|In California, Title insurance is used to guarantee clear title to buyers at the close of purchase transactions. Title companies are licensed by the State of California to provide this service. |
The title insurance company performs the due diligence needed to insure the property. That includes researching past sales, all trust deeds, easements and rights of way affecting the property, covenants, conditions, and restrictions, known encroachments, and all other items of record. The title company also checks public records for individuals with judgments whose names match those of parties in the transaction. Escrow is then notified to have that party submit evidence to clear the possible problem.
When escrow closes, the buyer receives a policy of title insurance guaranteeing that, as of the date escrow closed, no liens existed on the property that were not known and acceptable to the buyer and lender.
By local convention, in Southern California, sellers pay the cost of title insurance at the close of escrow, even though it is for the benefit of the buyer. Conversely, in Northern California, title insurance is normally paid by the buyer. When a property is resold within two years, a reduced rate is granted. Most title companies are willing to apply this savings even though another company wrote the earlier policy.
Where a loan is involved, the lender requires a special policy to secure the lender's interest in the property. This extra cost normally is paid by the buyer.
Title companies offer many add-ons to the basic policy of title insurance, which they call "endorsements." Some of these are required by the buyer's lender to insure the property against hazards, others are increased benefits for the buyer. Included in the latter is the "binder."
A binder costs 10% more that the title insurance policy, and it is typically paid by the buyer. It provides that if the property is resold within two years from the close of escrow, the new title insurance policy cost will be computed on the increased selling price. This can be a very substantial savings.
Competition among title companies has resulted in improved coverage. In attempting to gain a greater market share, companies have offered endorsements without cost but other companies have matched the benefits. This has resulted in better standard policies.
As an example of this: Some title insurance firms provide enhanced benefits for 1 to 4 units of residential property that extends coverage beyond the close of escrow. Thus, in case of fraudulent deeds recorded after the close of escrow, the title company's staff of attorneys will fight the fraudulent deed for the buyer.
The standard purchase offer form now specifies that the buyer will receive an improved policy, called the CLTA/ALTA Homeowner's Policy of Title Insurance.