Whether your property is subject to a partition action or you are transferring ownership through a public sale, a clear and marketable title is essential for a smooth transfer of ownership. Real estate litigation often arises from disputes over property titles, highlighting the importance of a comprehensive title insurance policy. Property buyers and lenders alike recognize the value of title insurance as an essential tool for securing and protecting property rights in the dynamic landscape of real estate. The seasoned real estate attorneys at Talkov Law possess expertise in handling co-owned real estate issues within the California market.
What is Title Insurance?
Co-owned properties raise some of the same issues of title insurance, which is a unique form of insurance that protects property owners and lenders from financial loss due to defects in a property’s title. These defects can include errors in public records, undisclosed liens, disputes over property boundaries, and other issues that may affect ownership rights. “A title insurance policy does not insure the value of the property, only the condition of its legal title.”[1]Miller & Starr, Title insurance; differences from other insurance lines, 3 Cal. Real Est. (4th ed.) § 7:2.. The California court has interpreted title insurance as “a contract to indemnify against loss caused by defects in title or encumbrances on the title.”[2]Smith v. Commonwealth Land Title Ins. Co., 177 Cal. App. 3d 625, 631, 223 Cal. Rptr. 339, 342 (Ct. App. 1986). Unlike traditional insurance policies that protect against future events, title insurance is retrospective, covering issues that existed prior to the policy’s issuance.
Title Reports in a Partition Action
The California partition statutes specifically delineate the role of a title report in a partition action, indicating that it is not always needed as follows:
If it is necessary to have a title report:
(a) The plaintiff may, prior to commencing the action, procure a title report and shall in the complaint indicate this has been done and designate a place where it will be kept for inspection, use, and copying by the parties.
(b) The court may, upon application of a party, authorize the party to procure a title report and shall designate a place where it shall be kept for inspection, use, and copying by the parties.
California Code of Civil Procedure 872.220
What is the Difference Between Title Insurance and a Title Preliminary Report for a Partition Action?
A title report cannot protect buyers who later find that they have purchased a property with a cloud on title because “no reliance can be placed on preliminary report to show condition of title”.[3]Southland Title Corp. v. Superior Ct., 231 Cal. App. 3d 530, 282 Cal. Rptr. 425 (Ct. App. 1991), modified (June 27, 1991). Unless you pay for the title insurance, the report is legally worthless to hold the insurance company liable.
Title insurance offers broader coverage. As articulated by California Insurance Code § 12340.1:
“Title insurance” means insuring, guaranteeing or indemnifying owners of real or personal property or the holders of liens or encumbrances thereon or others interested therein against loss or damage suffered by reason of:
(a) Liens or encumbrances on, or defects in the title to said property;
(b) Invalidity or unenforceability of any liens or encumbrances thereon; or
(c) Incorrectness of searches relating to the title to real or personal property.
Common Title Defects Leading to Litigation
Several title defects can give rise to real estate litigation, including among co-owners, emphasizing the need for comprehensive title insurance coverage. Some common issues include:
- Forgery and Fraud: Instances of forged signatures or fraudulent conveyances can cast doubt on the legitimacy of a property transaction, leading to legal challenges. This can include signing the name of a co-owner on a lien, power of attorney, or deed.
- Undisclosed Liens: Unpaid debts or tax liens that were not properly recorded can become a source of contention, affecting the new owner’s rights to the property. More co-owners means more chances for liens that could attach to the property.
- Boundary Disputes: Disputes over property boundaries can escalate into litigation, and title insurance can provide coverage for legal costs associated with resolving such disputes. Perhaps a co-owner granted an easement years ago that is not known by the other co-owners.
- Errors in Public Records: Inaccuracies in public records, such as misspelled names or incorrect property descriptions, can create confusion and trigger legal action. More co-owners, particularly those who have changed their names over time, can cause even more issues for title.
Importance of Title Insurance in Real Estate Transactions
Title insurance serves as a safety net, providing financial protection in case of unforeseen complications. The leading treatise on California real estate law, Miller & Starr, explains that title insurance is prevalent in California real estate transactions because “[t]he standardized purchase and deposit forms used by real estate brokers include express provisions for the issuance of title insurance as a condition of the purchase.”[4]Miller & Starr, Custom and practice in the use of title insurance, 3 Cal. Real Est. (4th ed.) § 7:1. Title insurance is typically acquired during the closing process of a real estate transaction. While it may seem like an additional cost, its value becomes apparent when considering the potential risks associated with imperfect property titles.
How Can Title Insurance Play a Role in Your Partition Action?
Title insurance can play a crucial role in a partition action, a legal process to divide jointly owned property among the owners when they cannot agree on its disposition. Consider a scenario where two or more parties inherit or purchase a property together. Over time, disagreements might arise regarding the management, use, or sale of the property, leading to a partition action.
1. Preventing Litigation via Thorough Title Searches
Before issuing a title insurance policy, insurers conduct thorough title searches to identify any potential issues with the property’s ownership history. This involves examining public records, deeds, mortgages, and other relevant documents. The goal is to uncover any existing liens, encumbrances, or conflicting claims that could lead to disputes in the future. By addressing these issues before filing a partition action, title insurance helps prevent litigation by ensuring that all issues are addressed in the partition action.
2. Resolving Disputes with Title Insurance
Despite the precautions taken during the title search process, disputes over property titles can still arise. In such cases, title insurance becomes a crucial resource for resolving these issues. If a covered title defect leads to a legal challenge, the title insurance policy provides coverage for legal defense costs and any potential financial loss suffered by the insured party. This financial protection can be invaluable in navigating the complexities of real estate litigation. In California, the “[i]nsurer’s duty to defend arises even if claims asserted against insured are baseless and even applies to noncovered claims so long as any one of the claims discloses potential for liability covered by the policy.”[5]Rosen v. Nations Title Ins. Co., 56 Cal. App. 4th 1489, 66 Cal. Rptr. 2d 714 (1997), as modified (Aug. 12, 1997).
3. Facilitating the Sale of Partitioned Property
Often, a partition action results in the sale of the property, either by agreement among the parties or by court order. Title insurance assures potential buyers that the title is clear, enhancing the property’s marketability and streamlining the sale process. Without title insurance, buyers might be hesitant to purchase property involved in a partition action due to fears of unresolved title issues. If these issues are discovered closer to the sale, this may cause a delay in the ultimate closing. Nonetheless, usually the partition court can address all issues relating to the property. Code of Civil Procedure § 872.510 allows for the joinder of defendants in the partition action to grant the court jurisdiction to address all title issues.
When should title insurance be obtained?
Generally speaking, partitions result in a sale to the co-owner or a third party such that title insurance will eventually be obtained. In more complex cases, it may make sense to get ahead of the issues by obtaining title insurance. However, the partition statutes do not require title insurance. In fact, they do not require a title report. Code Civ. Proc. 872.220. Consulting with an experienced partition attorney will ensure that only acts that are likely to be needed are taken in your partition action, thereby obtaining an efficient result.
Talkov Law’s Partition Attorneys Can Help
Title insurance is a crucial component of any real estate transaction, especially involving co-ownership as it offers protection against the unforeseen challenges that can lead to litigation. Find tailored solutions to these intricate issues by contacting the seasoned partition attorneys at Talkov Law, as we explore the legal implications, potential challenges, and the steps that both the current and future property owners may need to take to navigate this complex situation effectively. For a free consultation, contact us at (844) 4-TALKOV (825568) or online today.
References
| ↑1 | Miller & Starr, Title insurance; differences from other insurance lines, 3 Cal. Real Est. (4th ed.) § 7:2. |
|---|---|
| ↑2 | Smith v. Commonwealth Land Title Ins. Co., 177 Cal. App. 3d 625, 631, 223 Cal. Rptr. 339, 342 (Ct. App. 1986). |
| ↑3 | Southland Title Corp. v. Superior Ct., 231 Cal. App. 3d 530, 282 Cal. Rptr. 425 (Ct. App. 1991), modified (June 27, 1991). |
| ↑4 | Miller & Starr, Custom and practice in the use of title insurance, 3 Cal. Real Est. (4th ed.) § 7:1. |
| ↑5 | Rosen v. Nations Title Ins. Co., 56 Cal. App. 4th 1489, 66 Cal. Rptr. 2d 714 (1997), as modified (Aug. 12, 1997). |
