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BASICS
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 Title Insurance Information
Title policies insure owners and lenders against possible losses from claims
against real property ownership. The preliminary report or commitment provides
advance information on matters which will be excepted from coverage. Lenders
and owners are thereby given an opportunity to correct title flaws before
purchasing or lending.
Title insurance originated in the 1870's to stem a series of land ownership
problems that developed from inaccurate record searches, forgeries, and related
problems. Today, it offers protection from certain items that cannot be
determined from public records, such as forgeries of all types, undisclosed
heirs, hidden marriages and divorces, clerical errors, and invalid legal
procedures and interpretations.
Policies are written on the basis of a search of public records and other
records which impart constructive notice. Remember, a deed does not prove that
the seller is the owner of the property. Only title insurance can protect your
interest in the property from unknown encumbrances, legal conflicts and
unforeseen claims.
A policy of title insurance is like a pre-paid legal agreement. Your insurer
will provide legal defense against challenges to your insured title
(dependent, of course, upon the type of policy coverage )
and will reimburse you financially for losses due to the covered defects
in your ownership rights.
It is important to remember that a lender's title policy does not insure a
borrower against title risks. While certain types of policies pertain to both
the owner and the lender, it makes good sense to help protect your borrowers
by explaining the limitations of their particular coverage.
In the following sections, you will find an explanation of the most common
policies and endorsements used today. If you have any questions regarding which
would best suit the needs of any particular situation, contact your local title representative.
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DEEDS
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Deeds
Title insurance is primarily based on records which include recorded documents, public records,
files and the like. One of the most common of these documents is a deed, or a written instrument
transferring the title or an interest in real property from one party to another. There are a variety of
types of deeds currently in use for the conveyance of title. The list that follows briefly describes the
most common currently used:
- Quitclaim Deed This deed conveys any possible interest of the grantor
in said property at the date of the deed without representations of encumbrances
on title arising from liens, easements, etc. It is usually used to release an estate
or interest less than "fee" interest.
- Grant Deed The most commonly used deed in California. It conveys all
the title that the grantor has and any title the grantor may acquire in the future.
It includes by statue covenants as to prior conveyance and encumbrance.
- Deed of Trust A Deed of Trust is used to convey the "dormant title"
to land to another person or company as a "trustee", in order to secure
debts or other obligations. The trustee is given the power of sale of the land
encumbered in the event of a default by the borrower.
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TRUSTEE'S SALE GUARANTEE
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TSG (Trustee's Sale Guarantee)
In some states, a lender is allowed to non-judicially foreclose a Mortgage or Deed of Trust securing
an obligation if a trustor defaults in the performance of the obligation. The laws in these states prescribe
how the foreclosure is conducted and the notices which must be given of the pendency of such proceeding.
The Trustee's Sale Guarantee is responsive to the needs of a foreclosing trustee or mortgagee for public
record information as to individuals and entities who, under state law, must receive notice of the pending
foreclosure. The Guarantee supplies the following public record information:
- The vesting of title to the estate or interest encumbered by the Mortgage or
Deed of Trust;
- The encumbrances against the land;
- The names and addresses of individuals and entities who must, under state law,
receive notice of the foreclosure proceedings;
- The newspaper qualified to public notice of the foreclosure proceedings.
- The City or Judicial District in which the land is located.
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ALTA POLICY
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ALTA (American Land Title Association) Policy
In most jurisdictions, the ALTA Extended Coverage loan policy is the most common policy
offering extended coverage for the lender's interest only. What this means is that the lender is
protected from certain additional "off-record" matters such as encroachments, unrecorded
easements, possessory interests, discrepancies in boundaries - matters which may generally
be determined by a land inspection or a proper survey. It insures the lender that they are receiving
a lien which will take priority over various interest and claims to the subject property.
An ALTA Extended Coverage loan policy from the Standard Coverage Policy by offering insurance
against matters which cannot be determined by an examination of public records.
REMEMBER: An ALTA Extended loan policy covers the lender only. Its advantage to the
lender lies in its ability to include matters that are not generally public record.
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ALTA Coverages
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ALTA: Coverage Specifics
ALTA Extended Coverage loan policy coverage varies from state to state, as each
state places those standard exceptions in Part 1, Schedule B, that would be
responsive to the statutes and laws of that particular state. In California, an
ALTA loan policy will insure the lender against loss or damage if:
- The vesting is other than as listed.
- A defect, lien or encumbrance is not excluded and the underwriter
failed to disclose it in the policy.
- There is no right of access to a public street.
- The title is unmarketable as insured.
- The insured mortgage is invalid or unenforceable (unless a claim is
based on usury or any consumer credit protection or truth-in-lending law.)
- Mechanic's liens gain priority over the insured mortgage (unless those liens
arise from contractual work started after the policy date and are
not financed by the insured loan.)
- An assignment of the insured mortgage is invalid or unenforceable by reason
of an error against in the policy.
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ALTA CONDITIONS
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ALTA: Conditions and Stipulations
The conditions and stipulations of the ALTA policy contain important provisions
of the coverage to both the insurer and the insured. The main points are:
- That the principal terms used are defined.
- The circumstances under which the policy will remain in force when the estate
Or interest in the insured property is acquired by another.
- How and when the claimant must give notice of claim, and the provision for
defense and prosecution of actions.
- The insurer's options in paying or settling claims.
- How losses are determined and the payment of loss.
- Limitations and reductions of liability; non-cumulative liability; subrogation
on payment or settlement; policy limit liability.
- Provisions for arbitration.
ONE MORE TIME: As with all title insurance policies, various endorsements will affect
the coverage and limitations of an ALTA loan policy. See the section on Endorsements for
further information - or call your title representative.
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ALTA LENDER'S EXCLUSIONS
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ALTA: Lender's Coverage Exclusions
Coverage under the ALTA policy is excluded for the following matters:
- Any law, ordinance or governmental regulation or police power relating to
building, zoning, occupancy, use or environmental protection except to the
extent that a notice of defect has been recorded.
- Rights of eminent domain.
- Defects, liens, etc., if:
- Created by the insured.
- Known to the insured, but not specified in writing to the underwriter
by the specified date.
- No loss or damage is suffered by the insured.
- Created or attached after the policy date (with the exception of mechanic's
lien insurance offered elsewhere in the policy.
- If the lien of the insured mortgage is unenforceable because the insured
does not comply with "doing business" laws in the state of the
insured property.
- Any claim, which arises out of the transaction creating the interest of the
mortgagee insured by reason of the operation of federal bankruptcy,
state insolvency, or similar creditors' rights laws
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CLTA or STANDARD POLICY
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Standard Coverage Policy
Although each state has individual policy differences and limitations, many of
them use a Standard Coverage policy, which provides less coverage against
off-record risks than the ALTA lender or owner extended coverage. This Standard
Coverage Policy is the most widely used policy of title insurance. It is
sometimes used as a loan policy to insured the validity of a mortgage or deed
of trust on an interest or estate in real property.
However, a CLTA Standard Coverage policy is often used as an owner's policy or
in some jurisdictions as a Joint Protection policy (JP) insuring both the owner
and lender. The variety of endorsement that are used to modify a Standard
Coverage Policy make this one of the most flexible policies available, and
therefore the most popular.
NOTE : A Standard Coverage policy is not always referred to as such.
Example: In California, it is called a CLTA (California Land Title Association)
policy. In Washington, it is called a WLTA (Washington Land Title Association)
policy - etc., and, in some states, the owner's policy is an ALTA Standard
Owner's policy. Your local title office would be happy to discuss the
policy forms in use in your state.
A Standard Coverage policy relies mostly upon matters of public record.
However, some off-recorded items are covered under its provisions, including
forgery, fraud, etc. The endorsements included, if any, as a part of the policy
will affect coverage.
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STANDARD COVERAGES
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Standard Coverage Policy: Specifics
A CLTA Standard Coverage policy will insure the lender and/or the owner against
loss or damage if:
- The vesting is other than as listed.
- A defect, lien or encumbrance is not excluded and the underwriter failed to
disclose it in the policy.
- A defect in the execution of the insured instrument, or priority over such
instrument of a lien or encumbrance, is not excluded or shown.
- An assignment of the insured mortgage is invalid, provided it is listed in
Schedule B.
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STANDARD CONDITIONS
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Standard Coverage Policy: Conditions and Stipulations
As with an ALTA loan policy, the conditions and stipulations of a Standard
Coverage Policy contain important provisions of the coverage to both the
insurer and the insured. The main points are:
- That the principal terms used are defined.
- The circumstances under which the policy will remain in force when the estate
or interest in the insured property is acquired by another.
- How and when the claimant must give notice of claim, and the provision for
defense and prosecution of actions.
- The insurer's options in removing adverse interest, paying or settling claims.
- How losses are determined and the payment of loss.
- Limitations and reductions of liability; subrogation on payment or settlement;
policy limit liability.
- Provisions for arbitration.
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STANDARD EXCLUSIONS
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Standard Coverage Exclusions
Coverage under the standard policy is excluded for the following matters:
- Any law, ordinance, governmental regulation or police power relating to
building, zoning, occupancy, use or environmental protection except to the
extent that a notice of defect has been recorded.
- Rights of eminent domain.
- Defects, liens, etc. if:
- Created by the insured.
- Known to the insured, but not specified in writing to the underwriter
by the specified date.
- No loss or damage is suffered by the insured.
- Created or attached after the policy date.
- If the lien of the insured mortgage is unenforceable because the insured
does not comply with "doing business" laws in the state of the
insured property.
- Any claim, which arises out of the transaction vesting in the insured the
estate or interest insured or the transaction creating the interest of the
insured lender, by reason of the operation of federal bankruptcy, state
insolvency, or similar creditor's rights laws.
- Please remember:
- Endorsements will affect all or some items of coverage;
- Different states may have varying limitations, exclusions, or coverage; and
- Your title representative will be able to answer any specific
questions you may have.
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PIRT
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PIRT (Policy of Insurance of Record Title)
A PIRT provides lenders with specific assurances against monetary loss, not to exceed $150,000,
as a result of any errors in the information provided. The information provided in a PIRT Schedule A
includes the apparent record owner, legal description and monetary liens of record.
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PIRT CONTINUATION
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Continuation Endorsement
Similar to Update, it reflects changes in record ownership and additional liens recorded since the
date of the PIRT, issued upon request, within six months of policy date, single endorsement.
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PIRT UPDATE
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PIRT Update
A reissued Schedule A which updates the policy reflecting ownership changes and lien additions or
deletions of record. Update issued within six months of policy date.
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REVOLVING CREDIT, VARIABLE RATE (RCVE)
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Revolving Credit, Variable Rate (RCVE) Endorsement (GSP-138)
An endorsement that extends the coverage of the RCVE when you modify or
increase existing credit lines. Issued in conjunction with PIRT Update or a new
PIRT.
PIRT is a registered trademark.
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ENDORSEMENTS
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Endorsements
As we have mentioned, the types of coverage offered by both ALTA Extended and Standard
Coverage polices are greatly affected by the endorsements included. The following is a listing
of the most commonly used endorsements:
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FORM 100
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FORM 100:
This endorsement offers an explicit extension of coverage to an ALTA Extended Coverage
Loan Policy by adding insurance for certain "off-record" matters. The coverage is extended
to Covenants, Conditions & Restrictions; encroachments; and the rights to use the land
surface for mineral development. Form 100 also assures a lender that existing Covenants,
Conditions & Restrictions do not contain any enforceable reverter, right of re-entry or power
of termination. This endorsement is not issued in conjunction with policies covering raw land
or construction loans.
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FORM 100.12
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FORM 100.12:
Also used with ALTA policies, Form 100.12 assures a lender that existing Covenants,
Conditions & Restrictions do not contain any enforceable reverter, right of re-entry or
power of termination.
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FORM 101
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FORM 101:
A Mechanic's Lien Endorsement issued only with a Standard Coverage policy
insuring a construction loan deed of trust, it insures the lender against loss if a
Mechanic's Lien establishes priority because of the prior commencement of the
work on the improvement.
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FORM 101.2
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FORM 101.2:
A Mechanic's Lien Endorsement used with either an ALTA Extended or Standard
Coverage policy, issued after a Notice of Completion is recorded. Usually requested
when a construction loan is exchanged for a permanent loan to the borrower or the
loan is designed for sale to another lender.
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FORM 102.4
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FORM 102.4:
A Foundation Endorsement which insures the lender that the foundations of the structure
under construction are within the boundaries of the insured land; and that the location of
these foundations does not violate the Conditions, Covenants & Restrictions (CC&Rs)
included in Schedule B.
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FORM 102.5
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FORM 102.5:
The same as 102.4 with the addition of insurance that the foundations do not - at
the date of endorsement - encroach upon any easements referred to in the policy.
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FORM 103.1
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FORM 103.1:
An Encroachment Endorsement used with ALTA or Standard Coverage policies
which expands the coverage provided by a Form 100. Issued when items listed in
the preliminary report are "blanket" easements which cannot be precisely located.
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FORM 108.7 & FORM 108.8
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FORM 108.7 & 108.8:
Both are used to insure the priority of additional advances secured by a Deed of Trust or
Mortgage. Form 108.7 is used with Standard Coverage policies. Form 108.8 is the ALTA version.
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FORM 116
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FORM 116:
An Address Endorsement used with ALTA policies, designating the street address
of the land insured and specifying the type of improvement on said land.
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FORM 116.2
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FORM 116.2:
An Address Endorsement used with either an ALTA Extended or Standard Coverage
policy which insures an interest in an condominium.
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