Understanding Title Insurance

What is title insurance? Newspapers refer to it in the weekly real estate sections and you hear about it in conversations with real estate brokers. If you’ve purchased a home you may be familiar with the benefits of title insurance. However, if this is your first home, you may wonder, “Why do I need yet another insurance policy?” While a number of issues can be raised by that question, we will start with a general answer.

The purchase of a home is one of the most expensive and important purchases you will ever make. You and your mortgage lender will want to make sure the property is indeed yours and that no one else has any lien, claim or encumbrance on your property.

The Land Title Association, in the following pages, answers some questions frequently asked about an often misunderstood line of insurance - title insurance.

What is the difference between title insurance and casualty insurance?

Title insurers work to identify and eliminate risk before issuing a title insurance policy. Casualty insurers assume risks.

Casualty insurance companies realize that a certain number of losses will occur each year in a given category (auto, fire, etc.). The insurers collect premiums monthly or annually from the policy holders to establish reserve funds in order to pay for expected losses.

Title companies work in a very different manner. Title insurance will indemnify you against loss under the terms of your policy, but title companies work in advance of issuing your policy to identify and eliminate potential risks and therefore prevent losses caused by title defects that may have been created in the past.

Title insurance also differs from casualty insurance in that the greatest part of the title insurance premium dollar goes towards risk elimination. Title companies maintain title plants, which contain information regarding property transfers and liens reaching back many years. Maintaining these title plants, along with the searching and examining of title, is where most of your premium dollar goes.

Who needs title insurance?

Buyers and lenders in real estate transactions need title insurance. Both want to know that the property they are involved with is insured against certain title defects. Title companies provide this needed insurance coverage subject to the terms of the policy. The seller, buyer and lender all benefit from the insurance provided by title companies.

What does title insurance insure?

Title insurance offers protection against claims resulting from various defects (as set out in the policy) which may exist in the title to a specific parcel of real property, effective on the issue date of the policy. For example, a person might claim to have a deed or lease giving them ownership or the right to possess your property. Another person could claim to hold an easement giving them a right of access across your land. Yet another person may claim that they have a lien on your property securing the repayment of a debt. That property may be an empty lot or it may hold a 50-story office tower. Title companies work with all types of real property.

What types of policies are available?

Title companies routinely issue two types of policies: An “owner’s policy” which insures you, the Homebuyer, for as long as you and your heirs own the home; and a “lender’s” policy which insures the priority of the lender’s security interest over the claims that others may have in the property.

What protection am I obtaining with my title policy?

A title insurance policy contains provisions for the payment of the legal fees in defense of a claim against your property which is covered under your policy. It also contains provisions for indemnification against losses which result from a covered claim. A premium is paid at the close of a transaction. There are no continuing premiums due, as there are with other types of insurance.

What are my chances of ever using my title policy?

In essence, by acquiring your policy, you derive the important knowledge that recorded matters have been searched and examined so that title insurance covering your property can be issued. Because we are risk eliminators, the probability of exercising your right to make a claim is very low. However, claims against your property may not be valid, making the continuous protection of the policy all the more important. When a title company provides a legal defense against claims covered by your title insurance policy, the savings to you for that legal defense alone will greatly exceed the one-time premium.

What if I am buying property from someone I know?

You may not know the owner as well as you think you do. People undergo changes in their personal lives that may affect title to their property. People get divorced, change their wills, engage in transactions that limit the use of the property and have liens and judgments placed against them personally for various reasons.

There may also be matters affecting the property that are not obvious or known, even by the existing owner, which a title search and examination seeks to uncover as part of the process leading up to the issuance of the title insurance policy.

Just as you wouldn’t make an investment based on a phone call, you shouldn’t buy real property without assurances as to your title. Title insurance provides these assurances.

The process of risk identification and elimination performed by the title companies, prior to the issuance of a title policy, benefits all parties in the property transaction. It minimizes the chances that adverse claims might be raised, and by doing so reduces the number of claims that need to be defended or satisfied. This process keeps costs and expenses down for the title company and maintains the traditional low cost of title insurance.

Article by CLTA

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Testimonials about Leah

Hiring Leah to be our realtor was the best decision we made when we sold our home in Oakland. We moved to Illinois for my work, and our relocation company required us to interview multiple realtors, all from the Oakland/Berkeley area. Leah was the first agent we interviewed, and while we completed our interviews with the other realtors, we knew right away that Leah was going to be our favorite. When Leah arrived at our house, she was full of enthusiasm and friendliness. She started off by making very positive comments about our location, the view, and her overall first impressions. Her opinions on how our location compared to different neighborhoods in the area meshed with our thinking exactly. Then she had us walk through the house, where she paid attention to every inch of every floor and walls and fixtures, asking lots of questions and taking notes and photos. After giving her the tour we sat down and Leah told us she thought our house could sell for just over 700K, and showed us the comps and discussed the trends that supported her position. She explained why certain lower comps were not applicable based on her research of those sales, and why buyers who had been in the hunt for a while (it's a seller's market in Oakland) would understand why our home had more value. She explained that she didn't think we needed to do any major repairs or upgrades, as they wouldn't increase the price of our home nearly as much as the investment we would have to put in. We left very impressed and excited (we had purchased the house a few years before for a much lower price and had expected it needed a lot of repairs). The other realtors we interviewed over the following week didn't show as much interest in our house, paid minimal attention to the details, and suggested that a lot of work was needed if we were going to get over 600k for the house. They used the comps that Leah had discounted, and scoffed at the idea that houses in the next neighborhood over would be comparable to ours. We agonized over the decision for a while. We liked Leah, we knew she would give 100% to sell our house, but what if it really wasn't worth as much as she thought? We reviewed the sales plans of each realtor, and in the end we came to the conclusion that we trusted Leah over the others, and even if she was wrong on the starting price, she would present out house in the best possible light because she understood it's value. But our fears were unfounded, Leah turned out to be completely right and worked harder than we had hoped to prove our trust was well-placed. Leah held 5 open houses and a realtor tour in 3 weeks before opening up for offers. She had a handyman make minor touches (fence repair, painting our mailbox) and paid for those repairs herself. She coordinated the cleaning, the carpet washing, the staging (she met with multiple stagers before choosing the one she felt fit our house right). While we focused on our new life in Chicago, she was back in Oakland meeting with 4 appraisers, 2 home inspectors, a termite inspector, a mold inspector, and coming to the house dozens of times to interview contractors for bids for termite work and mold remediation, and to inspect their work for thoroughness afterwards. She advised on us which contractors seemed the most professional, who was overcharging us, and made herself available whenever we scheduled a new one out for a competitive quote. When our buyer tried to get a discount after the first appraisal, she proved herself a shrewd negotiator and was able to work with the buyer's agent to avoid a significant price reduction. When our company-appointed relocation agent was slowing down the process, Leah set her straight so we could keep the deal moving. We sold our house for $705k. The other agents we had interviewed told us we'd need to do a lot of upgrades to even sell between 600 and 650, but Leah insisted our house was worth at least 700. We believed she was right. And she was right. I know the other agents would not have gotten us such a high price, and would not have showcased our best features like Leah did. Overall, I would definitely recommend Leah for anyone looking to sell their home. She puts your needs first, and will work tirelessly and enthusiastically to make sure you are happy. We used a relocation company who referred Leah (and the other realtors) to us but Leah made it clear that she worked for us, not for them. When the relocation company dragged out the process, Leah was positive, helpful, and remained enthusiastic, and we knew she had us covered. I really cannot express enough the gratitude my wife and I feel towards Leah, who took care of us so well and gave so much of her time and her own resources so that we would have the best experience and get highest sales price possible. Hire Leah. Justin R.
Thank you for lowering your fees to get our offer accepted. Thank you for paying for the home inspection and termite inspection to get it done quickly. Thank you for understanding that my deposit should not be put at risk if I don't feel comfortable. Every time I called with lender complaints you where there for me and got on the phone and straightened it out for me. You explained documents when lenders could not help me understand. You were the best buffer I have experienced. I trust you like family. I will use you again when it's time to buy or sell. Thank you so much. A.Wouldo, Buyer
Lady, you are amazing. Sold my house and pushed for more than what those agents wanted to give. Helped me clean and organize. Dropped stuff off for me and pushed those vendors to do what they said they would. It was fun and I love my new house you helped me by way out of your service area so I did not have to look for another agent. You knew what I wanted and we got it done. Your family now and forever. W. Terry Seller/Buyer
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