Title Insurance, while seldom used for claim purposes, provides considerable protection for a homeowner at a bargain price. While it is unlikely that one can acquire a home mortgage without title insurance, it is widely accepted that every home loan borrower, even if not required, should avail themselves of this protection. Unlike other forms of insurance, title insurance requires only one premium payment at the time of purchase or refinance and the coverage continues as long as you own the property.
Title insurer’s research all of the records affecting the property to be purchased or refinanced. And determine if they can insure “marketable title”. If the title is found to be defective or questionable, the title insurer will either decline to insure or will insure with exceptions. A lender/investor will then review the policy exceptions to determine if they will provide a loan.
Title insurers devote nearly 90% of insurance premiums on researching titles before insuring them in the attempt to avoid major risks. Title risks can involve anything from minor recording errors and copying and indexing snafus to the more serious forged signature on a deed, unpaid tax or other liens, etc.
There are two forms of title insurance. The California Land Title Association (CLTA) policy, known as the owner/lender policy, typically insures the lender and guarantees the priority of the lender’s loan (i.e; that the lender’s loan is in first position in the recordation process). Additionally, it identifies that the current owner (seller) of the property has “good title” to convey. This coverage is usually based upon the amount of the mortgage loan and the amount of coverage decreases as the mortgage is paid.
The American Land Title Association (ALTA) policy, sometimes known as the lender/buyer’s insurance, typically protects the owner’s equity in the property. The ALTA basic policy generally covers Insuring Provisions, Exclusions from Coverage, Conditions and Stipulations and finally Schedule A and Schedule B comments. It is important the borrower read and understand the coverage provisions and exclusions.
The decision regarding “who pays” for title insurance is a matter usually resolved in the original purchase contract between buyer and seller. It is often also a matter of local “custom”. In many places, the CLTA policy (usually the more expensive of the two) is paid by the seller and the ALTA cost (usually less expensive) is paid by the buyer. In our local area (Humboldt County), it seems that the buyer most frequently pays for the ALTA coverage and, in addition, pays for one-half of the CLTA coverage. This “custom” sometimes conflicts with what is actually determined in the purchase contract and can result in some last minute confusion. Everyone is urged to be clear as to the decision(s) being made regarding title insurance costs.
Every title insurer has the authority to issue policy endorsements . . . usually resulting in additional coverage/protection and, of course, at an additional cost. One example noted in this county (Humboldt) by this writer, is the specific exclusion of Endorsement 126.1 or 126.2 (that the owner of the land described in the policy has access to a public street) and the indication that said endorsement “will not apply”. Perhaps if it requires language to specifically exclude it, it is important to know what impact it might have on one’s title? The rule is, inquire about anything you don’t understand and be sure you are comfortable with the answers you receive.