Real Property Law

Title Insurance in Real Estate Litigation

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By Eli Underwood

Before undertaking litigation over real estate in California, title insurance can help to provide clarity as to important ownership questions. Title insurance is not just nice to have, in many instances, the law specifically envisions that the parties will obtain a title report of some type. For example, the Partition Law specifically envisions that the plaintiff will obtain a title report before filing the suit in Code of Civil Procedure section 872.220.

While a title report may be beneficial, a careful partition lawyer will consider going a step further and obtaining some sort of title insurance in order to adequately address any issues that could arise during the lawsuit. Because there are a number of types of insurance that could be obtained, this article will discuss the different options of title insurance available as part of real estate litigation. 

Eli Underwood

What is Title Insurance? 

In California, “title insurance” means insuring, guaranteeing, or indemnifying owners related to (a) title defects, (b) validity of liens, (c) title searches. Title insurance coverage insures the condition of legal title. (Hocking v. Title Ins. & Trust Co. (1951) 37 Cal.2d 644, 651; Lick Mill Creek Apartments v. Chicago Title Ins. Co. (1991) 231 Cal.App.3d 1654 (Lick Mill).) It lasts as long as the insured owns the property. Unlike other insurance, it does not insure against “future events” but instead looks backwards only. (Hovannisian v. First American Title Ins. Co. (2017) 14 Cal.App.5th 420, 429.) 

The main types of title insurance in California are through the California Land Title Association (CLTA) and the American Land Title Association (ALTA). The CLTA policy is the standard form in the industry, and primarily protects against defects from those known in the public record. (Liberty National Enterprises, L.P. v. Chicago Title Insurance Co. (2013) 217 Cal.App.4th 62, 75; Lick Mill, 231 Cal.App.3d at 1659.) In contrast, the ALTA policy extend to cover for matters beyond public records, including from those available by physical inspection. (Elysian Investment Group v. Stewart Title Guaranty co. (2002) 105 Cal.App.4th 315, 318 fn. 1.) 

What is a Preliminary Title Report?

In many real estate transactions, real estate brokers and salespersons will obtain a preliminary title report before starting the process. While many people believe that a preliminary title report assures that it adequately represents the state of title, it is actually not a representation of the condition of title but simply an offer to issue a title insurance policy as a matter of law. (Ins. Code §§ 12414.30(b), 12340.11; Lawrence v. Chicago Title Ins. Co. (1987) 192 Cal.App.3d 70, 76.) The preliminary report is not a representation of the condition of title and a title policy is a contract of indemnity, and not an abstract or a representation of title.

Because a preliminary report is not an abstract of title, a party cannot rely upon it. (Ins. Code § 12340.4.) This is because the California Legislature modified the Insurance Code in 1981 to specifically define an “abstract of title.” (Ins. Code § 12340.11.) Curiously, while a preliminary title report cannot create any court liability, it may provide actual notice to the prospective insured of the existence of title defects. (See Alfaro v. Community Housing Imp. Sys. & Planning. Ass’n, Inc. (2009) 171 Cal.App.4th 1356, 1389-1390.) 

What is an Abstract of Title?

An “abstract of title” is a chronological list of all recorded documents in the chain of title. Insurance Code section 12340.10.) The law defines it as “a written representation, provided pursuant to contract, whether written or oral, intended to be relied upon by the person who has contracted for the receipt of such representation, listing all recorded conveyances, instruments or documents which, under the laws of the state, impart constructive notice with respect to the chain of title to the real property.” If the title company issuing the abstract fails to identify a recorded document, then they could be liable for negligence. (Soifer v. Chicago Title Co. (2010) 187 Cal.App.4th 365, 374.) Because an abstract of title is generally more expensive, a title insurance policy is generally preferable.

What is a Title Guarantee? 

Under the law, title guarantees are “limited” title insurance policies. (Ins. Code § 12340.1-12340.3.) They provide matters available in public record, but do not pretend to examine the effect, sufficiency, or validity of any of the instruments listed, and excludes assessments, instruments, proceedings, taxes, and other matters that do not specifically describe the land referenced in the guarantee. They do not purport to provide a complete report of all matters that appear in the record, and are not intended to be as comprehensive as a title insurance policy. 

What is a Litigation Guarantee?

In many types of lawsuits, a party may consider obtaining a litigation guarantee that is limited to matters known in the public record. A litigation guarantee is a form of limited title insurance. (Ins. Code §§ 12340.1, 12340.2, 12340.11.) The litigation guarantee is admissible in evidence for the purpose of showing the interests of the parties as a title company business record. (Talbot v. Wake (1977) 74 Cal.App.3d 428, 443.) 

Examples 

There are many instances in which someone would be advised to get title insurance. For example, “Shawn” and “Julie” are in a romantic relationship and plan to get married after buying a house together. 

Before buying the property, their realtor would likely obtain a “preliminary title report” in order to ensure that she has a good understanding of title. Then, as part of the escrow process of closing on the house, they would normally buy “title insurance” to make sure that they are the rightful owners of the property, and that no one else will claim to own it after the purchase. 

If they eventually break up, and Shawn refuses to sell after Julie repeatedly tries to convince him without any luck, then Julie could file a partition action to require Shawn to buy her interest in the Property or otherwise force its sale. As part of the partition process, Julie’s lawyers would likely obtain a “title guarantee” in order to adequately advise the court as to the state of title to make sure that the transaction proceeds smoothly. 

For More Information For more information on this or other Real Estate Law topics, visit the website for the Underwood Law Firm.


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