About a year ago, I received a frantic call from one of my clients whom I had not heard from in a couple of years. She acquired a piece of property, which I will call Parcel A, to build student housing units. She had negotiated the purchase directly from the Seller and paid cash. As she was putting together her entitlement package to the City she discovered she had no easement rights on the right side of the property, which would provide access to the proposed parking which was to be located at the rear of the building. According to her, during her negotiations with him, the Seller agreed she could use the neighboring parcel, which we will call Parcel B, which he also owned at that time, as access to her property. In return, he requested she grant access to him to the front of her property, Parcel A, as access to Parcel B, which he owned. These agreements were never put in writing and therefore never recorded.

One year later, he sells Parcel B to another party, whom we will call, the Neighbor. In the meantime, the vacant parcel, Parcel A, has no activity other than the preparation of the property for entitlement. Client has no interaction with Neighbor who owns Parcel B and Neighbor is totally unaware that Client had been granted easement rights to his property, Parcel B. Client is also aware Neighbor is using the front of her property as access to his property, Parcel B. The day came when Client had to go to Neighbor to notify him that she was building a student housing unit on her property and she needed his authorization to include and improve the driveway on Parcel B. Neighbor refused stating he was not made aware of any agreement the previous Owner had made to her, and therefore, demanded that if she wanted the easement, she would have to pay for it. 

The Result:

Client had to pay Neighbor $50,000 for the easement rights to Parcel B but incurred legal costs of $30,000 just so she could build her project. Neighbor was granted easement rights to her property, Parcel A, at no cost to him.

What Happened?

Because both easements had never been recorded, the parties had to seek legal counsel to settle the matter. When Client acquired title insurance to Parcel A, she only purchased the basic policy that did not cover items of unrecorded matters, so when she sought seek legal assistance from the title company, they declined her claim because it was not covered under the policy she purchased. 

On the other hand, Neighbor purchased the Extended Policy that included matters of unrecorded items. Neighbor went to his title company and they defended him. 

How important is Title Insurance?

Title insurance is the protection that assures the rights and interests to the property are as expected, that the transfer of ownership is smoothly completed and that the new owner receives protection from future claims against the property. It is the most effective, most accepted and least expensive way to protect property ownership rights.

How Does a Title Insurance Policy Protect Against Claims?

If a claim is made against the owner or lender, the title insurance company protects the insured by:

• defending the title, in court if necessary, at no cost to the Owner/Lender, and
• bearing the cost of settling the case, if it proves valid, in order to protect your title and maintain possession of the property.

Each policy is a contract of “indemnity.” It agrees to assume the responsibility for legal defense of title for any defect covered under the policy’s terms and to reimburse for actual financial losses up to the policy limits. 

Tillie Ross is a VP at Fidelity National Title. Contact Tillie at [email protected] or 925-351-8990.