Title Insurance in California: A Home Buyer’s Guide to Title Protection

When buying a home in California, you’ll have an opportunity to purchase an owner’s title insurance policy. And if you’re using a mortgage loan to finance your purchase, you’ll probably be required to purchase a lender’s title insurance policy.

These commonly used policies give home buyers and lenders important legal protections relating to the title (or ownership) of the home being purchased.

But what is title insurance, exactly? How much does it cost? And what kind of protection does it provide to you, as the new homeowner? Below, we have answered these and other frequently asked questions regarding title insurance in California.

Title Insurance in California: The Basics

Let’s start with a basic definition. On its website, the California Department of Insurance defines it this way:

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).

The “losses” mentioned in the above quote would be legal expenses or other costs relating to a claim against the property. A “defect” is an error, omission, or other complication related to the title or ownership of the property. A “lien” is a legal claim made against some kind of asset, in this case a home.

There are two basic types of title insurance in California: one that covers the lender, and one that covers the property owner. They are commonly referred to as the lender’s policy and the owner’s policy.

If a legal claim or challenge is made against the property, the owner’s title insurance policy will essentially fund your court defense. The title claim might be resolved in your favor, or it might go the other way. In those cases where a homeowner is unsuccessful in their legal case, the title insurer will usually reimburse the homeowner up to their total investment (depending on the specifics of the policy).

An owner’s title insurance policy is not required in California. But it could offer you valuable legal protection at a relatively affordable price.

What Does Title Insurance Cover?

As with other types of insurance, title insurance policies in California can vary from one to the next, and for a number of reasons. But they typically cover many of the same “defects.”

Most owner’s title insurance policies in California offer protection against the following types of defects:

• Liens: These are legal claims against a property, often used to secure debts. Examples include mortgages, tax liens, and mechanic’s liens.
• Encumbrances: These are restrictions or claims that affect the property’s use or ownership, such as easements or rights-of-way.
• Fraudulent deed: If a previous owner forged documents to transfer ownership or obtain a loan, title insurance can protect against the claims of the rightful owner.
• Property lines: If there’s a disagreement over property line location, title insurance could cover the cost of legal representation needed to resolve the dispute.
• Unlawful occupancy: If someone has been occupying the property without legal ownership for a long period (i.e., squatting), they might try to claim ownership through adverse possession. Title insurance could protect against these types of claims as well.
• Unknown claimants: If there are unknown heirs or beneficiaries of a previous owner, they might claim ownership of the home. Title insurance offers protections here as well.
• Title search mistakes: Your policy might also provide protection in cases involving errors or omissions in the public records that were missed during the initial search.

These are some of the most common title defects that can affect home buyers and homeowners in California. But there are others as well. When purchasing an owner’s policy, ask your provider what it does and doesn’t cover.

Who Pays for Owner’s Title Insurance?

To reiterate: There are two basic types of title insurance in California — the lender’s and the owner’s policy. Home buyers using mortgage loans usually have to pay for the lender’s title insurance as well. It’s one of the closing costs.

Unlike homeowners insurance, which is paid monthly for as long as you hold the policy, the title insurance premium consists of a one-time fee that’s payable at closing. You pay it once, and you’re done.

As for who pays title insurance, this can vary by location. Certain customs have arisen in the northern and southern parts of the state. But even those customs can vary.

To quote the California Department of Insurance again:

“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.”

That’s for the owner’s title insurance policy. In most counties across the state, the home buyer is usually the one who pays the lender’s policy.

As with other closing costs, home buyers usually receive an up-front estimate regarding the cost of title insurance premium to be paid at closing. So there shouldn’t be any surprises as to what you have to pay on closing day.

How Much Does It Cost?

The cost of a title insurance premium varies based on the loan amount, the type of property being purchased, and other factors. A home buyer might pay anywhere from several hundreds dollars to more than a thousand dollars, depending on these variables.

It’s common for the owner’s title insurance policy to cost more than the lender policy. This is true for California and most other states. Premiums vary based on the amount of coverage built into the policy and other factors. A higher degree of coverage typically results in a higher premium, and vice versa.

You’ll receive an estimate of title insurance and all other closing costs up front, when applying for a loan. You’ll also receive a finalized list of closing costs later on, when you’re about to close. And anytime you have a question, you can ask your loan officer or title insurance company for clarification.

What to Take Away From This Guide

Here are the seven most important points you should take away from this guide:

• Types: There are two types of title insurance in California—the lender’s policy (typically required with a mortgage) and the owner’s policy (optional but offers legal protection).
• Purpose: This insurance protects homeowners and lenders from financial losses due to defects or disputes over the property’s title, such as unpaid liens or boundary disputes.
• Coverage: Common issues that are covered include liens, encumbrances, fraudulent deeds, undisclosed heirs, property line disputes, and errors in public records.
• Benefits: While not mandatory, an owner’s policy can cover legal defense and reimburse the homeowner’s investment in case of an unsuccessful legal claim.
• Costs: Title insurance is a one-time premium paid at closing, with the cost varying based on the loan amount and property.
• Customs: In Southern California, sellers often pay for the owner’s policy. While in Northern California, buyers usually cover this cost. Buyers typically pay for the lender’s policy statewide.
• Estimates: Home buyers should receive an estimate of title insurance costs upfront during the loan application process, so there are no surprises at closing.

Disclaimer: As mentioned above, title insurance policies can offer different levels of protection. So portions of this guide might not apply to your particular situation. Ask your title insurance provider what kind of coverage you’re getting and read all of the fine print.