Introduction
This section of the website has been created to help introduce lenders to the basic facts surrounding title insurance policies and related matters. You will find important information identifying the differences between policies, the most commonly used endorsements, types of deeds, and a glossary of frequently used industry terms.
Title insurance helps to protect lenders and homeowners against major losses. Novare wants to make it easy for you to understand the various aspects of coverage involved in most transactions. While title insurance can be a very complex subject, an understanding of the basics can go a long way.
We hope that this website will aid you -- but if you have any specific questions, just call your local Novare office. Our experts will be glad to answer your questions.
From Our Friends in the Legal Department
This website has been designed to be introductory and educational only. Because of the constant changes inherent in the title insurance industry, and particularly in regard to state and regional differences, it is not to be construed as a statement of duties, liabilities or coverages.
About Title Insurance
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 Novare Title representative.
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
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.
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; noncumulative 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 Novare Title representative.
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.
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 Novare 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.
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.
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.
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 that endorsements will affect all or some items of coverage; that different states may have varying limitations, exclusions, or coverage; and that your Novare Title representative will answer any specific questions you may have.
PIRT Short for 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.
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.
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.
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.
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
Endorsement
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.
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 and Restrictions; encroachments; and the rights to use the land surface for mineral development. Form 100 also assures a lender that existing Covenants, Conditions and 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.
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 and Restrictions (CC&Rs) included in Schedule B.
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.
FORM 100.12 : Also used with ALTA policies, Form 100.12 assures a lender that existing Covenants, Conditions and Restrictions do not contain any enforceable reverter, right of re-entry or power of termination.
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.
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.
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.
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.
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.
FORM 116.2: An Address Endorsement used with either an ALTA Extended or Standard Coverage policy which insures an interest in an condominium.
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 -- 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.
