Title Insurance for Title Insurance for Real Estate ProfessionalsReal Estate Professionals

CHAPTER 1CHAPTER 1THE BASICS OF TITLE THE BASICS OF TITLE

INSURANCE INSURANCE

“What Does a Title Insurance “What Does a Title Insurance Company Do?”Company Do?”

Title insurance companies "insure”

“title” to “real property”

“Insure”

To indemnify by providing monetary reimbursement

for losses.

“Title”

The rights of ownership in real property.

Real property consists of various components.

Real Property ComponentsReal Property Components

1. 1. SURFACE SURFACE

Real PropertyReal Property

2. SUBSURFACE2. SUBSURFACE

Real PropertyReal Property

3. AIR SPACE3. AIR SPACE

Real PropertyReal Property

4. RIGHTS4. RIGHTS

Real Property Real Property Includes “Improvements.”Includes “Improvements.”

Attachments to Attachments to real estate real estate intended to be intended to be PERMANENT.PERMANENT.

Examples: Examples: houses, houses, fences, driveways, fences, driveways, trees, and bushes…trees, and bushes…

Real Property Includes Real Property Includes “Fixtures.”“Fixtures.”

Attachments toAttachments to improvementsimprovements that that become part of the become part of the real estate.real estate.

Examples:Examples:

heating, heating,

plumbing, and plumbing, and electrical fixtures.electrical fixtures.

ExceptionsExceptions to Fixture Rule to Fixture Rule

Trade fixturesTrade fixtures used in a business or used in a business or trade (usually when leasing).trade (usually when leasing).

EmblementsEmblements, or farm crops, , or farm crops,

can be sold separately from the land.can be sold separately from the land.

ChattelsChattels

Personal property, i.e.,Personal property, i.e.,

EVERYTHING that is EVERYTHING that is

NOT real estate.NOT real estate.

Examples:Examples: furniture, furniture, vehicles,vehicles, stocks, andstocks, and bonds.bonds.

ChattelsChattels

Include:Include: cash,cash, contracts, andcontracts, and purchase purchase

agreements.agreements.

Modular Housing—Modular Housing—Real or Personal Property?Real or Personal Property?

Is it attached as an improvement

and taxed as real property?

RIGHTS, TITLE, AND INTERESTSRIGHTS, TITLE, AND INTERESTS

Certain rights always belong to the

government.

Government RightsGovernment Rights

1. Police Powers

Government RightsGovernment Rights

1. Police Powers

2. Eminent Domain

Government RightsGovernment Rights

1. Police Powers

2. Eminent Domain

3. Taxation

Government RightsGovernment Rights

1. Police Powers

2. Eminent Domain

3. Taxation

4.4. Escheat Escheat

HIERARCHY OF GOVERNMENT RIGHTS

FederalFederal government government has highest priority, then

statestate is followed bycountycounty and then

municipalmunicipal.

PRIVATE RIGHTS IN LANDPRIVATE RIGHTS IN LAND

These are often discussed in terms of a “bundle of rights.”

Title insurance can insure Title insurance can insure almost any estate in real almost any estate in real property:property:

• fee title, • a mortgage, • a land contract,• an easement...

Three AreasThree AreasTitle CompaniesTitle Companies

Examine Examine to Reduce Riskto Reduce Risk

CONSTRUCTIVE NOTICE CONSTRUCTIVE NOTICE

The rights shown by the public record.

ACTUAL NOTICEACTUAL NOTICE This occurs when something can be observed, heard, or sensed.

RIGHTS AS RIGHTS AS CONSEQUENCE OF LAWCONSEQUENCE OF LAW

Unrecorded documents, grantors under legal age,

fraud, forgery, duress, insanity, incompetency, unknown heirs,

undisclosed marriages, identity theft...

CHAPTER 2CHAPTER 2

THE BUSINESS OF THE BUSINESS OF

TITLE INSURANCETITLE INSURANCE

Title Assurance vs. Title Insurance Title Assurance vs. Title Insurance

Title assuranceTitle assurance is a broad term is a broad term

including surveys, maps, title opinions, including surveys, maps, title opinions, and anything having to do with title.and anything having to do with title.

Title insuranceTitle insurance is a specific is a specific contractual obligation.contractual obligation.

Alternative Products to Alternative Products to Title InsuranceTitle Insurance

Casualty insurance productsCasualty insurance products

Borrowers credit scoreBorrowers credit score

““Owner and encumbrance” reportsOwner and encumbrance” reports

Title Insurance Title Insurance Protects EveryoneProtects Everyone

Lenders, buyers, and Lenders, buyers, andreal estate agentsreal estate agents

LendersLenders

Title policies indemnify lenders Title policies indemnify lenders against loss.against loss.

Use standardized formsUse standardized formsandand homogenize state laws.homogenize state laws.

Help home ownership by makingHelp home ownership by making

sale of mortgages easy.sale of mortgages easy.

The Secondary MarketThe Secondary Market

This ensures a constant This ensures a constant source of money source of money

for housing.for housing.

Financiers requireFinanciers require

title insurance totitle insurance to

protect their investment.protect their investment.

Title Insurance Title Insurance Protects Homeowners Protects Homeowners and Their Investmentand Their Investment

Title Insurance and theTitle Insurance and the Real Estate Agent Real Estate Agent

BEWARE!BEWARE!

Never tell your buyer they don’t Never tell your buyer they don’t

need an owners policy. You may be need an owners policy. You may be at risk if there is a problem later!at risk if there is a problem later!

Title Companies may “insure over” Title Companies may “insure over” or provide “affirmative coverage” for or provide “affirmative coverage” for

problems for lenders.problems for lenders.

Insurance over a title problem Insurance over a title problem

is often available to the owner. is often available to the owner.

Ask for it!Ask for it!

Recognize a Recognize a

““Notice of Title Defect.” Notice of Title Defect.”

It is information It is information

important to the buyer.important to the buyer.

!!!!!!

Owner Policy Is Different Owner Policy Is Different From Lender PolicyFrom Lender Policy

Owner’s policies are for Owner’s policies are for

the full sale price the full sale price

of the property. of the property.

Owner Policy Is Different Owner Policy Is Different From Lender PolicyFrom Lender Policy

Lender’s policies only cover Lender’s policies only cover

the loan amount,the loan amount,

not buyer’s equity.not buyer’s equity.

Owner Policy Is DifferentOwner Policy Is DifferentFrom Lender PolicyFrom Lender Policy

Owner’s coverage can last Owner’s coverage can last forever, as in corporate forever, as in corporate

ownership or a trust.ownership or a trust.

Owner Policy Is DifferentOwner Policy Is DifferentFrom Lender PolicyFrom Lender Policy

Mortgage policies decrease Mortgage policies decrease in value as the loan is in value as the loan is

paid down and expire when paid down and expire when

the loan is paid off. the loan is paid off.

A title company is either A title company is either a title insurer a title insurer (a.k.a. title underwriter) (a.k.a. title underwriter)

or a title agent. or a title agent.

Title AgentTitle Underwriter

Title insurers take liability Title insurers take liability under the policy.under the policy.

Title agents write policies of Title agents write policies of title insurers.title insurers.

Closing Liability Closing Liability vs. vs.

Title Insurance LiabilityTitle Insurance Liability

Title policies indemnify onlyTitle policies indemnify only

titletitle issues issues

Protect the Lender & Buyer Protect the Lender & Buyer

Closing protection lettersClosing protection letters from the underwriter from the underwriter

indemnify closing errors indemnify closing errors and theft of funds and theft of funds

by a title agent.by a title agent.

CHAPTER 3 CHAPTER 3

MYTHS AND TRUTHSMYTHS AND TRUTHS

TOP SIX MYTHS ABOUT TOP SIX MYTHS ABOUT TITLE INSURANCETITLE INSURANCE

MYTHMYTH

Title insurance is a Title insurance is a “guarantee” of good title. “guarantee” of good title.

TRUTHTRUTH

Title insurance Title insurance cannotcannot“guarantee” good title. “guarantee” good title.

Fraud, forgery, misrecordedFraud, forgery, misrecordedor unrecorded documents,or unrecorded documents,

and undisclosed heirs and undisclosed heirs all cause loss of property.all cause loss of property.

MYTHMYTH

When a lender’s policy When a lender’s policy is issued, title must be “good.” is issued, title must be “good.”

TRUTHTRUTH

Even though a lender’s policy Even though a lender’s policy exists, title may not be good. exists, title may not be good.

Title companies take Title companies take calculated risks.calculated risks.

MYTHMYTH

Title insurance is like other Title insurance is like other forms of insurance.forms of insurance.

TRUTHTRUTH

Title insurance is Title insurance is notnot like other types of Insurancelike other types of Insurance

Title insurance covers Title insurance covers pastpast risks, not risks, not futurefuture risks risks

like fire insurance. like fire insurance.

Title insurance is Title insurance is notnot like likeother forms of insurance.other forms of insurance.

What the consumer does to What the consumer does to their own title after they their own title after they

purchase propertypurchase propertyis not covered.is not covered.

Title insurance is Title insurance is notnot like other like other forms of insurance.forms of insurance.

The title industry is one of risk The title industry is one of risk eliminationelimination not risk not risk assumptionassumption..

Title insurance is Title insurance is notnot like other like other forms of insurance.forms of insurance.

Investigating title Investigating title in order to insure itin order to insure it

is expensive.is expensive.

Title insurance is Title insurance is notnot like other like other forms of insurance.forms of insurance.

Title issues today are riskier Title issues today are riskier than those in the past because than those in the past because

of fraud, forgeries, etc. of fraud, forgeries, etc.

MYTH MYTH

Very few files have title Very few files have title problems. problems.

TRUTHTRUTH

One in four files One in four files have title problems!have title problems!

MYTHMYTH

Title companies rarely pay.Title companies rarely pay.

TRUTHTRUTH

Title claims are skyrocketing!Title claims are skyrocketing!

In 2003 title industry paid out In 2003 title industry paid out $661.7 million in claims$661.7 million in claims

Title companies pay. Title companies pay.

Remember:Remember:Title insurance covers Title insurance covers

fraud, forgery, incompetence, fraud, forgery, incompetence, duress, errors in records, duress, errors in records,

survey issues, survey issues, identity theft, and more.identity theft, and more.

Real estate is a detailed and Real estate is a detailed and complex business withcomplex business with

many places to make mistakes. many places to make mistakes.

Title policies provide a Title policies provide a contractual duty to contractual duty to defenddefend

anyany covered claim, covered claim, valid or not. valid or not.

Defending a claim is costly.Defending a claim is costly.

CHAPTER 4 CHAPTER 4

HOW TO READ TITLE WORK HOW TO READ TITLE WORK LIKE A PROFESSIONALLIKE A PROFESSIONAL

A A title commitmenttitle commitment is the is the document that shows all title document that shows all title research done on a propertyresearch done on a property

through a particular date.through a particular date.

It is used to prepareIt is used to prepareclosing documents. closing documents.

Understanding the LayoutUnderstanding the Layout of a Title Commitment of a Title Commitment

Cover sheet or jacketCover sheet or jacket

Standard language pertainingStandard language pertainingto terms of the policy to terms of the policy

Schedule ASchedule A

Identifies the property, Identifies the property, the insured,the insured,

policy amounts,policy amounts,how seller holds title, and ahow seller holds title, and aprecise legal description.precise legal description.

Schedule BSchedule B

The “meat” of the titleThe “meat” of the titleand key to closing. and key to closing.

Where to concentrate Where to concentrate your efforts.your efforts.

Title Exceptions Title Exceptions Found on Found on

Nearly All PropertiesNearly All Properties

Real estate taxes are a Real estate taxes are a government right. government right.

They are handled at closingThey are handled at closingper the purchase agreement.per the purchase agreement.

Assessments,Assessments,a charge for the a charge for the

improvement of property.improvement of property.

Handled at closing per the Handled at closing per the purchase agreement.purchase agreement.

Easements are Easements are authorized uses of land authorized uses of land for a specific purpose.for a specific purpose.

Types of EasementsTypes of Easements

Utility and drainage easements Utility and drainage easements are most common.are most common.

Consumer should be aware Consumer should be aware of their location and size.of their location and size.

Types of EasementsTypes of Easements

Blanket easements cover a Blanket easements cover a large tract of landlarge tract of land

without being specifically without being specifically located.located.

Types of EasementsTypes of Easements

Common driveway easements Common driveway easements occur when two adjacent occur when two adjacent

parcels share access.parcels share access.

Types of EasementsTypes of Easements

Wetlands or environmentalWetlands or environmentaleasements require easements require the owner NOT the owner NOT to changeto changethe habitat.the habitat.

Mortgages/deeds of trustMortgages/deeds of trustpledge the property pledge the property

as security for as security for a loan.a loan.

Covenants, Conditions, and Covenants, Conditions, and Restrictions (CC&Rs)Restrictions (CC&Rs)

These can be “deed These can be “deed restrictions” i.e., restrictions restrictions” i.e., restrictions

contained within a single deedcontained within a single deedto limit use of property.to limit use of property.

Covenants, Conditions, and Covenants, Conditions, and Restrictions (CC&Rs)Restrictions (CC&Rs)

These most often cover an These most often cover an entire subdivision.entire subdivision.

Common interest communitiesCommon interest communitiesoccur when owners shareoccur when owners share

such things assuch things asaccess, party walls,access, party walls,parking, and utilities.parking, and utilities.

CC&Rs cover these issues. CC&Rs cover these issues.

Covenants, Conditions and Covenants, Conditions and RestrictionsRestrictions

Be sure the buyer readsBe sure the buyer readsthese before the closing!these before the closing!

UNDERSTANDING UNDERSTANDING AND REMOVING AND REMOVING

TITLE ISSUESTITLE ISSUES

Understand the language so you Understand the language so you can resolve the problem.can resolve the problem.

EncumbrancesEncumbrances—any claim on title.—any claim on title.

LiensLiens—a type of encumbrance that —a type of encumbrance that can be removed with money. can be removed with money.

LiensLiens are classified as are classified as

specific liensspecific liens or or general liensgeneral liens

Examples of Specific Liens

Specific liensSpecific liens attach to attach to specificspecific real estate.real estate.

Mortgages $ Mechanics Liens Real Estate $ Taxes $

Examples of General Liens Examples of General Liens General liens attach to people.. General liens attach to people..

State Tax LiensState Tax Liens JudgmentsJudgments

Child SupportChild Support Federal Tax Federal Tax LiensLiens

...and everything the people own ...and everything the people own including real estate.including real estate.

General Liens General Liens

ex: STL, FTL, JUex: STL, FTL, JU

An attorney’s lien is filed for services

rendered by an attorney.

Financing StatementFinancing Statement

A lien filed on personalA lien filed on personalproperty.property.

Mechanic’s liensMechanic’s lienscome about when come about when

material or labor are suppliedmaterial or labor are suppliedto build, renovate, or to build, renovate, or

repair property.repair property.

Judgment Liens Judgment Liens

These are obtained byThese are obtained bycourt order.court order.

State tax liensState tax liensare government liensare government liensfor non-payment offor non-payment of

state taxes. state taxes.

Federal Tax LiensFederal Tax Liens

Child Support LiensChild Support Liens

These are general liens forThese are general liens fornon payment of child support.non payment of child support.

Federal district court judgmentsFederal district court judgmentstend to be large nationaltend to be large national

lawsuits with large awardslawsuits with large awards..

RED FLAGRED FLAG AREASAREAS

FOR CLOSINGFOR CLOSING

BankruptcyBankruptcy

A way to temporarily suspend A way to temporarily suspend and possibly preventand possibly prevent

debt collection for those debts debt collection for those debts listed at the time of the listed at the time of the

bankruptcy petition. bankruptcy petition.

Cloud on TitleCloud on Title

This is a generic name forThis is a generic name forany item that might any item that might

make title unmarketable.make title unmarketable.

Homestead Exemption Homestead Exemption IssuesIssues

This is a law that protects a portion This is a law that protects a portion of the value of an owner’sof the value of an owner’s

principle residenceprinciple residencefrom unsecured creditors.from unsecured creditors.

Eminent DomainEminent Domain

The government’s taking of landThe government’s taking of landfor the public good andfor the public good andwith just compensation. with just compensation.

Abstracts of JudgmentAbstracts of Judgment

This is a lien in favor of theThis is a lien in favor of theU.S. government or anyU.S. government or any

U.S. agencyU.S. agencythat is good for 20 years.that is good for 20 years.

Pollution Control LiensPollution Control Liens

These are liens by any government These are liens by any government agency for land clean-up. agency for land clean-up.

Decrees of Dissolution (Divorces)Decrees of Dissolution (Divorces)

TheseThese can create title issues.can create title issues.

Watch for:Watch for:transfer of title to one party,transfer of title to one party,

liens, name changes, or liens, name changes, or special stipulations. special stipulations.

Notices of Lis PendensNotices of Lis Pendens

This is a legal document stating This is a legal document stating that a law suit has been that a law suit has been

commenced on the property.commenced on the property.

CHAPTER 5 CHAPTER 5

UNDERSTANDING UNDERSTANDING TITLE POLICIESTITLE POLICIES

Title companiesTitle companiesdeal with problemsdeal with problems

differently.differently.

You can shop a title company You can shop a title company for the coverage you want.for the coverage you want.

Marketable TitleMarketable Titlevs.vs.

Insurable TitleInsurable Titlevs.vs.

Salable PropertySalable Property

Two Primary Two Primary Types of Policies Types of Policies

Lender’s and Owner’sLender’s and Owner’s

AllAll title policies title policies have the samehave the samefive sectionsfive sections

Section OneSection OneStandard insuring provisionsStandard insuring provisions 1.1. Title to the estate is as Title to the estate is as described in Schedule A. described in Schedule A. 2.2. There are no defects liens or There are no defects liens or

encumbrances on title except encumbrances on title except as as shown.shown.

3.3. A A legallegal right of access to right of access to and from the land exists.and from the land exists.

4.4. Title is marketable. Title is marketable.

On all policies, theOn all policies, thetitle insurer has a title insurer has a

duty to defend, duty to defend, whether or not whether or not

the claim is bogus.the claim is bogus.

Section TwoSection TwoExclusions From CoverageExclusions From Coverage This outlines what is alwaysThis outlines what is alwaysdisqualified as a claim under disqualified as a claim under a title policy.a title policy.

Section ThreeSection ThreeConditions and StipulationsConditions and Stipulations

This describes the rights and This describes the rights and responsibilities of the title responsibilities of the title company and the insured.company and the insured.

SCHEDULE A SCHEDULE A

This identifies the legal This identifies the legal owner, property to be owner, property to be

insured, amount of insured, amount of insurance, type of policy, insurance, type of policy,

etc.etc.

SCHEDULE B SCHEDULE B (the meat of the policy)(the meat of the policy)

Has four “standard Has four “standard exceptions. ”exceptions. ”

1.1. Parties in possession not Parties in possession not shown by the public record.shown by the public record.

2. Easements not shown by 2. Easements not shown by the public record.the public record.

3.3. Questions of surveyQuestions of survey

4. Unrecorded mechanic’s 4. Unrecorded mechanic’s liensliens

Waiving the four standard Waiving the four standard exceptions providesexceptions provides

“extended coverage.”“extended coverage.”

Schedule BSchedule B(the meat of the policy)(the meat of the policy)

In addition to the In addition to the four standard exceptions,four standard exceptions,

all known title issues are all known title issues are listed on Schedule B.listed on Schedule B.

Endorsements Endorsements

These are used to modify the These are used to modify the policy, by adding or deleting policy, by adding or deleting

coverage.coverage.

They are critical to a They are critical to a transaction.transaction.

The new The new ALTA Homeowner’s ALTA Homeowner’s Policy of Title InsurancePolicy of Title Insurance

is the is the CadillacCadillac of title policies. of title policies.

It provides 29 specificIt provides 29 specificcoverages, including some coverages, including some

into the future.into the future.

CHAPTER 6CHAPTER 6

TITLE INSURANCE TITLE INSURANCE REQUIRES REQUIRES

PROFESSIONALSPROFESSIONALS

People People in the Title Processin the Title Process

Order Order processorprocessor

Title searchers / abstractorsTitle searchers / abstractors

Title examiners Title examiners

Attorney / closer Attorney / closer Closing assistantClosing assistant

Recording Recording specialistspecialist

Other Title Company PersonnelOther Title Company Personnel

Marketing staff Marketing staff Customer service Customer service

RecordkeepingRecordkeepingTitle plant personnel Title plant personnel Policy preparation Policy preparation

ManagementManagementAccounting Accounting

Title companies insure BILLIONS of dollars each

year in real estate.

They work with legal records,

examining old and creating new.

Title companies deal with lender requirements,

20-page purchase agreements,

and the stress of buyers and sellers.

They work hard to make transactions go

smoothly and accurately.

It takes a lot of It takes a lot of skilled professional peopleskilled professional people

to make the transactionto make the transaction go well. go well.