Chapter 6

Title Insurance

Title insurance is quite different from other types of insurance.   Why?  Because unlike other forms of insurance that provide coverage for unpredictable occurrences that could possibly happen in the future (such as life, health or casualty insurance), title insurance protects the party insured from loss that results due to events that happen before the effective date of the title insurance policy.

Another important difference is that title insurance is a single premium product.  This means that the buyer pays a one-time only premium for the lenders benefit on the day the policy is issued.  The amount of the title policy premium is based on the amount of money that is being insured by the loan.  A trust deed investor always needs a title insurance policy.

How to obtain title insurance policy

A title company will open a standard insured loan transaction, and will research the property.  When it comes to researching the property, the title company will begin from the time the government conveyed the property, and then move on to the original private owner, and continue on until the title company reaches the most recent record within its database.

Once the title company has finished its examination of the property, the title agent will then share the results of the research with the investor, revealing the title condition.  The report that is conducted by the title company is known as a preliminary report or a prelim.  The prelim is created from an itemized list of exceptions (title facts).

When it comes to preliminary reports, the most common exceptions include:

®         Casements for a variety of purposes

®         Real property taxes

®         Any mineral uncertainties or the right to examine for them

®         Covenants

®         Any encumbrances or liens that presently affect the property

®         Restrictions and conditions better known as CCR’s.

Policy Types

Although there are different title insurance policies, the most common ones that are used today are:

1.      American Land Title Association (ALTA) – This policy is generally issued to a lender who holds a deed of trust in first position.

2.      California Land Title Association (CLTA) - This policy is generally issued to a lender in second position, or to the purchaser of a property.

What is insured by policies?

Although it may appear that each title insurance policy listed above appear similar, that ALTA policy is recognized as being far superior to the CLTA policy.  The reason is because ALTA provides a broader range of coverage compared to CLTA.  However, despite their differences, each policy works to insure some the following (Note:  The list below is only a small sample of the insurance provided by these two policies):

  The deed of trust that is insured is recognized as a valid an enforceable lien.

  No defects, encumbrances, or recorded liens appear on the title.  All that appears is what is displayed within the policy.

  The right of access to and from the property

  The title to the property is made marketable

  Any assignment of the trust deed that is displayed in the policy is valid and enforceable.

Even though each policy works in the best interest of the investor, ALTA is still considered to be the best choice among the two, and is something you should keep in mind when selecting a policy..

Endorsements