Explanations

Title insurance is consistently highlighted as a crucial component in real estate transactions, especially when purchasing, financing, or refinancing real property and when a third-party mortgage lender is involved [404, i]. Lenders, in particular, will not fund a loan unless a clear title policy is in place. It acts as a contract of indemnity, protecting against financial losses or damages related to defects in the title that may have existed in the past “chain of title” history. This policy guarantees that the owner has clear ownership of the property with no “clouds,” defects, or claims by known or unknown parties.

A warranty deed is a type of deed that guarantees the seller is the true owner and is transferring the property free of liens. While it offers strong assurances, the grant deed is actually the most commonly used real estate document to transfer property in California. Furthermore, deeds like quitclaim deeds are also used, which offer no such guarantees. The demand is for protection against title issues, which title insurance provides, rather than a specific type of deed.

An abstract of title is a summary of all recorded transfers, conveyances, legal proceedings, and other facts related to a property’s title history. Historically, professionals called abstracters would create these. While it provides information about the title, it does not offer the financial protection against title defects that a title insurance policy does.

A trust deed (or deed of trust) is a security instrument given to a third-party lender to secure a loan. It serves as collateral for mortgage debt in California. Not every sale of real property involves a new loan secured by a trust deed (e.g., all-cash sales or some seller-financed deals). Title insurance, however, is generally demanded for virtually all property sales to protect the buyer, and certainly the lender if one is involved.

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