Quiet title actions and title insurance are two ways to address the title issues that may arise when you purchase real estate. Title insurance offers certain proactive protections in the event of a title dispute, whereas quiet title actions may be taken in response when a title issue arises.
What Is a Quiet Title Action?
A quiet title action is a legal proceeding in which a court issues a judgment determining the status of a property’s title. Parties may file quiet title actions to resolve conflicting ownership claims or inheritance disputes or to clear discharged liens off the title (such as removing a mortgage after the property owner has paid it off). A party pursuing a quiet title action must file a complaint in court to allege the correct current title. The party filing a quiet title complaint must name other parties with a purported interest in the property, such as a party with a competing ownership claim or a lienholder.
Understanding Title Insurance
Title insurance is a policy that provides coverage to a property owner or lienholder who sustains financial losses due to title defects. In most cases, a prospective purchaser and their mortgage lender will obtain title insurance policies in contemplation of a real estate purchase. An owner’s policy can protect the purchaser from financial losses, including for diminution of value or loss of ownership if title defects mean they never held title to the property. Similarly, lender’s policies protect mortgage lenders from losing their security or suffering a reduction in value due to title defects. Title insurance policies also help pay for legal expenses incurred in quiet title actions or other title disputes.
Differences Between Quiet Title and Title Insurance
Some of the key differences between quiet title actions and title insurance include:
- Purpose: Quiet title actions resolve disputes over the status of a property’s title, whereas title insurance offers financial protection against future title claims.
- Process: A quiet title action involves a full legal process, including pleadings, discovery, and court hearings or a trial. Conversely, obtaining title insurance involves a due diligence investigation by the insurance company to underwrite the policy, determining whether the company can feasibly insure the risk of title issues and the amount of premium the purchaser must pay.
- Coverage: Quiet title actions can protect property owners by providing them with a court judgment that definitively establishes ownership of a piece of property. Conversely, title insurance provides financial protection to property owners and mortgage lenders who sustain losses due to title defects.
- Time and cost: A quiet title action can involve an expensive, time-consuming process, as litigation can last for weeks or months. Conversely, title insurance involves a one-time premium paid at closing.
When to Pursue Each Option
Property owners may pursue a quiet title action to resolve title disputes, including unresolved liens or competing ownership claims levied by other parties. A quiet title action allows a court to establish the correct present title for the property.
Conversely, title insurance provides protection should a title issue or dispute arise. Property owners typically secure title insurance when they purchase their property, refinance their mortgage, or take out a home equity line of credit on their property.
In some cases, parties may pursue both options to resolve title issues for a property. For example, a party may need to pursue a quiet title action to establish the correct title to the property if a title insurance company refuses to issue a policy due to a cloud on the title or breaks in the chain of title.
Contact a Real Estate Attorney Today
Are you dealing with a title dispute involving your property or seeking protection in the event one arises? If so, contact BoyesLegal, APC today for an initial consultation with our experienced real estate lawyers in San Jose.