title policy through escrow, based upon the selling price, and the Buyer pays the premium for Buyer’s lender’s title policy based upon the amount borrowed by the Buyer to purchase the property.

The simple answer to what does it do for you, is that Title insurance protects against losses due to defects in title.

But that answer is misleading because in California there are three different insurance coverage levels, depending on the type of residential title insurance policy that is purchased.

Based upon this chart, provided by Fidelity National Title chart, the best title insurance choice for a Buyer is the ALTA Homeowner’s Policy, as it provides the broadest coverage.

 

Coverage Item

CLTA Standard Coverage

ALTA Residential (Plain Language)

ALTA Homeowner’s Policy

Post Policy Forgery Protection

No

No

Yes

Enhanced Access Coverage

No

No

Yes

Building Permit Violations

No

No

Yes

Subdivision Map Act Coverage

No

No

Yes

Restrictive Covenant Violations

No

No

Yes

Mineral Extraction Coverage

No

No

Yes

Map Inconsistencies Coverage

No

No

Yes

Coverage Extended to Living Trusts

No

No

Yes

Enhanced Encroachment Coverage

No

No

Yes

Automatic Inflation Protection (5 years)

No

No

Yes

Helpful online article on Title Insurance

I recently came across this article which includes an example of why every Buyer should insist on and obtain an ALTA Homeowner’s Title insurance policy when purchasing residential real property.

Click here to read this article.

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