Title insurance and escrow

A title search examines relevant records to identify ownership, liens, easements, restrictions, and other matters affecting the property. The chain of title is the sequence of ownership transfers. A missing conveyance, unreleased lien, inconsistent legal description, or claim by an omitted heir can create a cloud on title.

The buyer needs to know more than the seller's name. The intended use may depend on legal access, the extent of an easement, or restrictions benefiting adjoining owners. A buyer planning a driveway across the back of a parcel should examine a recorded utility easement in that location before committing to the plan.

An abstract of title is a summary of recorded title history. A preliminary title report serves a different role: it sets out proposed insurance coverage and the matters subject to which the insurer is willing to issue the policy. It is not itself a policy and should not be described as a complete guarantee that every conceivable defect has been found.

Insurance Code section 12340.11 expressly separates a preliminary report from an abstract of title. The report states the conditions on which its issuer offers insurance; it is not a representation guaranteeing the actual condition of title. A missing item in the report is therefore not proof that the underlying right cannot exist. Review the offered coverage and investigate the property interest separately.

The preliminary report commonly identifies the vested owner, estate or interest, legal description, taxes, recorded encumbrances, and requirements for policy issuance. Some items are expected to remain, such as an accepted utility easement. Others must be cleared, such as the seller's existing deed of trust to be paid from closing proceeds.

An exception identifies a matter excluded from coverage for the particular property or transaction. An exclusion generally removes a category of risk under the policy. Terminology and policy structure matter; the agent should read the actual proposed policy rather than promise coverage based on the product's familiar name.

Removing a lien from the preliminary report is not accomplished by crossing out its description on a copy. The title company needs satisfactory evidence, such as payoff and release documentation. A disputed ownership claim may require a corrective deed, recorded release, or court proceeding, depending on the defect.

An owner's policy protects the insured ownership interest against covered title losses. A lender's policy protects the lender's security interest and priority. The buyer should not assume that paying for the lender's policy insures the buyer's equity. The prior owner's policy also does not automatically insure a new purchaser.

Title insurance generally addresses covered defects connected to the insured title, often arising before the policy date, rather than functioning like a promise that the property will never experience a future problem. Coverage depends on the named insured, estate, amount, covered risks, exclusions, exceptions, and conditions.

Standard and extended coverage differ. Exam descriptions often associate standard coverage with specified record and hidden title risks and extended coverage with additional matters that may require a survey or inspection. Neither is unlimited. Do not conclude that every unrecorded interest is excluded from every standard policy or that extended coverage guarantees building condition, zoning compliance, and all future uses.

The title premium is commonly paid once for the issued policy. Who pays is generally negotiated subject to applicable rules, not fixed by one statewide custom. The party's choice of insurer and federal restrictions in covered transactions should be respected. A seller cannot simply dictate a buyer-paid title provider in violation of applicable RESPA rules.

Escrow holds money, documents, or other items until specified conditions are satisfied, then delivers them according to instructions. It permits the buyer and seller to exchange performance through a neutral holder. The buyer need not hand over the full price without the agreed title transfer, and the seller need not release an effective deed without the required payment conditions.

The escrow holder is a limited agent with duties defined by the instructions and law. It should act impartially within that role, safeguard funds, and follow consistent authorized instructions. It does not become the buyer's negotiator, the seller's legal adviser, or an arbiter empowered to settle disputed contract rights.

Written instructions identify the conditions for closing, documents to record, liens to pay, expenses to allocate, and parties to receive funds. Supplemental or amended instructions must be authorized appropriately. One party's telephone request does not ordinarily authorize a change that affects the other party's rights.

Independent escrow companies are licensed under California's Escrow Law by the Department of Financial Protection and Innovation. Other lawful escrow providers operate under specified exemptions and supervision associated with their profession or business, including qualifying title operations, banks, attorneys, and real estate brokers.

A real estate broker's exemption is limited to qualifying transactions in which the broker acts as an agent or party and performs licensed activity. It is not permission to operate an unrelated independent escrow business for the public without meeting the applicable requirements. A salesperson does not independently acquire a separate escrow-business license by holding a real estate license.

The important exam distinction is between an independent DFPI-licensed escrow and an escrow lawfully handled under a specific exemption. "Exempt from this licensing requirement" does not mean exempt from all fiduciary obligations, trust rules, or professional supervision.

After opening, escrow gathers instructions, deposits, lender requirements, and title information. The parties complete investigations and required disclosures; the lender underwrites and prepares loan documents. Escrow obtains payoff demands and information needed to clear specified liens and allocate charges.

Signing is not always closing. Loan funding, recording, satisfaction of conditions, and disbursement may occur at different points in the sequence. The documents and local process determine the exact order. Possession follows the agreement and may occur later than title transfer.

The closing statement records charges and credits. A debit is an amount charged to a party; a credit reduces the amount that party must supply or increases proceeds as appropriate. Not every charge appears as an equal credit to the opposing party: a recording fee paid to a public office is different from a tax proration between buyer and seller.

Seller Peyton's preliminary report lists an old deed of trust. Peyton says the loan was paid years ago. The assertion should prompt verification, not automatic deletion. The title provider may need evidence of satisfaction and an appropriate release or reconveyance to insure without that exception.

Meanwhile, the buyer receives an email claiming that escrow's bank instructions have changed. The buyer should independently verify with a known, trusted contact method before sending funds. A convincing message or an apparently familiar address is not proof of authorized instructions. The agent's duty of care includes addressing foreseeable transaction risks without treating email as self-authenticating.

A preliminary report proposes coverage; the policy provides coverage on its terms. A lender's policy is not the buyer's policy. Escrow follows lawful instructions and holds conditional deliveries; it does not decide disputed ownership of a deposit on one party's demand. Signing, funding, recording, disbursement, and possession are related events that need not occur simultaneously.