Page 14 - California Home Buyers Handbook

Frequently Asked Questions About Title Insurance

Q. WHAT DOES TITLE INSURANCE INSURE?
A. 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.

Q. HOW MUCH CAN I EXPECT TO PAY FOR TITLE INSURANCE?
A. This point is often misunderstood. Although the title company or escrow office usually serves as a meeting
ground for closing the sale, only a small percentage of total closing fees are actually for title insurance protection.
Your title insurance premium may actually amount to less than one percent of the purchase price of your home and
less than ten percent of your total closing costs. The title policy is good for as long as you and your heirs own the
property with the payment of only one premium.

Q. WHO WILL PAY FOR TITLE INSURANCE CHARGES, THE BUYER OR THE SELLER?
A. Surprisingly, “who pays” is not uniform. In some areas the buyer will pay while in others the seller will pay. In
some places, the seller will pay for the owner’s title policy and the buyer will pay for the lender’s policy. But in every
case, the question of who pays closing costs is a matter of agreement between the buyer and seller. Usually this
agreement is based on the customary practice in your area.

Q. WHY ARE SEPARATE OWNER’S AND LENDER’S TITLE INSURANCE POLICIES ISSUED?
A. Both you and your lender will want the security offered by title insurance. As the owner, you will want assur-
ances that the home is yours and that you are protected against certain title defects. Your lender will likely want title
insurance in order to protect its loan security interest, and may even be required to have a lender’s policy in place in
order to sell the loan to secondary market investors.

Q. WHAT ARE MY CHANCES OF EVER USING MY TITLE POLICY?
A. 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 title insurance companies 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.

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