CLTA vs. ALTA title coverage,
by Brad Evans copyright 1996
from his Book "Better Than Gold"
As a safer trust deed investor you should always demand that your broker and/or title co. provide you with a "full" "extended" "ALTA lenders title policy" with "no deletions!" Brad Evans Real Estate Loans investors are always given full extended ALTA title policies with no deletions on all trust deed investments brokered (plus many other items such as a foundation endorsement on construction loans and an ALTA rewrite where necessary on all construction loans).
What the heck does that mean??
There are generally two types of title insurance policies used. CLTA (California Land Title Association) is insuring against loss including attorney fees (up to the purchase price for as long as he owns the property) due to all matters of record, fraud and forgery, and it assures that title is being vested in the person shown on the policy.
The ALTA (American Land Title Association) policy covers the same items as the CLTA policy as well as many additional risks such as unrecorded mechanic's liens, assessments, encumbrances, encroachments, easements, water rights, mining claims, patent reservations, conflicts of boundary lines, shortages in area access to and from the land and other visible matter, as the title company actually performs a physical inspection before it issues an ALTA policy.
Institutional lenders (as well as Brad Evans) demand an ALTA policy as it insures the lender against loss for the entire length of the loan and the un-enforceability or invalidity of the note and deed of trust.
Some ALTA policies will list deletions. The most common deletions may exclude mechanics liens on construction loans with broken priority, I.e. any construction were started before escrow recorded. Some ALTA policies list so many deletions they begin to resemble the more limited coverage CLTA policies provide.
You can begin to see why it is so important for you as a lender to obtain the most protection available. You can also see that if your coverage is called ALTA but has deletions you may really only be getting the equivalent of CLTA coverage. Always obtain the maximum title insurance coverage available.
Excerpts from "California Title Insurance Practice" by John L. Hosack:
The ALTA loan policy insures
the lender against loss or damage up the policy limit, plus costs and attorneys. Fees incurred under the policy that are caused by (1) title being vested in a person other than the one shown in the policy, (2) title defects, (3) liens and encumbrances, (4) lack of a right of access to the land, (5) marketability of title, (6) prior mechanics' liens, and 9&0 street improvement assessment liens. In addition, the policy insures the priority and validity of the lender's lien on the property, except to the extent that the insured encumbrance is invalid or unenforceable due to usury, the effect of any consumer credit protection, or truth in-lending laws.
In addition, policy coverage is extended to the following matters that are ordinarily excluded from the CLTA standard coverage policy: off-record defects, liens, encumbrances, easements, and encroachments; rights of parties in possession or rights discoverable by inquiry of parties in possession and not shown on the public records; water rights, mining claims, and patent reservations; and discrepancies or conflicts in boundary lines and shortages in areas that are not reflected in the public records.
Exceptions to Coverage
The primary difference between the ALTA loan policy and the CLTA Standard Coverage Policy is the omission of the standard exceptions contained in Schedule B, Part I of the CLTA policy. No standard exceptions are set out in the ALTA loan policy. Instead, the title insurer will list specific matters that constitute exceptions to the coverage if the lender's lien.
Matters that constitute defects, liens, or encumbrances on the title and that would be subordinate to the insured lien are set forth in Schedule B, Part II of the ALTA loan policy. In most cases, such matters would be listed in the preliminary title report issued by the insurer before closing of the transaction and issuance of the policy and the lender would require them to be deleted from the policy.
As a safer trust deed investor you should always demand that your broker provide you with a full extended ALTA lenders title policy with no deletions!
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