The Use of Litigation Guarantees in Real Property Matters

Updated on August 27, 2024

As real estate lawyers in Los Angeles California we frequently represent our clients in title disputes or disputes involving ownership in real property.  These disputes range from quiet title actions, partition actions and even actions to force the sale of real property to recover on a lien.  In these types of disputes obtaining a litigation guarantee can be a good idea.

What is a Litigation Guarantee?

A litigation guarantee is essentially an insurance policy that is issued in favor of the attorney and the client in an action affecting land.  A decree in these types of action, like foreclosure of a lien, is only binding on the parties named as defendants which should be the same parties claiming an interest in the land.  Therefore, it is important for the plaintiff to determine the existence and identify of all the parties that should be used included in the lawsuit to obtain the objective of the litigation.  The typical litigation guarantee will set forth the lien holders so that the plaintiff will know which parties to include in the lawsuit.

Litigation Guarantee in Real Property Cases

The litigation guarantee then offers the plaintiff protection or insurance that they have named all of the proper parties.  It also offers a view of lien priority so that the plaintiff can properly understand the priority of the liens affecting the property.   If, after the lawsuit has been resolved, a new party steps forward and asserts an interest in the property that was not disclosed in the litigation guarantee, then the plaintiff can ask the title company who issued the litigation guarantee to defend such claims.

Prior to initiating an action to foreclose a lien, quiet title, partition, or declaratory relief, many attorneys will, and often must, obtain litigation guarantees from a title company regarding the real property or interest that will be the subject of the action. The information provided in litigation guarantees can vary based on the type of action to be filed. The fee for the guarantee depends on the amount of liability the insurer may incur. For example, a litigation guarantee for a property worth $5 million is usually more expensive than a litigation guarantee for a property worth only $500,000.

Litigation guarantees are divided into 5 parts:

1. The first part of a litigation guarantee is the face page. The purpose of the face page is to set forth the assurances, i.e. what the title company is assuring with respect to the state of title pursuant to the litigation guarantee.
2. The second part of the guarantee states the conditions and rights and obligations of the parties with respect to the guarantee. It also identifies what items are excluded from coverage of the guarantee.
3. The third part of the guarantee is Schedule A. The purpose of Schedule A is to provide the basic information regarding: 1) liability being assumed by the insurer under the guarantee; 2) the fee charged by the insurer for the guarantee; 3) the name of the assured; 4) the effective date of the guarantee; 5) a statement confirming the nature of the litigation for which the guarantee is furnished; 6) the estate, i.e. the land or interest covered by the guarantee; 7) how title is vested for the subject property or interest; and 8) a legal description of the land referred to in the guarantee.
4. The fourth part of the guarantee is Schedule B, which identifies the exceptions to coverage.
5. The fifth and final part of the guarantee is Schedule C, which provides the return address after recording for each document referred to in Schedule B and Schedule C.

In court, the litigation guarantee is admissible in evidence for the purpose of showing the interests of the parties as a title company business record.

This blog post only scratches the surface on litigation guarantees.  Litigation guarantees are complex title insurance policies but they should be considered in actions involving ownership and liens on land.

We have experience using litigation guarantees throughout Southern California including Los Angeles County and Ventura County. For help with your real estate claim or to see if you qualify for a free 30 minute consultation, contact us by filling out the contact form on the right hand side of this page, or calling us at (310) 954-1877.