Holding Title
Buying A Los Angeles Home, Part 7
This is the seventh part of the series ‘Buying a Home in Los Angeles’.
Congratulations, you’ve opened escrow! I know you are going to be super excited that now we get to talk all about title (title insurance)! OK, maybe not. Although it may not be glamorous it’s very important, as a buyer, you understand title.
What is title insurance?
Title insurance provides coverage for certain losses due to defects in the title that, for the most part, occurred prior to your ownership. Title insurance protects against defects such as prior fraud or forgery that might go undetected until after closing and possibly jeopardize your ownership and investment.
Why is title insurance needed?
Title insurance insures buyers against the risk that they did not acquire marketable title
from the seller. It is primarily designed to reduce risk or loss caused by defects in title from the past. A loan policy of title insurance protects the interest of the mortgage lender, while an owner's policy protects the equity of you, the buyer, for as long as you or your heirs (in specific policies) own the real property.
Unlike other forms of insurance, title insurance emphasizes loss prevention for the insured. Title professionals perform labor-intensive work to find’ and address title issues that could threaten your home-ownership. This upfront analysis gives you, as a policyholder, the peace of mind that your title risk has been effectively reduced. In contrast, insurance based on loss assumption (such as auto or property and casualty insurance) requires little upfront work because claims cannot be predicted or prevented, and premium funds are needed only in the event of an accident or other covered issue. These types of insurance also require annual coverage payments, unlike title insurance which is paid for only once upon the purchase of your home or establishment of a new mortgage.
There are many title issues that could cause you to lose your real property or your mortgage investment. Even the most careful search of public records may not disclose the most dangerous threat: hidden risks. These issues may not be uncovered until years later. Without title insurance from a reputable and financially solvent company, the ownership of your home could be jeopardized.
A Preliminary Title Report will be ordered for your review. The report is an offer to issue a title policy. A Preliminary Report is not a representation of the condition of title to real property. It is solely a statement of the terms and conditions under which the insurer is willing to issue its title policy if an offer is accepted. Included in the Preliminary Report is information that identifies the form of policy that the title company is offering to issue. The Preliminary Report details the various exceptions and exclusions which will be reflected in the policy. The Preliminary Report also provides the legal description for the property that is the subject of the report as well as the record owner of the Subject Property.
Clear Title: Buyer and seller have an opportunity to review a preliminary report of title (local forms of this vary) that reflects whether any encumbrances, liens, or other issues have been discovered that might prevent the buyer from taking clear title to the seller’s property.
Once title has been cleared, then you will be able to submit the way you would like to hold title. This is called the ‘vesting description’. There are various ways to hold title, including:
SOLE OWNERSHIP
Sole Ownership may be described as ownership by an individual or other entity capable of acquiring title. Examples of common vesting cases of sole ownership are:
A single man or woman, an unmarried man or woman or a widow or a widower:
A man or woman who is not legally married or in a domestic partnership.
For Example John Doe, a single man
A Married Man/Woman, as His/Her Sole and Separate Property
When a married man or woman wishes to acquire title as their sole and separate property, the spouse must consent and relinquish all rights, title, and interest in the property by deed or other written agreement. Example: John Doe, a married man, as his sole and separate property.
A Domestic Partner as His or Her Sole and Separate Property:
A domestic partner who wishes to acquire a title in his or her name alone. The title company insuring title will require the domestic partner of the person acquiring title to specifically disclaim or relinquish his or her right, title, and interest in the property. This establishes that both domestic partners want the title to the property to be granted to one partner as the person’s sole and separate property. Example: John Doe, a registered domestic partner, as his sole and separate property
CO-OWNERSHIP
Title to property owned by two or more persons may be vested in the following forms:
Community Property
A form of vesting title to property owned together by married persons or by domestic partners. Community property is distinguished from separate property, which is property acquired before marriage or before a domestic partnership by separate gift or bequest, after legal separation, or which is agreed in writing to be owned by one spouse or domestic partner.
In California, real property conveyed to a married person, or to a domestic partner is presumed to be community property, unless otherwise stated (i.e. property acquired as separate property by gift, bequest or agreement). Since all property is owned equally, both parties must sign all agreements and documents transferring the property or using it as security for a loan. Each owner has the right to dispose of his/her one-half of the community property by will.
Example: John Doe and Mary Doe, husband, and wife, as community property
Example: Sally Doe and Mary Doe, domestic partners, as community property
Example: Sally Doe and Mary Doe, spouses, as community property
Community Property with Right of Survivorship:
A form of vesting title to property owned together by spouses or domestic partners. This form of holding title shares many of the characteristics of community property but adds the benefit of the right of survivorship similar to title held in joint tenancy. There may be tax benefits for holding title in this manner. On the death of an owner, the decedent’s interest ends and the survivor owns all interest in the property.
Example: John Doe and Mary Doe, husband, and wife, as community property with right of survivorship
Example: Bruce Doe and Bill Doe, spouses, as community property with right of survivorship.
Example: Sally Doe and Jane Doe, registered domestic partners, as community property with right of survivorship
Joint Tenancy:
A form of vesting title to property owned by two or more persons, who may or may not be married or domestic partners, in equal interests, subject to the right of survivorship in the surviving joint tenant(s). Title must have been acquired at the same time, by the same conveyance, and the document must expressly declare the intention to create a joint tenancy estate. When a joint tenant dies, title to the property is automatically conveyed by operation of law to the surviving joint tenant(s). Therefore, joint tenancy property is not subject to disposition by will.
Example: John Doe, a married man, and Georg Smith, a single man, as joint tenants
Note: IF a married person enters into a joint tenancy that does not include their spouse, the title company insuring title may require the spouse of the married man or woman acquiring title to specifically consent to the joint tenancy. The same rules will apply to same-sex married couples and domestic partners.
Tenancy in Common:
A form of vesting to property owned by any two or more individuals in undivided fractional interests. These fractional interests may be unequal in quantity or duration and may arise at different times. Each tenant in common owns a share of the property is entitled to a comparable portion of the income from the property and must bear an equivalent share of expenses. Each co-tenant may sell, lease, or will to his/her heir that share of the property belonging to him/her.Example: John Doe, a single man, as to an undivided 3/4th interest, and George Smith, a single man, as to an undivided 1/4th interest, as tenants in common
Trustee of a Trust:
A trust is an arrangement whereby legal title to property is transferred by a grantor to a person called a trustee, to be held and managed by the person for the benefit of the people specified in the trust agreement, called the beneficiaries. A Trust is generally not an entity that can hold title in its own name. Instead, title is often vested in the trustee of the trust.Example: John Doe trustee of the Doe Family Trust
Always consult your accountant or attorney when deciding how to take title. There a significant legal and financial consequences involved in the way you choose to hold title.
More from the ‘Buying a Los Angeles Home’ series:
Step 1: Get Pre-Qualified for A Mortgage
Step 2: Find A Realtor
Step 3: Define Your Criteria
Step 4: Start Your Search
Step 5: Make Your Offer
Step 6: Navigating Escrow
Need Help? Have questions? Contact Brad
