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Wednesday, December 16, 2009

Don't skimp on title insurance

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.

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