Yes, you need title insurance if you own real estate. It provides protection against losses that occur when the title to a property in California is not free and clear of defects.

Examples include an undiscovered lien (such as a mechanics lien) or easement against the property. Most lenders require title insurance as a condition for getting your loan.

Normally, there are two types of policies available when you are purchasing a property – a lender’s policy and an owner’s policy. The lender’s policy will protect the lender’s security interest in the property.

An owner’s policy will protect you, the owner, from claims by others against your property.

You may believe that as long as the lender has a title insurance policy, you do not also need to buy one. You may also believe that if the former owner of the home had a policy, you are protected.

Neither of those statements is true – the lender’s policy protects the lender, and the former owner’s policy protects the former owner. You need your own policy to protect your legal title to the property.

The policy will cover you for as long as you own the property. Your policy will only cover the value of the property.

If you choose to buy title insurance, you should obtain the policy for the full purchase price of the property. Who pays for the title insurance depends on where you live – it’s not set by law, but instead is a matter of local custom.

It may be paid by the buyer or seller, or be split between the parties. In general, in northern California the buyer pays for title insurance, or in some cases it is split between the parties. In southern California, the seller normally pays the premium. The parties are free to negotiate something different than what local custom dictates.

Before you purchase title insurance, it’s important that you understand any exclusions contained in the policy. For example, if you are aware of a lien or claim against the property and your insurance company is not, you may not have coverage for that lien or claim.

You also may not have coverage for eminent domain issues. Before you choose to purchase or refinance the property, you need to understand what your title insurance will cover.

Once you have the policy, you will hope that you never need to use it. If you do find out that there’s a lien or encumbrance on your property, you should pull out your title insurance policy and read it.

Check to make sure that whatever type of claim has arisen is not listed as an exception. You should promptly notify your title insurance company after learning of the problem. This should be done in writing, and you should let the title agent know as well as the attorney who helped you with your closing.

You may be tempted to ignore the problem and hope that it will go away. That’s understandable, but title issues do not go away on their own – they become worse. If you wait until a lawsuit is filed, it’s going to be more expensive, and you may not have the same level of coverage that you would otherwise since you failed to notify the title insurance company immediately.

If your issue with the property is covered under the policy, the title insurance company is required to help you resolve the situation. The company may help negotiate an old, undiscovered mortgage with a lender and obtain a release.

If covered, the title insurance company would pay your defense costs and attorneys’ fees. Another situation may require litigation to get resolved. The title insurance company has the right to fix the title defect, to litigate the case, to settle the case, or possibly even to pay you the amount of insurance under your policy and terminate any further responsibility.

In many cases involving title insurance situations, you should hire your own attorney. In some cases, the interests of the title company will not be the same as your interests.

You should be aware of your legal rights. Your attorney can also help you with the proper notification of the title insurance company, as well as with all of the legal issues that arise after that.

If you are having an issue with your title and you need an attorney’s help, call real estate attorney Robert Levy at 510-465-0025. He can help with title issues, whether you are covered by title insurance or not.

He works with clients throughout the Oakland and Walnut Creek area. Call today to schedule a free consultation on your case.

If you are a landlord, you probably understand that there’s an inherent risk of legal liability any time that you choose to rent out your property to tenants. There are a number of risks that are foreseeable, and can be insured against, but insurance can’t protect against every potential legal risk.

If a tenant is injured on your property and chooses to sue, you could not only lose the property itself, but also your other personal assets as well. Insurance can go a long way towards minimizing the risk of having your assets seized, but an LLC combined with insurance can do even more.

An LLC is a limited liability company, which offers its members the same protections available to owners of a corporation. Assets that are held in LLCs typically give their owners personal liability protection from lawsuits.

Although you may have large amounts of insurance coverage, if some negligent act results in severe injury to a tenant or a guest, the award to the victim could be larger than your insurance coverage. That means your personal assets could be at risk.

For example, you may have $750,000 in liability insurance on your rental home. A dead tree branch falls on your rental home in the middle of the night, hitting a tenant and causing brain damage, which could result in damages to the tenants in the millions of dollars.

In that case, your personal assets, including your home or other properties, your bank accounts, your vehicles, your investments, etc.) would be at risk to satisfy the damages.

However, if your home were owned by an LLC, the LLC would be liable for the damages, and the LLC’s assets could be at risk, but an individual member of the LLC would have protection for his or her personal assets.

Another benefit of an LLC in California is that it can protect against claims by creditors of members of the LLC. If an LLC is in place, the creditors of a member of the LLC cannot attach the assets owned by the LLC.

For example, if you and a friend own a rental house together, and your friend drives while intoxicated one night and hits someone, the accident victim cannot seize the rental house if it is owned by an LLC.

If it is owned in the names of you and your friend, your friend’s half of the house could be at risk.

If you own more than one rental property, you should consider placing each one into a separate LLC. If you place them all into one LLC, and there is a problem with one of the properties, all of the properties are potentially at risk.

There are also tax advantages to an LLC when compared with a C-corporation and an S-corporation. All three forms of ownership offer protection from liability, LLCs are given pass-through taxation.

This means that owners get to report their share of the income or losses from their LLCs on their individual tax returns.

In contrast, a C-corporation is taxed at both the corporate level and the personal level. S-corporations are not double taxed, but they face other tax problems when real estate is involved.

Although LLCs can be great for rental property, personal residences should never be placed in an LLC. If a personal residence is placed in an LLC, the owner loses the loss of the capital gain exclusion on the sale of the home.

Therefore, if you own rental real estate, you should strongly consider placing it into an LLC. If you are in the Oakland, Walnut Creek, East Bay, or elsewhere in the San Francisco Bay  Area, call Oakland-Walnut Creek real estate attorney Robert Levy at 510-465-0025.

He can help advise you on whether or not an LLC would be best for your rental property, and how to go about setting one up. Call him today to learn more or to schedule a free consultation.

California Enacts Uniform Partition of Heirs Act

The California legislature has enacted a brand new law known as the Uniform Partition of Heirs Property Act which became effective January 1, 2022, and applies to partition actions filed on or after January 1, 2022 (the “Act”).

The Act makes significant changes to the rights of parties in partition actions when the subject real property is either co-owned by family members, or was received from a family member.

The Act Creates a Right of Buyout in Family Owned Properties

I have handled many many partition actions. Of all the calls I have received from prospective partition clients, close to 90% of those disputes were between family members. Prior to the enactment of the Act, a defendant who was sued for partition of real property, might have had an opportunity to buyout the suing plaintiff, but there was no right to a buyout, which meant that if the plaintiff was unwilling to agree to a buyout, the likely outcome would have been a court supervised sale.

Now with this new Act, if the property is co-owned by family members, or if all or a portion of the property was received from a family member (“Heirs Property”) , then the defendant in a partition action now has a right to buyout the plaintiff’s interest in the property.

The Act is a Game Changer in Co-Ownership Disputes of Family Property

The Act is brand new, so how it impacts affected properties is yet untested, but it is very likely that in cases that involve Heirs Property to settle quickly, even before a lawsuit is filed, and if it does not settle, a defendant who wants to keep the property by buying out the plaintiff’s interest, will be able to do so and avoid a sale of the subject property. If you are a defendant of Heirs Property, this will be a very valuable tool for you.

The Act, which sets out what qualifies as a Heirs Property and the procedures to follow to buyout a plaintiff’s interests in Heirs Property, can be found starting at California Code of Civil Procedure  § 874.311.

Understand the Law and Your Rights

If you co-own property with a relative or received title from a relative, and you have been served with a partition lawsuit or are considering filing a partition lawsuit, you should consult with an attorney that is aware of and understands the Act.

I regularly represent clients in negotiating buy-out agreements and in partition actions. I assist clients in the East Bay, California, in Oakland, California, in Walnut Creek, California, and throughout the Bay Area.

If you have questions or need representation by a real estate attorney about a partition action or the need to negotiate a buyout agreement between co-owners, please feel free to contact me to discuss your case, the Act, or to arrange for a consultation. I can be reached at (510) 465-0025.

Quite often a contractor, laborer, or design professional, among others, records a mechanic’s lien against your property for work the contractor claims they completed to the property but remains, at least partially, unpaid.

A Stale Mechanic’s Lien is Unenforceable

If a mechanic’s lien is recorded against your California property, the lien claimant (i.e. the contractor), has 90 days to file a lawsuit to foreclose on the mechanic’s lien. If a lien claimant records a mechanic’s lien against your property, and 90 days goes by and they have not initiated a lawsuit to foreclose on the mechanic’s lien, the mechanic’s lien is expired and unenforceable. [Cal. Civ. Code § 8460]. There are minor exceptions to this rule, but in most cases no exception applies.

Petition to Release Mechanic’s Lien

Even though a mechanic’s lien is unenforceable after the expiration of the 90-day, title companies will not close an escrow or insure a refinance or purchase of the property, without first obtaining a court order releasing the lien. Fortunately there is a fairly quick procedure to have the lien permanently released and removed.  The property owner files some simple papers with the court, and obtains a hearing generally within 30 days of the date that the documents are first filed with the court. This procedure is known as a Petition to Release Mechanic’s Lien, and in most cases the lien claimant does not have a defense. And quite often, the lien claimant does not even respond to the Petition, nor does the lien claimant appear in court at the hearing. If the property owner prevails on the Petition, in addition to obtaining a judgment for the release of the lien, the property owner can also recover a judgment for the amount of their reasonable attorneys fees.

The procedure to file and prosecute a petition to release a mechanic’s lien is a very simple procedure that can be obtained with relative ease and quickness with proper attorney representation.

I regularly represent clients in the East Bay, California, in Oakland, California, and in Walnut Creek, California, regarding Mechanic’s Liens. If you have questions, or need representation by a California real estate attorney involving a mechanic’s lien case, please feel free to contact me to discuss your case or to arrange for a consultation. I can be reached at (510) 465-0025 or (925) 708-3306.

PARTITION ACTIONS- RESOLVING DISPUTES BETWEEN CO-OWNERS OF CALIFORNIA REAL PROPERTY

The Dispute Between Co-Owners

An issue and question that comes up an awful lot in my practice is the question of whether one of the co-owners of real property can be forced to be bought out. This issue comes up when two or more people own property together; one of the owners wants to sell their interest in the property, while the other owner refuses to sell; or when one of the co-owners wants to remain an owner of the property but no longer wants to be a “partner” with the other co-owner.

Resolving the Dispute Through a Partition Action

Under these scenarios, partition actions can be very helpful. A “partition action” is a way for a co-owner to force a sale of the entire property. For an article the explains the partition process in California, see:  In California, can I force a co-owner to sell a property we both own.

What about the scenario where you do not want to sell the property? Instead, you want to buy out your co-owner’s interest in the property. Under California law, there is no obligation for the co-owner to sell their interest, while you keep your interest. Partition allows you to sell your interest, but it does not entitle you to buy your co-owner’s interest.

A partition action nonetheless can sometimes achieve the goal of buying out your co-owner’s interest. More often than not, when a partition action is filed, eventually one of the parties buys out the interest of the other.

So if you file a partition action, there is a realistic possibility that the end result would be a settlement where you (the plaintiff) buy out your partner or co-owner. This outcome does, however, require the other owner’s (the defendant’s) consent.

Another possible method of using the partition action in California to end up with owning the entire property is where the owner that wants to own the whole, makes a bid or offer to purchase the whole as part of the partition proceeding.

Similarly, if you want to be bought out by the other co-owner of the property and the co-owner is not cooperating, you too could use a partition action to potentially achieve your goal of being bought out by the other co-owner.

It is very common that despite a co-owner’s refusal to buy out the other owner of the property, after a partition action is filed, the refusing co-owner eventually realizes that you have a right to sell your interest, and if they want to maintain their interest in the property, their best option is to buy you out.

Therefore, it is very common in this situation, that after a partition action has been filed, that the co-owner refusing to sell eventually offers to buy out the plaintiff co-owner.

I regularly represent clients in negotiating buy-out agreements and partition actions throughout the Bay Area, in the East Bay, California, in Oakland, California, and in Walnut Creek, California. If you have questions or need representation by a real estate attorney involving a partition action or the need to negotiate a buyout agreement between co-owners, please feel free to contact me to discuss your case or to arrange for a consultation. I can be reached at (510) 465-0025 or (925) 708-3306.