Whenever you buy real property in California, or buy any interest in real property (such as buying a trust deed of a mortgage) you should always purchase title insurance. Title insurance is a form of insurance. Its purpose is to insure that you received good title to whatever it is that you purchased. If you buy a house or a commercial building, you should also get title insurance, to insure that you have good title to the property. If you obtain a deed of trust against property, which you believe is in first position, you should get title insurance, to insure that, yes, your deed of trust is good, and, yes, it is in first position.
Like all forms of insurance, title insurance primarily benefits the party who has purchased it. As a rule, title insurance will be purchased by or for the benefit of two parties: the buyer of the property and the buyer’s lender, who has made a loan secured against the real property.
In most transaction, title insurance comes in two stages. First, before the deal closes, the buyer (or lender) ordinarily will obtain a preliminary title report. This tells you if you have good title, before the deal closes, so you can back out of the deal if there is a problem. Second, at the time that the deal closes, the buyer (or lender) ordinarily obtains title insurance, which insures it against the risk of defects in title.
There is no legal requirement that a buyer or lender obtain title insurance. It is, however, foolish to purchase property, without obtaining title insurance. There are many ways that title to real property can be defective. There may be, for example, easements which third parties own over a portion of the property, which can diminish its value. There may be judgment liens against the property. There may be lis pendens.
There are, in short, a wide variety of ways in which title can be defective. If title is defective, this can inflict huge losses upon the buyer or the lender. Compared to the potential risks of defective title, the price of title insurance is low.