Title insurance is one of those closing costs most buyers see on their paperwork without really understanding. And early in escrow, you’ll receive a document called a preliminary title report that can look like pages of legal jargon. Both protect what’s likely your biggest investment: your ownership of the home.
This guide explains what title insurance is, what it protects you from, how it works in Los Angeles, and how to read your preliminary title report.
What Is Title?
“Title” means legal ownership of a property. When you buy a home, you want clear title, meaning the seller truly owns the property and has the right to sell it, and there are no hidden claims, debts, or problems that could affect your ownership later.
What Is Title Insurance?
Before closing, a title company searches public records for issues like unpaid liens, recorded claims, and errors in the chain of ownership. Most problems are found and resolved before you close. Title insurance protects you against covered problems that the search didn’t catch, ones that existed before you bought the home but come to light later.
Unlike homeowners insurance, which protects against future events like fire, title insurance protects against problems from the past.
What Does Title Insurance Protect Against?
Depending on the policy, title insurance can protect you against issues like:
- Unpaid liens: Debts attached to the property from a prior owner, such as unpaid contractor bills, taxes, or court judgments
- Forgery and fraud: A forged signature on a past deed, or a sale by someone who didn’t have the right to sell
- Unknown heirs: A relative of a prior owner who comes forward claiming an ownership interest
- Recording errors: Mistakes in public records, like an incorrect legal description
- Undisclosed claims: Easements or other rights that weren’t found in the search
If a covered problem comes up, the title insurance company pays to defend your ownership and covers losses up to the policy amount.
Owner’s Policy vs. Lender’s Policy
There are two types of title insurance, and they protect different people:
- Lender’s policy: Protects your mortgage lender’s interest in the property. Lenders require one when you finance a purchase. It does not protect you.
- Owner’s policy: Protects your ownership and your equity. This is the one that protects you as the buyer.
If a title problem surfaces and only the lender’s policy is in place, your lender is covered but you aren’t. Cash buyers don’t need a lender’s policy, but they should still have an owner’s policy.
Who Pays for Title Insurance in Los Angeles?
In California, who pays for title insurance depends on local custom, not state law.
- In Los Angeles County and most of Southern California, the seller customarily pays for the buyer’s owner’s policy, and the buyer pays for the lender’s policy.
- In much of Northern California, the customs are different, and buyers often pay more of the title costs.
These are customs, not rules. Who pays for what can be negotiated in your purchase agreement. If you’re relocating from another state, or even from the Bay Area, don’t assume the customs you know apply here.
How Much Does Title Insurance Cost?
Title insurance is a one-time premium paid at closing, not a monthly bill. An owner’s policy lasts as long as you or your heirs own the property. The cost depends on the purchase price, the loan amount, and the type of policy. Title insurers file their rates with the California Department of Insurance, and your escrow officer can give you exact figures.
You may also be able to choose a policy with expanded coverage, which protects against more risks than a standard policy. Ask your escrow or title officer to explain the options.
What Is a Preliminary Title Report?
Early in escrow, the title company issues a preliminary title report, often called a “prelim.” It shows the current state of the property’s title based on the title company’s search, and what the title company is prepared to insure.
It’s important to understand what the prelim is not: it isn’t title insurance, and it isn’t a guarantee. It’s a snapshot that tells you what the title company found and what it would exclude from coverage.
How to Read a Preliminary Title Report
Every title company formats its report a little differently, but most prelims include these key sections:
Current owner (vesting). Who currently holds title. This should match the seller on your purchase agreement. If it doesn’t, for example because the home is held in a trust or an heir is selling, ask your agent how it will be handled.
Legal description. The official description of the property’s boundaries. Check that it matches the property you’re buying.
Property taxes. Whether taxes are paid or currently due, and any special assessments on the tax bill.
Liens. Mortgages (called deeds of trust in California), unpaid contractor claims, judgments, or tax liens. Most of these are paid off through escrow at closing. Make sure there’s a plan for each one.
Exceptions. This is the section to read most carefully. Exceptions are items the title policy won’t cover. Many are routine, like utility easements or recorded neighborhood restrictions. Others deserve a closer look, such as an easement that lets someone cross your property, a shared driveway agreement, or restrictions on what you can build.
Requirements. Items the title company needs before it will insure, such as documents from the seller or payoffs of existing loans.
Many exceptions refer to recorded documents. You can ask your escrow or title officer for copies so you can see exactly what they say.
When to Review the Prelim
Your purchase agreement typically gives you a set period to review the preliminary title report as one of your contingencies. Review it as soon as you receive it. If something concerns you, raise it with your agent before your contingency deadline. Once you remove your contingencies, it’s much harder to back out over a title issue.
A Note on How You’ll Hold Title
During escrow, you’ll also decide how you’ll hold title, for example as joint tenants, as community property, or in a trust. This choice can affect taxes, inheritance, and what happens if circumstances change. It’s a legal and tax decision, so talk to a real estate attorney or tax professional before you choose.
Related reading: what escrow is and how it works in LA.
The Bottom Line
Title insurance protects your ownership against problems from the past that you couldn’t have known about. Make sure you have an owner’s policy, not just a lender’s policy. Read your preliminary title report early, pay close attention to the exceptions, and ask questions before your contingency deadline.
Buying a home in Los Angeles, or relocating here from out of state? I walk buyers through escrow and title, including reviewing the preliminary title report together, so there are no surprises at closing. Contact me to talk through your purchase.
This article is for educational purposes only and is not legal advice. Please consult an experienced real estate attorney.
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