By Kathy McSherry | Ask Kathy

Hi Kathy:

My partner and I recently purchased a new home under construction. We will not close on the home for approximately eight months as they are just beginning to build it. When we were signing the purchase agreement, the sales agent briefly went over taking title to the property and asked how would we be holding title? She spoke so fast that we didn’t understand exactly what title was all about and the fact that we needed title insurance. It would help so much if you could explain what does holding title mean and why do I need title insurance. The sales agent said I wouldn’t have to decide until I signed my loan documentation at closing. Any clarification would be greatly appreciated.

—Joe Willy M.

Hi Joe Willy:

Oh, I am so glad you asked me that question. If I could tell you how many people get confused over how to take title to a property, you would certainly not feel alone.

First, one of the reasons it may have appeared that the sales agent glossed over the issue of taking title to a property, is that Realtors are not allowed to tell you how to take title to a home, as there are tax implications involved and rights of survivorship. A professional real estate agent will always direct you to a certified public accountant or attorney who can explain all of the differences. I can certainly give you an overview. Start with this description of a title from Wikipedia:

“In property law, a title is a bundle of rights in a piece of property in which a party may own either a legal interest or equitable interest. The rights in the bundle may be separated and held by different parties. It may also refer to a formal document, such as a deed, that serves as evidence of ownership.”

The five most common ways to take title in the State of California are sole ownership, tenants in common, joint tenancy with rights of survivorship, community property and living trust.

It is fairly simple if one single person wants to purchase a property in their name and no one else is involved in the transaction. However, imagine having been married a couple times with children from different marriages and/or different relatives that you may want to bequeath your share of the property to. Or, maybe if something were to happen to your partner on title, the interest may go directly to you (being the partner on title); or based on how you hold title, the court can force you to sell the property and take the equity and disperse from there. Maybe one owns multiple properties and there is a tax advantage or disadvantage to taking title to strengthen one’s financial portfolio. Can you see why a professional Realtor will defer you to a certified accountant or attorney?

Joe Willy, you have plenty of time to explore all of the options that are available to you before you close on your new home in eight months. A fabulous outline on the various forms of title can be found on the First American Title website, Firstam.com:

“Title Insurance is an insurance policy or contract issued by a title company. It protects you, the purchaser or owner, against a loss that may arise by reason of a defect in your ownership or an interest you have in real property. (clerical errors, mistakes, undisclosed heirs, omissions in deeds, unknown liens or fraud involving deeds, etc.)

“In addition, the title insurance company agrees to defend you in court if there is an attack on your title. It will cover attorney and court expenses or pay a loss caused by the defect in title up to the face amount of the policy subject to the terms listed in your policy.

For the average property owner, there are two different types of title insurance policies that you need to be aware of:

• Owner’s Policy of Title Insurance
• Loan Policy of Title Insurance

“Since most property owners mortgage or borrow money at the time of purchase or during ownership, the lender can be expected to request protection of its investment against loss. Lenders know that many things can cause loss of title and that expenses are incurred while defending an attack. They insist upon a Loan Policy of Title Insurance to protect their stockholders’ and investors’ investment in your property.”

“An Owner’s Policy of Title Insurance protects your investment (equity) as the buyer or owner of the property. As the owner, you should want to have the same assurance as the lender that the investment you have made cannot be lost because of a problem or defect with the title.”

I hope this helps to clarify a few things for you Joe Willy. My best to you and your partner and good luck with your new home purchase!

—Kathy McSherry is a veteran Realtor in Mission Valley with Coldwell Banker West. Email your questions to [email protected] or call 702-382-9905.