For a person buying real property, including a new home, a title company is an essential player in the process. Title companies also play a role when a person is refinancing their home mortgage loan.
A title company searches public records looking for liens on title to property or other claims that might bring the owner’s claim to own the property free and clear. If the title company does not find any liens or other defects in the title, they issue insurance to protect the interest of the prospective buyer and their mortgage lender, if they have one.
With the title insurance in place, if an owner goes forward with their purchase of real property but later discovers that there is a problem with the title, they can turn to the title insurance policy for coverage of their losses. A legal consultation in California would help a person understand when they should make a claim to the title insurance company.
In the course of doing a title search, title companies complete the following tasks:
- A title company’s title search includes searching the records of the county recorder of deeds in the county in which the property is located to ensure that no other individual owns any interest in the property or has any claim to it and that there are no disputes regarding the title.
- A title company searches for any liens, judgments, mortgages, or unpaid taxes on the property. It also looks for easements, leases, or other issues that might interfere with the ownership of a new buyer of the property
- A title company supervises a property inspection or a boundary inspection to ensure that there are no conflicts regarding fences, boundaries, or encroachments onto the surrounding property areas
Finally, a title company records deeds and/or other documents with the appropriate authorities and makes sure they are filed in the legally correct manner.
What Are Common Legal Issues With California Title Companies?
A buyer of real property may become involved in a dispute with a title company when they learn that some entity claims an interest in the property. This would be exactly the type of issue that a title company should have discovered before completing their purchase transaction.
If they did not, the owner has cause for complaint. For example, there might be an easement that was never recorded that gives the public the right to use a roadway across the property.
A title company should respond to this situation by researching the claimed interest to determine its validity. If the company determines that the title company failed to detect the claim in its search, the title company would have to make the payment to the owner that is promised in the contract of title insurance.
Title insurance policies usually pay an amount equal to the reduction in value caused by the existence of the cloud on the property’s title up to the amount of the policy limits.
If an insurance company should fail to pay as promised in its policy, the owner would have grounds for a lawsuit against the title company. The fact might support claims for breach of contract, insurance bad faith or breach of the duty of good faith and fair dealing. A claim for negligence might also be a possibility.
A property owner would have a claim for insurance bad faith if they make a valid claim for the coverage to which their title insurance coverage entitles them. If the title insurance company rejects the claim and refuses the coverage, they can be liable for insurance bad faith.
In California, every contract is legally considered to include an implied duty of good faith and fair dealing. This duty requires that all parties to the agreement must act in good faith, i.e., with honesty, and deal fairly with the other parties. They should not do anything to harm another party’s right to receive the benefits of the contract.
When deciding whether the duty of good faith and fair dealing has been breached, courts analyze the facts and determine what is fair under all the circumstances of the contractual relationship.
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What Legal Remedies Are Available When Suing a Title Company in California?
As noted above, the main remedy that a property owner is likely to seek is an award of money damages. The amount would reflect the difference in the value the property at issue would have had if the defect in title were not present and the value it has because there is a defect.
If the property owner has suffered an economic loss of up to $10,000 ($5,000 if the owner is a business), they would be able to file their lawsuit in a California’ small claims court. Small claims court offers a less formal forum for civil lawsuits. A party would not be able to have an attorney and would be able to represent themselves. This would keep the cost of suing lower.
However, one would be limited to recovering a maximum of $10,000 in damages ($5,000 if the owner is a business). The fee for filing a lawsuit would be from $30 to $100.
If an owner’s claim exceeds the small claims limit, they would file in a California Superior Court. The Superior Court entertains two types of cases. One is limited jurisdiction civil cases in which damages of no more than $25,000 may be recovered. The other is unlimited jurisdiction civil cases in which damages in excess of $25,000 may be recovered.
A property owner may also sue a title company for negligence. They would have to prove that the title company owed them a duty of care, breached that duty, and that the breach was the direct cause of harm to them.
For example, in a landmark case in Washington state, a title company failed to disclose an easement on a property that had been recorded. The company clearly should have identified and disclosed the existence of the easement. The court held the company liable for negligence. If negligence is proven, the company may be liable for the cost of clearing the defect from the title, including attorney’s fees and costs.
If a property owner succeeds with a claim for insurance bad faith, they may be entitled to recover the amount they should have received for their original claim, an amount for emotional distress, other economic losses, attorney’s fees and costs.
In rare cases in which the company’s conduct is especially reprehensible, a property owner might receive an amount for punitive damages. In California, punitive damages may be awarded to an owner if the company’s bad faith conduct was “willful, egregious, and widespread.” For example, a title insurance company that acted in bad faith to numerous insureds may be required to pay punitive damages.
Title companies usually have errors and omissions insurance. This gives the company financial protection for claims by property owners for damages for the professional mistakes that the company makes. However, this insurance does not eliminate liability. Courts may award damages that include the costs of clearing title defects and the associated attorney’s fees and costs involved in clearing title.
Do I Need a California Real Estate Lawyer for a Title Company Lawsuit?
If you have discovered that your title insurance company did not perform as promised and you have property that is worth less than you thought, you want to talk to a title dispute lawyer. LegalMatch.com can put you in touch with a lawyer who can help you understand what you need to do to clear the title to your property and how you can seek damages from your title insurance company.
