Don’t Overlook Title Insurance
When you bought your home or investment property, did you study your owner’s title insurance policy? Did you read the deed?
Probably not. Most realty buyers don’t. Instead, they often foolishly file these boring documents away with their other home-purchase papers or, worse yet, lose them.
For most property owners, their deed and title insurance policy are the only evidence of which recorded documents affect their right to fully use their real estate. Unfortunately, this information is often wrong or incomplete.
Unknown to most heirs, an owner’s title insurance policy, issued to their decedent, also protects heirs. There is no title policy time limit. Because that city drainage pipe easement was properly recorded and the title insurer years ago missed that recorded easement, the heir is now entitled to file a damages claim under the original title policy.
Every state has property recording laws. The purpose is to benefit and protect real estate owners. A secondary benefit is to protect those recording their interests.
Theoretically, everyone is legally presumed to have “constructive knowledge” of the contents of all recorded documents affecting every property’s title. Realistically, we depend on title searchers to tell us, when we acquire a property, what recorded documents affect that parcel.
Examples of recorded documents that affect properties include deeds, mortgages, deeds of trust, judgment liens, income tax liens, easements, mechanics’ liens and other recordable documents.
In addition to ordinary recorded documents such as those listed above, most properties in subdivisions also have covenants, conditions and restrictions that were recorded by the developer. These often complex CC&Rs specify what can and cannot be done with a property.
CC&Rs are known as “private zoning” that affects a subdivision or condominium complex. CC&Rs are often tougher than city zoning and building regulations.
Although most property deeds refer to any recorded CC&Rs, that may not be necessary. A recent California court decision held CC&Rs binding on subsequent property owners although their deeds did not mention the recorded CC&Rs (Citizens for Covenant Compliance vs. Anderson, 47 Cal.Rptr.2d898).
The moral of this story is always ask the title insurer if the property you are buying is subject to any recorded CC&Rs and read them.
“He who records first wins” is the general rule of recording. Usually, there is no recording conflict. However, when there is a title contest between two or more property owners or lien holders for the same property, the first to win the race to record at the courthouse wins.
To illustrate, suppose I sell you my land for cash. I give you a deed, but you forget to record that deed. You didn’t obtain title insurance either.
Later, realizing you didn’t record your deed and needing cash, I dishonestly sell the same land to another buyer, giving him a deed. The second buyer promptly records his deed, unaware of my prior sale of the same land, wins the race to the courthouse and is the valid owner of the land I previously sold you.
This is why any document affecting property title should always be promptly recorded. This rule can become especially important when a private lender, such as a home seller, is given a mortgage with the understanding it won’t be recorded. That lack of recording can be an expensive mistake if the same property is later sold, or another mortgage is recorded on it.
When title or recording conflicts arise, the legal remedy is for the title claimant to bring a equity title lawsuit. Then the court will determine who has a valid title claim or lien on the property.
For example, suppose I sell my house for cash. The buyer forgets to record the deed. Later, the buyer sells the house to someone else for cash. The new buyer promptly records the deed. When buyer No. 2 later sells the house, there is a major title problem. The reason is: Buyer No. 2’s deed was a “wild document” because the first buyer never recorded the deed. Buyer No. 2’s deed was out of the recorded chain of title because there is no recorded evidence of how the first buyer received title to convey to buyer No. 2.
When acquiring title to real estate, the best way to avoid title problems is to insist on obtaining an owner’s title insurance policy.
Such a title policy can be especially important when acquiring title from a friend or relative. Property buyers can best protect their interest and avoid title surprises by insisting on obtaining an owner’s title insurance policy at the time of acquiring a property.
We, at Homebased Realtors, can help you in your search for Title Companies
