What is Title Insurance and Why Is It Necessary?

Real estate buyers often feel as though they’re jumping through endless hoops before they finally make it to closing day. Most of these hoops pertain to stringent lending requirements or the complexities of the purchase agreement and all of the related forms and disclosures. At times, the series of required steps can feel pointless or unnecessary. But purchasing title insurance is generally a simple, yet very important, step in the process.

Before a real estate transaction is completed, a title search will be performed on the property. The buyer will be given the results of the search, called the “preliminary report,” to review during the purchase process. This report shows if anyone else has a claim to the property before ownership is transferred to the buyer. In most cases the property passes the title search, and no adverse claims are ever made after the transaction closes.

However, due to human error, a title search can fail to locate a problem with the title to the property. On occasion, problems arise after closing day due to forgeries, undisclosed heirs, mistakes in record examination, or errors on the deed to the property. The result of these mistakes can, for example, be a third party who claims an interest in the property. This can complicate matters for the new owner.. Issues with the new owner’s title could go undetected for years, perhaps even until the homeowner tries to sell the house to the next buyer or when the homeowner dies and the title is transferred to heirs.

That’s where title insurance comes into play. Purchased at closing for a one-time premium, this insurance insures the buyer’s title for the amount of the real estate purchase for as long as the buyers or their heirs have an interest in the property. If a claim on the property arises that was not listed on the title insurance policy, the title insurance policy will generally protect the buyer’s title to the home.

Title insurance may seem unnecessary or expensive, but it is strongly recommended for every purchase. If a problem surfaces with your home’s title, you’ll be very glad that you have title insurance.

What is Title Insurance and Why Is It Necessary?

Real estate buyers often feel as though they’re jumping through endless hoops before they finally make it to closing day. Most of these hoops pertain to stringent lending requirements or the complexities of the purchase agreement and all of the related forms and disclosures. At times, the series of required steps can feel pointless or unnecessary. But purchasing title insurance is generally a simple, yet very important, step in the process.

Before a real estate transaction is completed, a title search will be performed on the property. The buyer will be given the results of the search, called the “preliminary report,” to review during the purchase process. This report shows if anyone else has a claim to the property before ownership is transferred to the buyer. In most cases the property passes the title search, and no adverse claims are ever made after the transaction closes.

However, due to human error, a title search can fail to locate a problem with the title to the property. On occasion, problems arise after closing day due to forgeries, undisclosed heirs, mistakes in record examination, or errors on the deed to the property. The result of these mistakes can, for example, be a third party who claims an interest in the property. This can complicate matters for the new owner.. Issues with the new owner’s title could go undetected for years, perhaps even until the homeowner tries to sell the house to the next buyer or when the homeowner dies and the title is transferred to heirs.

That’s where title insurance comes into play. Purchased at closing for a one-time premium, this insurance insures the buyer’s title for the amount of the real estate purchase for as long as the buyers or their heirs have an interest in the property. If a claim on the property arises that was not listed on the title insurance policy, the title insurance policy will generally protect the buyer’s title to the home.

Title insurance may seem unnecessary or expensive, but it is strongly recommended for every purchase. If a problem surfaces with your home’s title, you’ll be very glad that you have title insurance.

What Real Estate Buyers Should Know About Their Rights

When you begin the process of buying a home, it’s easy to become overwhelmed by unfamiliar jargon and confusing fine print. The process of purchasing real estate has become more complicated than ever, largely as a result of tightened regulations on lending and the complexity of the purchase agreement. California law does protect real estate buyers from numerous potential complications, but it’s your responsibility to make yourself aware of these rights at every stage of the process.

You have the right to choose all of the professionals who will aid in your transaction. From the time you choose your real estate agent, you are in charge of your home purchase. In addition to choosing your agent, you also have the right to choose your own homeowner’s insurance agent, home inspector, real estate attorney, and any other professional who assists in the purchase of your home. Your agent may recommend a particular person or company, but you are under no obligation to work with anyone you do not personally choose. Be aware that sometimes the selection of what are termed “affiliated services” are negotiation points – you may have the right to select services, but sometimes the seller will be willing to pay for those services only if you use their provider. Make sure that you are aware of the quality of service and reputation of each provider you use.

You have the right to know about the relationship between your agent and the sellers of the home. Your agent must tell you if he or she is also representing the sellers of the home (this is called a “dual agent”) or if he or she has any other affiliation with them. All of this will be spelled out for you in the agency disclosures you will be given at the start of any transaction – please read them carefully.

You have the right to a full explanation of all documents that you sign. You are never required to sign any documents that have not been fully explained to your satisfaction, nor should you. At any time during your home purchase, you have the right to request further explanation or ask questions about any document presented to you. You may also consult with your own real estate attorney at any point during the home purchase process. Many disgruntled principals say, after the fact, “they just put the document in front of me and asked me to sign.” It is your responsibility to read and understand what you are signing; don’t shirk that responsibility.

You have the right to walk away from the transaction. During the escrow period, you can walk away from the home purchase if it is in your best interest to do so and under the parameters set forth in the purchase agreement, which primarily require that a cancellation be permitted under the contract contingencies and in “good faith.” However, if you have any doubts about the circumstances of your cancellation, you should consult with your real estate attorney about possible legal or monetary consequences before abandoning a transaction.

Prevent Delayed Real Estate Closings

Trying to sell your home can be a frustrating experience, especially in today’s slow market. It’s common for buyers to delay the deal or back out altogether, due to insufficient financing and other problems. This can cause numerous problems for the seller, as they are stuck making another mortgage payment, cannot move into their own new home, or have already asked renters to vacate the premises in anticipation of closing day. All of these hassles can add up to thousands of dollars lost, not to mention the frustration and inconvenience of a delayed closing.

As the saying goes, prevention is the best medicine for most problems, and this is certainly true when it comes to real estate deals. If there is a problem that your agent cannot handle, consulting with an experienced real estate attorney can help sellers and their agents draft purchase contracts that prevent closing delays. If delays do occur, contingencies in the sale contract can help frustrated sellers recoup some of their losses. For example, contracts can be drafted to include, or an extension can be granted conditioned upon, payment of a “per diem,” a per-day expense which is paid from the buyer to the seller if closing is delayed beyond a particular time frame.

Built into the standard Residential Purchase Agreement (RPA), used in most residential sales in California, is the use of the DCE, Demand to Close Escrow form, by which the seller can demand that buyer close escrow and giving the buyer 3 days to comply. Using this form can potentially set up the seller to cancel a non-performing buyer who is in breach of the RPA, also potentially permitting the seller to keep the buyer’s deposit in the proper circumstances.

The important thing to remember is that a seller must understand and properly apply the contingencies included in the sales contract, and the options to require a recalcitrant buyer to close escrow. It’s important to seek guidance from an experienced real estate attorney when complicated purchase issues arise. Sellers can protect their rights, avoid disappointing delays, and potentially save hundreds or thousands of dollars on delayed closings.

As Times Change, Real Estate Law Changes With Them

Real estate professionals are under a lot of pressure to uphold strict standards of behavior, as well as keeping thorough records of their transactions. Laws regarding professional standards of conduct can be confusing and difficult to follow at times, but they exist to protect both brokers and clients. Due to the ever-changing ways in which we communicate via evolving technology, the law must also evolve to reflect new ways of conducting business in modern society. Recently there have been updates in the law which will become effective January 1, 2015, regarding appropriate record keeping by real estate brokers.

Under current law, a broker must retain three years’ worth of records such as:

    • listings
    • trust records
    • deposit slips
    • canceled checks
    • all other documents executed or obtained in connection with any transaction for which a real estate license is required

As of January 1, messages of an “ephemeral nature”, such as instant messages, texts, tweets and so forth, will be excluded from this requirement. Brokers don’t need to worry about retaining these types of communications, with one exception: The law states that if the messages are designed to be retained or create a permanent record, then copies must be kept by the broker. Since the wording on this exception can be confusing, brokers who need clarification should contact a real estate attorney to ensure they are complying with the law.

The new law does NOT specifically exclude emails from record-keeping requirements, and the BRE has made it clear that those are considered to be permanent messages and must be retained in the broker file. Since more and more brokers are conducting a large portion of their transactions online these days, emails sent and received with regard to a real estate transaction must be included in the three-year record retention requirement. This requirement not only complies with the new law, but it also provides a much more complete record of a transaction than mere memory does should a claim later be filed related to a transaction.

A broker who is found by the Bureau of Real Estate to be lacking in proper record-keeping protocol can be cited and subject to formal legal action. When the law changes, we must all change with it. So prior to January 1, real estate agents and brokers would be wise to take a few moments, review their office procedures, and make sure they are keeping adequate records as required by law. For more information on new requirements, contact a real estate attorney for advice.

When Should Mediation Begin?

In any legal conflict, mediation may ultimately pave the way to a solution. It can shorten the length of the conflict, save money for both involved parties, and often provides the opportunity for a more creative settlement. Especially due to the high cost of litigation or arbitration, the large majority of real estate and business cases resolve before trial, often at mediation.

However, there is some disagreement over the timing of mediation. Should it be attempted in the beginning of a conflict, before either side becomes too entrenched in their positions? Should it be attempted sooner in order to prevent litigation costs from getting out of hand? Or should mediation begin later, after discovery has been completed, to prevent either side from settling before all facts are known?

It’s clear that the timing of mediation is important. Mediate too soon and one or both parties may sign an agreement that they later regret. Wait too long and much of the cost savings have already been lost in litigation proceedings.

The best way to answer this question may be for each side to ask themselves what they hope to gain. The true purpose of mediation is to resolve conflict, and much of any conflict is emotional rather than logical. Is it really all about the amount of money in question? Or is one or both parties hoping to prove a greater point?

Both parties should also ask themselves how much money is at stake, and how far they are willing to go for that amount of money. Is it worth potentially years of their lives? Is it worth the cost of litigation or arbitration, time off of work, and the stress of pursuing a lengthy case? In some cases the answer really might be yes – and those might be the cases for which mediation is not pursued.

In many everyday cases, however, the conflict revolves around emotion rather than cold hard cash. In these situations, face-to-face mediation can often get to the root of the problem and solve it, before the proceedings become too expensive and time consuming for either party.

One final point, in cases based upon real estate contracts, there is typically a provision that mandates mediation before any legal action is taken, with the penalty for failing to mediate being the loss of the right to recover attorney fees. Given that it is attorney fees that often drive such cases, then timing for mediation is taken out of the hands of the principals – it must be undertaken at the start of a dispute, although its chances of success are greatly increased if the parties exchange all relevant information before any mediation session.

What Does “As-Is” Mean in Real Estate Transactions?

 

Whether you’re searching for a home for your family or shopping for an investment property, you’re likely to come across some advertisements describing real estate for sale in “as is” condition. Buyers often interpret this phrase in a casual way, assuming “as is” means the property needs cosmetic or structural improvements. Often this is a correct assumption, since “as is” real estate is usually distressed properties, foreclosed homes, or structures upon which construction was never completed.

Even though that assumption is generally correct, the phrase “as is” is not just a nice way of saying “you’ll need to do some work on this one.” It’s actually a legal term in the real estate world, and it carries a very specific meaning. In fact, the state of California carefully clarifies the responsibilities of a real estate agent when using the term “as is” to describe a property:

As quoted by a California appeals court in the case of Easton v. Strassburger (1984) 152 Cal. App. 3d 90, “The primary purposes of the Cooper-Lingsch rule are to protect the buyer from the unethical broker and seller and to insure that the buyer is provided sufficient accurate information to make an informed decision whether to purchase. These purposes would be seriously undermined if the rule were not seen to include a duty to disclose reasonably discoverable defects. If a broker were required to disclose only known defects, but not also those that are reasonably discoverable, he would be shielded by his ignorance of that which he holds himself out to know. The rule thus narrowly construed would have results inimical to the policy upon which it is based. Such a construction would not only reward the unskilled broker for his own incompetence, but might provide the unscrupulous broker the unilateral ability to protect himself at the expense of the inexperienced and unwary who rely upon him. In any case, if given legal force, the theory that a seller’s broker cannot be held accountable for what he does not know but could discover without great difficulty would inevitably produce a disincentive for a seller’s broker to make a diligent inspection. Such a disincentive would be most unfortunate, since in residential sales transactions the seller’s broker is most frequently the best situated to obtain and provide the most reliable information on the property and is ordinarily counted on to do so.”

What you, as a buyer, need to know about “as is” properties:

  • You are buying the property in the condition that is visible or observable to you, though simply stating “as is” does not excuse a seller from California’s strict disclosure rules and the requirement to disclose anything that might reasonably affect the value or desirability of the property.
  • Just as important, the use of the phrase “as is” does not excuse the real estate agents from disclosing facts about the property’s condition; all of your questions must be answered honestly and truthfully to the best of their knowledge, as is true in all real estate transactions.
  • The “as is” clause cannot be used to hide facts about the home which might prevent its sale.
  • Consulting a real estate attorney prior to purchasing the property, to be sure your rights are protected, may help protect you from buyer’s remorse.

Buyers of “as is” properties sometimes find themselves in over their heads with the expense of renovations. If this happens to you, don’t assume you simply made a bad investment and there is nothing you can do. In some cases that may be true, but sometimes buyers are led to their “bad decision” by sellers or agents who did not disclose all known facts about the property. If you think this may be the case, consult with a real estate attorney about your rights related to non-disclosure of facts. . Better still, do not put yourself in that position – do a proper, thorough investigation of the property before you buy!

 

Truth in Lending Protects Homeowners

As you may already know, one of the main causes of our recent housing market crisis was over-lending to homeowners who later found themselves in over their heads with mortgages they could not afford. Many of these homeowners reported feeling tricked by their lenders, because they did not feel as though they were fully informed about the terms of their loans, some of which were even commonly called “liar loans.”

While we should all take measures to educate ourselves on a mortgage before signing on the dotted line, both California and federal law are pretty clear in their requirements that lenders are truthful and honest in their practices, and federal law especially has been strengthened in this area since the down-turn. In Realty Projects, Inc v Smith (1973), the California Supreme Court concluded that mortgage brokers have a “statutory duty, under the Real Estate Law, of fair and honest dealing imposed upon all real estate licensees (brokers and salesmen), when acting as or for mortgage loan brokers, in all of their dealings as such licensees. . . . Second, this statutory duty of fair and honest dealing by licensees, when acting as licensees, extends to their dealings with prospective borrowers before the execution of any loan authorization agreement by the loan officer and the prospective borrower.” This ruling has continued to be upheld in later rulings.

These standards of honesty and strict federal disclosure regulations require mortgage brokers to fully disclose the terms of any loan at first contact with a client – not just on closing day, when buyers feel pressured to finish the deal. The purpose of this rule is to prevent mortgage brokers from using bait-and-switch tactics, in which home buyers believe they are receiving certain loan terms which are then changed at the last minute. Truth in lending and laws and related regulations are designed to protect home buyers from shady lending practices. But since it’s always better to prevent a situation than litigate it after the fact, buyers should be on guard for these signs of a dishonest lender:

  • Lofty promises that anyone can receive a mortgage, regardless of bad credit
  • Claims that no other mortgage company will lend to a particular home buyer
  • Promises or insinuations that a particular loan will solve all financial problems
  • The lender encourages the borrower to falsify information on the loan application
  • High pressure tactics
  • Fees are considerably higher on closing day than originally estimated – these are prohibited by law.

Since knowledge equals power, buyers should compare rates and fees among several different mortgage lenders. In most cases, dishonest lending practices can be avoided when the buyer is educated on the warning signs and is proactive in researching options. In the event that dishonesty is only discovered after closing day, homeowners should consult with a qualified real estate attorney about their options to resolve the problem.

 

 

 

Your Trees and Your Rights

We all love our trees, but sometimes they can be a bit of a nuisance for us or our neighbors. Yet, despite how bothersome their fruit and leaves may be, your neighbor does not have the right to remove or harm a tree which grows on your property. In fact, you have the right to recover damages if your neighbor chops down your tree, uses chemicals which kill it, or even removes enough branches that the health of the tree is harmed.

On the other hand, your neighbor is allowed to trim branches which overhang your property boundary into his or her yard. So you cannot sue for damages unless the pruning actually harms the health of your tree. Additionally, you could be responsible if your tree causes damages to the neighbor’s property. For example, if your tree roots cause damage to the foundation of the neighbor’s home.

In most cases, a claim has two necessary prerequisites before you can recover damages from your neighbor:

  1. Your property must be damaged. If part of your tree exists on your neighbor’s property (overhanging limbs, for example), you cannot be compensated if the neighbor simply prunes those limbs and makes the tree look bad. The tree must actually be damaged by your neighbor’s actions.
  2. The tree did not prevent any danger to others. A dead tree that is about to fall and possibly cause harm is not protected by the same law as healthy trees. In some cases your neighbor even has the right to enter your property and remove a tree which presents a clear threat.

If your case meets the above requirements, you may be able to sue your neighbor for damages to your tree. Generally speaking, you may be able to recover:

  1. The cost of replacing the tree, including debris removal.
  2. Diminished property value, if the tree was irreplaceable.
  3. Out-of-pocket expenses. If you spent money trying to save a dying tree, clean up debris, or repairing the yard, you may be able to recover these expenses.

If your homeowners insurance policy has already paid you damages for the lost tree, you may be required to deduct this amount from the damage claim against your neighbor. An exception to this rule would be if you are required to repay the insurance company after receiving a settlement from the neighbor. The above scenario is not the typical case, however. Usually a tree on one property causes some nuisance on the neighbor’s property. For example, your tree’s leaves fall into the neighbor’s pool, clog and burn up the filter and motor. In that situation, the real threat is a nuisance claim from a neighbor, which unfortunately often degenerates into a contest to see who can best bear the attorney’s fees associated with the fight. As is typically the case, a negotiated resolution is usually the best solution. For more information about tree damages and property boundary disputes, and about the best way to resolve such disputes, contact a qualified real estate attorney.

How Can an Easement Affect Me?

If you’re in the market to purchase real estate, you may come across a property which is affected by an easement and wonder whether you should proceed with purchasing it. You may be a current home owner whose neighbors have easement rights over your property, or you over theirs. In any case, it is important to understand easements and how they can – and may not – affect your rights. In some cases you may need to consult with a real estate attorney for help with a complicated situation. With offices in Temecula, San Diego and Irvine, we can help.

An easement is an interest in a particular piece of property which gives the holder of the easement the right to use the property in some way. An easement often pertains to issues such as a shared driveway or a particularly desirable view. The easement clearly states the particular “use” of the property which is granted, and does not grant the holder of the easement any other use of the property. Some easements are permanent, while others are temporary and governed by specific dates only.

Almost every property has multiple easements, typically for water or utility access. It’s important to remember that an easement does not give the holder any rights to possess the property, nor do they have any financial interest in it. If it is a neighbor who holds an easement pertaining to your property, they cannot prevent you from selling it or from benefit financially from its sale.

In some cases an easement limits what you can do with your own property. For example, the neighbor across the street from you may hold a “light and air” easement on your property. This could mean that they enjoy a particular view of the mountains behind your house and so you cannot make alterations to your property which would block their view.

Before purchasing real estate, always check to see if any easements exist which could affect your usage or enjoying of the property. Some people may be bothered by items such as a shared driveway, or if you intend to alter the property you may end up frustrated and unable to complete your plans. In many cases, however, an easement places no bothersome restrictions on the homeowner and they never have a problem with it. As mentioned previously, almost every home has multiple easements that have no practical effect on the owners.

Occasionally an easement can pose a problem to property owners, however. We can help if someone attempts to place an easement on your home, if you purchase a home and later discover an undisclosed easement, if a neighbor begins to violate the terms of an easement, or if you and your neighbor need an easement to accomplish some purpose. Most easements are there for a valid purpose, and we can assist you to understand and manage the easements affecting your property.

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