Key Takeaways
- California title companies typically serve in two related roles — title insurer and escrow agent — and each role carries different duties and exposure.
- Escrow holders in California owe fiduciary duties strictly limited to the scope of the escrow instructions (Summit Financial Holdings v. Continental Lawyers Title (2002) 27 Cal.4th 705); they are not general advisors to the parties.
- Title insurance policies come in two main forms — the record-based CLTA policy and the broader ALTA extended owner’s policy, which covers off-record matters like mechanics’ liens, encroachments, and survey issues.
- Common title company claims include failure to record, missed liens or encumbrances, wire fraud, errors in legal descriptions, and policy claim handling failures.
- A recorded lis pendens (Code of Civil Procedure section 405 and following sections) is a critical tool for protecting an ownership interest while a title dispute is pending.
Can You Sue a Title Company in California? What to Do When They Make a Mistake
When everything works, the title insurer issues a preliminary report, the escrow officer ushers the documents through, the deed gets recorded, and the policy issues without anyone giving it much thought. When something goes wrong, the consequences can be substantial: a missed lien that resurfaces years later, a deed that never made it to the recorder’s office, a wire that landed in a fraudster’s account, or a legal description that turns out to cover the wrong parcel.
This article walks through what California title companies owe their customers, when buyers and sellers can sue, and how to use tools like the lis pendens to protect your interests while a dispute is litigated.
Discovered a title company error after your California closing? Time matters.
Bay Legal, PC investigates California title company errors and pursues recovery. Call (650) 668-8000 or schedule a consultation at baylegal.com/contact.
What California title companies actually owe you
Most California real estate transactions involve a single company performing two distinct functions: as the title insurer (issuing the title insurance policy) and as the escrow agent (holding funds and documents, coordinating closing, and recording the deed). The legal duties are different in each role.
Escrow agent duties
California treats escrow agents as fiduciaries — but with a specific, narrow scope. The California Supreme Court in Summit Financial Holdings v. Continental Lawyers Title (2002) 27 Cal.4th 705 held that an escrow holder’s fiduciary duty is limited to the strict scope of the escrow instructions. The escrow agent is not a general advisor; it does not have an independent duty to investigate the transaction, warn the parties of risks not within the escrow instructions, or coordinate matters outside the four corners of the instructions.
California escrow companies are regulated under Financial Code section 17000 and following sections. Independent escrow companies licensed by the Department of Financial Protection and Innovation operate under detailed regulatory requirements, including trust account handling and reporting.
Title insurer duties
Title insurance is a contract — the policy. The insurer’s primary duty is to indemnify the insured for covered title defects (and, in some cases, to defend lawsuits attacking title). The California Supreme Court in Quelimane Co. v. Stewart Title Guaranty (1998) 19 Cal.4th 26 sharply narrowed the scope of tortious bad-faith liability for title insurers compared to other lines of insurance. That means most title insurance disputes are governed by the policy language rather than by general bad-faith principles.
CLTA versus ALTA: which policy do you have?
California uses two main owner’s title insurance forms:
- The CLTA standard owner’s policy covers record-based title defects — recorded liens, encumbrances, and similar items the title search should have caught.
- The ALTA extended owner’s policy covers off-record matters: unrecorded mechanics’ liens, encroachments, boundary disputes, parties in possession, survey issues, and similar items the record alone cannot reveal.
Most California residential closings include a lender’s ALTA loan policy (the lender insists) but only a CLTA owner’s policy for the buyer (the seller pays). The buyer can typically upgrade to an ALTA owner’s policy for a modest additional premium — and in most cases it is worth it. Many California title claims that end up in litigation involve off-record matters that a CLTA policy did not cover.
Read your policy. Title insurance is a contract of indemnity. The exclusions, exceptions, and conditions matter as much as the covered risks. Schedule B exceptions often eat substantial portions of the apparent coverage — easements, CC&Rs, and survey issues are typical Schedule B exceptions. If you are not sure what your policy actually covers, a California real estate attorney can read it and explain.
Common claims against California title companies
Failure to record
The escrow agent’s most basic obligation is to record the deed (and any deeds of trust) after closing. When recording does not happen, the consequences cascade: the buyer is not the record owner, the lender’s lien is unperfected, intervening transfers can prejudice the parties. Failure-to-record claims often involve negligence and breach of fiduciary duty against the escrow agent, and may also implicate the title insurer.
Missed liens or encumbrances
Preliminary title reports are not insurance — they are reports of the title insurer’s intended exceptions to the title insurance policy. If a recorded lien existed but the preliminary report did not list it, the policy generally covers the resulting loss (subject to the policy’s coverage and exclusions). The dispute often turns on whether the policy covered the specific defect and how the title insurer handled the claim.
Wire fraud
Wire fraud in California real estate closings is a major loss source. Sophisticated fraudsters impersonate escrow officers, agents, or lenders, and direct buyers to wire closing funds to accounts the criminals control. When wire fraud succeeds, the question of who bears the loss often involves the title company’s negligence in handling email communications, training employees, and verifying wiring instructions.
Errors in legal description
A deed that describes the wrong parcel, omits a portion of a parcel, or uses an ambiguous metes-and-bounds description can cloud title for years. Reformation of the deed is often available, but the route — and the cost — depends on the title company’s involvement and the cooperation of the prior owners.
Bad-faith claim handling
California title insurers have a narrower bad-faith exposure than other insurers (Quelimane), but they still owe their insureds reasonable claim handling. A title insurer that unreasonably denies or delays payment on a covered claim may face contractual damages and, in egregious cases, tort exposure for breach of the implied covenant of good faith and fair dealing.
Title company stonewalling your claim?
Bay Legal, PC pushes back against unreasonable title insurance denials and pursues recovery. Call (650) 668-8000 or schedule a consultation at baylegal.com/contact.
What a lis pendens does — and why you might need one
A lis pendens (notice of pendency of action) is a recorded document under Code of Civil Procedure section 405 and following sections that gives constructive notice to the world that litigation is pending affecting title to specific real property. Anyone who acquires an interest in the property after the lis pendens is recorded takes subject to the outcome of the litigation.
In title disputes, lis pendens often:
- Prevents the title holder from selling to a bona fide purchaser who could cut off the plaintiff’s claim.
- Makes refinancing or further encumbrances effectively impossible until the litigation resolves.
- Forces the parties to confront the dispute head-on rather than letting it linger.
- Preserves the plaintiff’s ability to obtain meaningful equitable relief like reformation or quiet title.
California courts can expunge an improperly recorded lis pendens, and the recording party can be liable for damages and attorney’s fees if the lis pendens is found to have been recorded without probable cause. A California real estate attorney can evaluate whether your facts support a lis pendens and draft it correctly.
Statutes of limitations in California title cases
Different deadlines apply depending on the legal theory:
- Breach of contract / breach of title insurance policy: four years from breach under Code of Civil Procedure section 337.
- Professional negligence: two years under Code of Civil Procedure section 339, subject to delayed-discovery rules.
- Fraud: three years from discovery under Code of Civil Procedure section 338(d).
- Breach of fiduciary duty (escrow agent): four years under section 343.
- Specific policy provisions may impose additional or shorter limitation periods on insurance claims.
Practical steps after a title company error
If you suspect a California title company has made a material error or mishandled a claim, consider:
- Gather the closing documents: title insurance policy, preliminary title report, escrow instructions, settlement statement, wire instructions, and all closing-related correspondence.
- Document the harm: what was missed, what it would have cost to fix at closing, what it costs to fix now.
- Notify the title insurer in writing if a covered defect has appeared (most policies require timely notice as a condition of coverage).
- Notify the escrow company in writing if the error was in the escrow function.
- Avoid taking any steps that could waive coverage or weaken your claim.
- Consult a California real estate attorney to assess the strongest combination of contract, fiduciary, and tort theories.
Title company error costing you money? Get a real assessment.
Bay Legal, PC evaluates and litigates California title insurance and escrow disputes. Call (650) 668-8000 or schedule a consultation at baylegal.com/contact.
Frequently Asked Questions
What are the legal duties of a title company in California?
Title insurers owe contractual indemnity obligations under the policy plus reasonable claim handling. Escrow agents owe fiduciary duties strictly limited to the scope of the escrow instructions, plus regulatory duties under Financial Code section 17000 and following sections. They are not general advisors to the parties.
Can you sue a title company for failing to record a lien or deed?
Yes. Failure to record is among the claims California courts see often against escrow agents. The legal theories typically include breach of contract, breach of fiduciary duty, and negligence. If a title insurance policy is also implicated, contractual indemnity may apply.
What is professional negligence by a California title company?
Professional negligence occurs when the title company falls below the standard of care expected of similarly situated title or escrow professionals. Common examples include failure to discover recorded liens, errors in legal descriptions, and mishandling wire transfer fraud risk.
How do you file a claim against title insurance in California?
Read the policy first — most policies require written notice of claim within specified periods. Send the notice to the insurer at the address specified in the policy. Provide supporting documentation. The insurer is typically required to investigate and either pay, defend, or deny within a reasonable time. A California real estate attorney can help structure the claim to maximize coverage.
What is a lis pendens and when should you file one to protect your interest?
A lis pendens is a recorded notice under Code of Civil Procedure section 405 and following sections that warns the world about pending litigation affecting title to specific real property. It is typically recorded at the start of litigation when the plaintiff is seeking title-affecting relief — quiet title, reformation, rescission, or specific performance. Improper recording can expose the recorder to expungement and damages.
Disclaimer
This article is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading this article and contacting Bay Legal, PC does not create an attorney-client relationship. The information here is specific to California law, which changes over time, and your situation may involve facts that change the analysis. If you have a real estate question that matters to you, speak with a licensed California attorney about your specific circumstances.
