Basic Types of Title Insurance Policies.
Forms Available in Various States
All of our independent title agents in every state perform real estate settlement services including: the receipt of contracts and earnest monies; the escrow of documents and funds; the obtaining and proration of tax information; ordering inspections, appraisals, surveys and other services required by the buyer, seller or lender; obtaining the execution of documents necessary to transfer title and/or create a valid loan; the disbursements of funds from escrow; and other services necessary to close the transaction. In some states (such as Texas and New Mexico) the title insurance premiums established by the states pay for some but not all of these real estate settlement services. In every state, it is customary for the agent to charge an additional fee for performing those settlement services which are not specifically covered by the title insurance premiums. Those fees are sometimes labeled "closing" or "escrow" fees and vary from agent to agent, city to city and state to state. Please contact our agents to obtain an estimate of your fees using our Agent Locator.
In Arizona and New Mexico, many of our agents also perform collection services on contracts for deeds or mortgages wherein the borrower actually makes his or her monthly payments to the agent who in turn pays the taxes, insurance, etc. and sends the balance to the lender or seller. Some of our agents also act as Trustees on Deeds of Trust or in tax free exchanges. Some of our agents in Texas prepare abstracts of title. Many of our agents in those states having active oil, gas or mineral extraction also search mineral titles. If you have need for any of these services, you may contact our Agency Department by e-mail or by calling (800) 526-8018.
Basic Types of Title Insurance Policies
Generally, there are two basic types of title insurance policies offered in each state - the Owner's Policy of Title Insurance and the Loan or Mortgagee Policy of Title Insurance. The owner's policy insures the owner against covered losses, which vary from state to state, and protects the owner's equity in the property. In most circumstances, an owner's policy can be obtained for very little additional cost whenever a loan policy is being issued to protect the interest of the lender. Without an owner's policy, there is no coverage for the equity of the owner.
The loan policy is issued to the lender to insure the validity and priority of the mortgage or deed of trust. In the event of a covered title loss, the lender is provided a defense to a law suit challenging the validity or priority of the insured lien; and if there is a covered loss, the lender is reimbursed for that loss to the extent of coverage. If the insured loan is sold or pooled in the secondary market, the loan policy does not provide any protection to the borrower - only to the lender.
In most states, it is customary to issue a commitment or binder to the proposed lender in a residential transaction and to both the lender and purchaser in a commercial transaction. The commitment or binder shows the status of title based on a current examination of the records affecting title and lists those matters which must be resolved before a policy of title insurance can be issued. It also shows those matters which will be listed in Schedule B of the policies as exceptions from coverage. The commitment (binder) is not an insuring form, but rather is a contract to issue a policy(ies) as described when the listed conditions are satisfied. It is very useful information for a purchaser in any transaction to review before closing.
Forms Available In Various States
Most states utilize some or all of the American Land Title Association (ALTA) forms with some additional local forms. In Arizona, for instance, the Land Title Association of Arizona (LTAA) has developed many forms which are similar to those developed by the California Land Title Association (CLTA). In Texas, the Texas Department of Insurance promulgates all insuring forms used there. Many are similar to ALTA forms, but there are distinct and important differences in the Texas forms. New Mexico also promulgates its forms but utilizes ALTA forms with specific language in Schedules A and B.
All ALTA basic policy forms (owner's, loan, leasehold owner's, leasehold loan, and construction loan) have the following basic components -- (1) Insuring Provisions, (2) Exclusions from Coverage, (3) Conditions and Stipulations, (4) Schedule A, and (5) Schedule B. The Insuring Provisions detail specific matters that are covered by the policy, while the Exclusions from Coverage set forth those matters not covered by the policy.
The Conditions and Stipulations detail the contractual relationship between the insurer and insured and set forth, among many other matters, the definitions of some important terms in the policy, situations when the coverage of the policy may continue, both the insured's and the insurer's rights and responsibilities in the event of a claim, limitations on liability, and an arbitration provision.
Schedule A sets forth the name of the insured, the particular estate insured, the manner in which vesting of title into insured, and a description of the property covered by the policy. Schedule B details the exceptions to coverage.
All basic ALTA policy forms include coverage insuring against the unmarketability of title and the lack of a legal right of access to and from the land. Also, these policies provide, subject to their conditions and stipulations, that the company will pay for counsel to represent the insured as to any claim based on a matter covered by the policy.
The following are brief profiles of the current ALTA forms:
Insures a lender making a loan secured by a mortgage on land with respect to the title of the subject property, and with respect to the validity and priority of the mortgage lien. Coverage usually is in the amount of the mortgage loan and the amount of coverage decreases as the mortgage is paid.
Insures an owner with respect to the title to the subject property. The policy can be used for residential or commercial properties, or various other interests in real estate. The coverage remains in effect as long as the insured, or heirs or devisees of the insured, retain an interest in the subject property or remain liable under warranties given in the sale of that property. The minimum amount of coverage is generally the full purchase price of the real estate, including any improvements to the property that constitute real property.
Insures a lender making a loan secured by a mortgage on a "leasehold estate" with respect to the title to the subject property, and with respect to the validity and priority of the mortgage lien. The policy includes a definition of the "leasehold estate" and provides a basis for valuation of the leasehold estate for claims purposes. The policy specifies various miscellaneous items of loss in the event of eviction that are peculiar to a "leasehold estate"--including the reasonable cost of removing and relocating personal property up to 25 miles, rent or damages that may be due to someone with superior title, the fair market value of any sublease under the insured leasehold, or damages that the insured's borrower may be obligated to pay any sublessee because of any breach of the sublease caused by eviction.
Insures the owner of the leasehold estate. Coverage is very similar to the ALTA Owner's Policy but this policy provides a definition of a "leasehold estate" and a method of valuation of the "leasehold estate" for claims purposes. Also, in the event of eviction, it provides for miscellaneous items of loss as set forth in the ALTA Leasehold Loan Policy.
Insures a lender making a loan secured by a mortgage on land for the purpose of financing construction on the land with respect to the title to the subject property and with respect to the validity and priority of the mortgage lien. This policy is similar to the ALTA Loan Policy except that no mechanic's lien coverage is furnished by the base policy, but rather by one of four endorsement forms designed to be used, depending on state law, with the ALTA Construction Loan Policy.
ALTA Construction Loan Policy
Endorsements A, B, C, D
Endorsement A insures the lender against the lack of priority of the mortgage lien over any statutory liens for service, labor or material which were provided prior to a specified date, which were related to the land, and for which the insured has advanced funds. Endorsement B insures the lender against the lack of priority of the mortgage lien over any statutory lien for services, labor or material furnished before or after date of policy--but only for that portion of the loan proceeds secured by the mortgage and advanced at the date of the policy or subsequently in compliance with a legal obligation to advance, expressed in writing at the date of the policy. Endorsement C insures the lender against the lack of priority of the insured mortgage over any statutory lien for services, labor or material furnished for that portion of the loan proceeds secured by the insured mortgage and advanced at the date of the policy or subsequently, but before the filing of a statutory lien or right of lien in the public records. Endorsement D insures the lender against lack of priority of the insured mortgage over any statutory lien for services, labor or material furnished before or after the policy date. All endorsement forms exclude liability for loss or damage by reason of the failure of the lender to comply with or enforce the provisions of any construction loan agreement which relate to advancing the proceeds of the loan.
ALTA Residential Title Insurance Policy
Insures the owner of a one-to-four family residential dwelling, residential lot, or condominium unit. This is a "plain language" policy designed for consumers and is often used, where appropriate, instead of the ALTA Owner's Policy. The policy specifies 14 covered title risks and, unlike the ALTA Owner's Policy, provides limited survey coverage and limited zoning coverage, if no exception is taken to these matters.
ALTA Short Form Residential Loan
Policy
Insures the lender making a mortgage loan on a one-to- four family residence or condominium unit. The policy is an abbreviated short form version of the current ALTA Loan Policy, incorporating all of the terms and provisions of the ALTA Loan Policy, which is designed to be delivered to the lender at closing. The policy contains blanket exceptions to taxes, covenants and restrictions, easements, reservations of minerals or mineral rights, and offers certain affirmative assurances with respect to those exceptions desired by lenders, including certain affirmative assurances with respect to survey matters. The policy also includes an Addendum, which can be used to set forth additional exceptions or to limit the affirmative assurances. The policy is designed so that certain ALTA endorsement forms may be specified, and thus incorporated, by checking appropriate boxes.
ALTA Master Residential Loan Policy
This form offers a lender in one-to-four family residential and condominium transactions the protection of the current ALTA Loan Policy through the Master Policy, which is supplemented by an ALTA Residential Loan Certificate for each particular mortgage loan insured. The Residential Loan Certificate is similar to the ALTA Short Form Policy and sets forth blanket exceptions to taxes, covenants and restrictions, easements, reservation of minerals or mineral rights, which are followed by certain affirmative assurances desired by lenders in connection with these exceptions including specified affirmative assurance with respect to survey matters. As with the Short Form Policy, the Master Policy also includes an Addendum . The Residential Loan Certificate is also designed so that it may incorporate by reference certain ALTA endorsement forms.
An owner's policy, very similar to the regular ALTA Owner's Policy, designed to insure title in the United States of America or a U. S. agency. This policy has an additional insuring provision insuring against loss or damage by reason of the failure of the title report or commitment to name any party who has an interest in the land, which was disclosed by the public records immediately prior to the filing of the lis pendens or Declaration of Taking by the U.S.A. The policy does not insure the validity or sufficiency of the condemnation proceeding, and it contains a provision by which the Attorney General of the United States may undertake the defense of any claim, provided that certain notices and opportunities to suggest defenses are given to the company.
A preliminary commitment to issue a title insurance policy or policies subject to their provisions, conditions and stipulations. This commitment form sets forth requirements that must be complied with prior to issuance of the title insurance policy. It also details exceptions to coverage as of the date of the commitment which will be included in the policy, although additional exceptions may need to be included at the time of issuance of the policy.
A simplified "plain language" version of the ALTA Commitment Form--1966.
ALTA Endorsement Form 1- Street Assessments
Insures a lender against loss as a result of an assessment for street improvements under construction or completed at the date of the policy, which may gain priority over the lien of the insured mortgage.
ALTA Endorsement Form 2- Truth-In-Lending
Insures a lender against loss resulting from a determination that the lien of the mortgage has been terminated or the title acquired by the lender (in foreclosure) has been defeated by a valid exercise of the right of rescission pursuant to the Federal Truth- in-Lending Act, and that the right of rescission existed because neither the credit transaction nor the right of rescission was exempted or excepted by Regulation Z.
ALTA Endorsement Form 3- Zoning
Insures the lender that the vacant land described in the policy is zoned in a specific classification, and lists one or more of the uses allowed by that classification.
ALTA Endorsement Form 3.1- Zoning
Completed Structure
Insures the lender that the improved land described in the policy is zoned in a specific classification, and lists one or more of the uses allowed in that classification. Also affirmatively assures that the improvements comply with the zoning classification regarding use, building site dimension, floor space, setback, and height.
ALTA Endorsement Form 4- Condominium
Insures a lender securing its loan with a mortgage lien on a condominium unit that (i) the unit is part of the condominium; (ii) the condominium documents comply with state requirements; (iii) there are no violations of restrictive covenants, and any violations of the covenants will not cause a forfeiture or reversion of title; (iv) the mortgage has priority over liens for charges and assessments; (v) the unit will be assessed for real property taxes as a separate parcel; (vi) there is no obligation to remove any improvements due to encroachments; and (vii) there has been no prior right of first refusal which could defeat the title.
ALTA Endorsement Form 5- Planned Unit
Development
Insures a lender securing its loan with a lien on a unit in a PUD that: (i) there are no violations of restrictive covenants, and any violation of the covenants will not cause a forfeiture or reversion of title; (ii) the mortgage has priority over liens for charges and assessments by any homeowner's association; (iii) no existing structure will have to be removed because of any encroachments; (iv) there has been no prior right of first refusal which could defeat the title.
ALTA Endorsement Forms 4.1 and 5.1
Intended for use in states where condominium and PUD homeowners' associations liens for unpaid association charges have super priority status. Insure that the lender has priority only at the date of the policy and that there is no amount due or lien in existence for homeowners' association charges.
ALTA Endorsement Forms 6 and 6.1
Insure the lender against the invalidity, unenforceability, or loss of priority of the lien of the insured mortgage as a result of changes in the rate of interest pursuant to a formula provided for in the insured mortgage.
ALTA Endorsement Forms 6.2- Variable Rate
Mortgage, Negative Amortization
Insures the lender against the invalidity, unenforceability, or loss of priority of the lien of the insured mortgage as a result of changes in the rate of interest, interest on interest, or increases in the unpaid principal balance of the loan resulting from the addition of unpaid interest pursuant to a formula provided for in the insured mortgage.
ALTA Endorsement Form 7- Manufactured
Housing Unit
Insures the lender that the manufactured housing unit (a mobile home), affixed to the land, is included in the definition of term "land" used in the policy and, accordingly, the lien of the insured mortgage attaches to the manufactured housing unit.
ALTA Endorsement Form 8.1- Environmental
Protection Lien
Insures the residential lender against loss of priority to (a) an environmental protection lien, federal or state, filed in the public records as defined in the endorsement at date of policy and (b) an environmental lien provided for by a state statute (superlien) in effect on the date of the policy, except those statutes listed in Paragraph (b) of the endorsement.
ALTA Endorsement Form 9- Restrictions,
Encroachments, Minerals
This endorsement offers the lender a variety of additional affirmative assurances including, but not limited to, assurance that there are no covenants, conditions, or restrictions under which the lien of the mortgage can be divested, subordinated or extinguished, or its validity, priority or enforceability impaired; insurance against present violations of covenants, conditions, or restrictions; insurance against encroachments and against damage to existing improvements which encroach upon easement areas or damage resulting from the right to use the surface of the land for the extraction of minerals.
Reinsurance is a contract in which the Reinsurer, for a consideration, agrees to indemnify the Ceder or policy-issuing company in whole or in part against loss or liability which the Ceder may sustain or incur under a separate and original contract of insurance ("policy") with the original insured owner, lender or lessee. The Ceder or Ceding Company is the company which writes the policy insuring the owner, lender or lessee and "cedes," that is sells or transfers, to the Reinsurer all or a portion of its policy risk or exposure which the Reinsurer "assumes" or acquires under the Reinsurance Agreement or contract.
Facultative reinsurance applies to one particular risk. The Ceder may offer all or any part of a risk and the Reinsurer may accept or reject the risk offered. In addition facultative reinsurance offers flexibility to the Ceding Company, for the Reinsurance Company may give valuable underwriting assistance since the facultative reinsurer may become involved in the evaluation of the proposed risk. Thus, Reinsurance is ceded and assumed on the same careful basis as direct insurance is written.
It should be also noted that reinsurance may also be by treaty or special agreement between the companies which may provide for automatic reinsurance on all risks assumed. However, the Forms Handbook does not apply to Treaty Reinsurance since such coverage is negotiated on an individual basis and varies substantially as to form, effect, and operation. Although several facultative reinsurance agreement forms have been prepared and promulgated by the American Land Title Association between 1961 and 1990, the most common and most recent version is the 1990 revision.
ALTA Notice of Availability of Owner's
Title Insurance
Required by law in some states. Informs real estate purchasers that mortgagee title insurance is being issued to protect the lender in a transaction (and that the mortgagee policy does not protect the owner), and the purchaser has the option to buy separate owner's title insurance for the purchaser's protection. There is a provision on the form for the purchaser to specify whether or not owner's title insurance is desired.
Please note that all forms listed above are not available in each state. Below is a list of policy forms used by Title Resources in the listed states.
Arizona
Title Resources has filed the following ALTA and LTAA policy forms in Arizona:
Colorado
Title Resources has filed the following policy forms in Colorado:
Texas
The Texas Department of Insurance has promulgated specific forms for use by all companies
insuring Texas property. The owner's policy (T-1) has some provisions which are similar to
the ALTA owner's form, but there are many differences. Texas does not insure marketable
title in any form, but rather insures good and indefeasible title. Texas automatically
provides coverage against mechanic's and materialman's liens. Texas' unique laws of
homestead and community property affect the coverages offered in all insuring forms.
Copyright 1996, Title
Resources Guaranty Company
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Last modified by EF on May 15, 2006
