Updated June 2014
Table of Contents
The decision to purchase a home (or other real property) or refinance is probably the largest and most important financial decision you will make. You and your lender will want to make sure that title to the property is indeed yours and that, unknown to you, no one else has liens,claims, or encumbrances on your property. Title insurance guarantees you or your lender against losses from any defects in title that may exist in the public records at the time you purchase that property, and certain other risks described in the title insurance policy.
Possible title defects include:
- Errors or omissions in deeds
- Mistakes in examining title records
- Undisclosed heirs
- Missing heirs
- Liens for unpaid taxes
- Liens by contractors
- Accessibility to property
Before issuing a title insurance policy, title companies check for defects in your title by examining title plants (a database of property information) or public records including deeds, mortgages, wills, divorce decrees, court judgments, tax records, liens, encumbrances, bail bonds and maps. The title search determines who owns the property, what outstanding debts are against it, and the condition of the title. You should receive the results of this search, which describes the title of the property you are purchasing or refinancing and includes a preliminary title report or commitment.
Title companies also handle property closings and hold money in an escrow account until the purchase is complete.
Title insurance is a contractual obligation that protects against losses that occur when title to a property is not free and clear of defects (e.g. liens, encumbrances and defects that were unknown when the title policy was issued). Title insurance also guarantees loan priority. The terms of the policy define what risks are covered and what risks are excluded from coverage. The title insurer will reimburse you or your lender for losses that are covered, up to the face amount of the policy, and any related legal expenses. This protection is effective as of the issue date of the policy and covers defects arising prior to your ownership. Title companies issue policies on all types of real and personal property. Two types of title insurance policies for real property are the most common – a lender's policy and an owner's policy. (See Terms for Title Insurance below)
Title insurance protects against losses due to defects in title. Before issuing a title insurance policy, title companies search and examine title plants or public records to identify liens, claims or encumbrances on the property, and alert you to possible title defects. The premium cost is a one-time fee payable at the time of escrow closing.
In contrast, homeowner's insurance insures your house and contents and may provide coverage for losses due to fire or lightning, theft, vandalism, and personal liability claims brought against you, the policyholder. Homeowner's premiums are often billed monthly, quarterly or annually and installment payment options are often available. Title insurers in California are not permitted to provide homeowners insurance to you.
Under California law, every title insurer, underwritten title company (agent for one or more title insurance companies), and controlled escrow company must file its schedule of rates, forms, and rate modifications with the Insurance Commissioner. Since each company's loss experience and expenses differ, the rates will differ as well, so you can save money by comparing rates.
Competing title insurers and underwritten title companies may offer different costs or services for title insurance required. You may choose one company for escrow services and another for title insurance.
The person who pays for the policy selects the title insurance company. Be sure that any title company you select meets your standards and those of your lender. Ultimately, the choice of which title insurance company to select is yours. You may want to contact more than one title insurer or underwritten title company to compare costs and services. You can find a list of title insurers and underwritten title companies by going to our interactive look up page which has a list of insurance companies and other entities.
Title insurance companies may offer discounts for title insurance and escrow, such as:
- for first-time buyers,
- a "short-term rate" for a property that has beenresold within the last five years,
- concurrent rate if the company is providing both the owner's and the lender's title insurance policies in the transaction,
- a subdivision bulk rate for homes being purchased in a new subdivision,
- refinancing discounts, and
- short-term financing rates and other discounts that may be available.
The availability of discounts, the amount of the discounts and the applicability ofthe discounts may vary by company. Be sure to ask the company or its title marketing representative what discounts are available.
The choice of which title insurer to use belongs to the person who pays for the policy. Federal law, the Real Estate Settlement Procedures Act(RESPA) of 1974 (Public Law 93-533), prohibits the seller from requiring you to purchase title insurance from any particular company.
Please visit the Consumer Financial Protection Bureau Internet site at www.cfpb.gov for additional information on RESPA and title insurance.
Title insurance protects you and your lender if someone challenges the title to your property. This may be in the form of an alleged title defect, which was unknown to you at the time you purchased the property, but came to light at some future date during your ownership of the property. A title insurance policy contains provisions for the payment of losses which result from a covered claim. The title insurance policy also covers legal fees in defense of a claim against your property. Coverage can benefit the homeowner or the bank or mortgage company (lender), or both.
Two basic types of title insurance policies are available to owners of real property in California: (1) a standard coverage policy and (2)an extended coverage policy.
A standard policy insures primarily against defects in title which are discoverable through an examination of the public record. This includes defects in title or recorded liens or encumbrances, such as unpaid taxes or assessments, and defects due to lack of access to an open street. A standard policy also covers an additional, limited number of risks that are not discoverable through a search of the title plant or public records.
The extended policy provides greater coverage than the standard policy. Generally, the extended policy provides the same coverage as the standard policy, but also insures against defects, liens, encumbrances, easements, and encroachments and conflicts in boundary lines that are not reflected in the public records. Since an extended policy covers many"off-record" defects in title, the insurer will typically require a survey of the property to be insured.
Since title insurance is required by your lender, the lender should specify the type of lenders policy required.
Be sure to discuss available optional endorsements with your title company or its title marketing representative. Certain endorsements are required by the lender and will be automatically ordered by the title or escrow company.
There are two types of policyholders of title insurance, and policies differ accordingly: (1) an owner's policy (standard and extended) and (2)a lender's policy. Lenders will require their own title insurance as a condition of your loan. A lender's policy insures that the lender's security interest in the property has priority over claims that others may have in your property. A lender's policy does not protect you. Similarly, the prior owner's policy does not protect you, either. If you want to protect yourself from claims by others against your new home, you will need an owner's policy. An owner's policy insures the buyer for as long as he or she owns the property. This protection is limited to the value of the property at the time of a claim. It is usually less expensive to purchase a lender's policy and owner's policy at the same time from the same title insurer. Contact your title insurer for additional information
The homebuyer should insure the full purchase price of the property; the lender only requires title insurance to cover the amount of your loan.
In California, settlement practices vary from locality to locality.
The party that pays the title premium is a matter of local custom and practice and not set by law. Depending upon the region, the premium for a title insurance policy can be paid by the buyer or the seller or split between both parties. In Southern California, the seller customarily pays the premium for title insurance.
It has been the practice in Northern California that the buyer customarily pays the premium for title insurance, or occasionally the premium is split between buyer and seller. In almost every county, the buyer pays the lender's policy premium. The parties are free to negotiate a different allocation of fees. Your title company or escrow company can advise you as to who normally pays the premium in your area.
Title insurance premiums are based on the dollar amount of coverage provided. Every title insurance company is required to file its schedule of rates and forms with the Insurance Commissioner.
Premiums are paid only once, at the close of escrow. There are no continuing premiums like other types of insurance.
Escrow is a closing service which handles the funds and documents involved in the property transaction. Escrow enables the buyer and seller to transact business with each other through a neutral party. The"escrow holder" typically receives purchase funds from the buyer for deposit in an escrow account, prepares the deed or other documents, pro-rates taxes, interest, and insurance according to the escrow instructions, secures release of any contingencies imposed in the escrow, records deeds as instructed, requests issuance of the title insurance policy, prepares final accounting statements for the parties, disburses funds as authorized by the escrow instructions, and closes escrow when all of the escrow instructions of buyer and seller have been carried out.
Historically, the escrow process is handled differently in Northern and Southern California. In Northern California, title insurance companies tend to handle all title and escrow services in the same transaction. In Southern California, the title and escrow transactions are separate with escrow being provided by banks, escrow companies, or title companies. Practices and prices will vary from county to county, so be sure you understand your individual transaction. (See Terms of Title Insurance below for a description of Escrow Sale or Loan Fees.)
- Be sure to check to see that the title policyamount is correct. The Owner's policy amount should be the purchase price ofthe property. The Lender's policy amount should be for the amount of the loan.
- Check to see that the effective date given onthe policy matches the actual closing date of the escrow.
- Verify that the policy describes all of theproperty and all of the interests being acquired.
- Discounts may be available for first time buyersand for others with special circumstances.Always ask your title company or its title marketing representativeabout available discounts.
- Concurrent rates may be available if the insureris providing both an owner's and a lender's title insurance policy in the sametransaction.
An unlawful rebate occurs when a lender or real estate broker or home builder receives free or discounted services, property, or money in exchange for steering business to a title company. Such rebates act to inflate title insurance premium rates for all consumers. It is also unlawful if a title insurer, underwritten title company, or a controlled escrow company offers you a fee or charge that is less than the currently effective schedule for fees and charges filed with the California Department of Insurance (CDI). The filed schedule isused as a basis for comparison between companies. If a title insurer offers a rebate from the scheduled fees and charges, it results in a discriminatory practice, which is unfair to all consumers.
Like rebating, it is unlawful to pay a commission indirectly or directly to any person as a means of generating a referral or actual placement of title insurance. If either of these activities involves a real estate broker, you can report this activity to the Department of Consumer Affairs Bureau of Real Estate, and any other appropriate government agencies.
If you suspect that a title insurance company, escrow company or title insurer is offering unlawful rebates or commissions, you can report this suspected activity to the California Department of Insurance.
If you have a question, problem,or dispute with a title insurance company, contact the CDI for assistance.
- Escrow Sale Fee
The fee paid for the escrow process involved in a home purchase. It is not applicable to refinancing a home.
- Escrow Loan Fee
The fee tied to the loan fee for a sale or purchase of a home. Some escrow companies require this fee. For a refinance, it is the fee paid for the escrow of a refinance transaction.
- Title Owner's Policy Fee
The fee paid for the owner's title insurance policy that protects the buyer of the home; not applicable in a refinance.
- Title Lenders Policy Fee
The fee charged for a lender's title insurance policy that protects the lender's security interest in the property.
- Ancillary Fees
These fees may not be included in the services listed above:
- Government Taxes
- Reverse Mortgage
- Short Sale
- Outside signing service
Please visit the Consumer Financial Protection Bureau Internet site at www.cfpb.gov for additional information on the Real Estate Settlement Procedures Act (RESPA) and disclosure requirements regarding these ancillary fees.
- Lender's Policy
When you refinance your home or take out a new mortgage, the lender seeks protection for its investment by requiring the purchase of a lender's title insurance policy to protect against losses resulting from claims made by others against your new home.
- Owner's Policy
Since a lender's policy does not protect your financial interests, an owner's title insurance policy is worth serious consideration. If someone has a claim against the title to your new home and you are not insured, the result could be financial disaster.
- Title Insurer
Title insurer means any company issuing title policies as insurer, guarantor or indemnitor. A title insurer must have a certificate of authority from the CDI to issue title insurance policies in California.
- Title Marketing Representative
An individual employed by a title insurer, underwritten title company, or controlled escrow company whose primary duty is to market, offer, solicit, negotiate, or sell title insurance. Title marketing representatives must be registered with the CDI.
- Title Plant
A data base of organized data files with information on land and improved real properties compiled and used by title insurance companies to perform title searches.
- Underwritten Title Company
Any corporation engaged in the business of preparing title searches, title examinations, title reports, certificates or abstracts of title upon the basis of which a title insurer writes title policies. An underwritten title company must be licensed by the CDI.
California Bureau of Real Estate
1651 Exposition Blvd.
Sacramento, CA 95815
Check License & Information Line 877-373-4542
Web site: www.dre.ca.gov
Contact regarding complaints against real estate agents
California Department of Business Oversight
1515 K Street, Suite 200,
Sacramento, CA 95814-4052
Web site: www.dbo.ca.gov
Contact regarding complaints against escrow companies only
California Contractors State License Board
9821 Business Park Drive
Sacramento, CA 95827
Web site: www.cslb.ca.gov
Contact for complaints against homebuilder/contractors
Consumer Financial Protection Bureau
P.O. Box 4503
Iowa City, Iowa 52244
Web site: www.cfpb.gov
Contact for complaints regarding consumer products provided byfinancial institutions.
Office of the Comptroller of the Currency
Customer Assistance Group
400 7th Street SW, Suite 3E-218
Washington, D.C. 20219
Web site: www.occ.gov
Contact for consumer complaints regarding national banks
American Land Title Association
1828 L Street, NW, Suite 705
Washington, DC 20036-5104
Web site: www.alta.org
A national title industry trade association. Contact for consumer information regarding title and various real estate topics
California Land Title Association
1215 K Street, Suite 1816
Sacramento, CA 95184
Web site: www.clta.org
A state title industry trade association. Contact for consumer information regarding title and various real estate topics
We are the state agency that regulates the insurance industry. We alsowork to protect the rights of insurance consumers. Contact the California Department of Insurance (CDI):
If you feel that a title insurer or title company has treated you unfairly, or
- If you have questions or concerns about insurance.
- If you want to order CDI brochures.
- If you want to file a request for assistance against your title company or insurance company.
- If you are having difficulty filing a claim with your insurance company.
- To check the license of an agent, broker, or insurance company.
Our Consumer Hotline at 800-927-4357 (HELP)
Telecommunication Device for the Deaf dial 800-482-4833 (TDD)
California Department of Insurance
Consumer Services Division
300 South Spring St., South Tower
Los Angeles, CA90013
Contact Us Online:
Us in person on the 9th Floor at the address above. Office Hours: Monday through Friday 8:00 AM to 5:00 PM Pacific Time