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Glossary
This area of our 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.
Appomattox
Title 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 section of
our website will aid you -- but if you have any specific
questions, just call us at the
Appomattox Title office. Our
experts will be glad to answer your questions.
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 Appomattox 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
Appomattox 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 Appomattox 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 Appomattox 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.
From Our 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.
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