Is Your Home in a Trust? Make Sure Your Insurance, Knows It Too

Estate planners often recommend Living Trusts as a viable option when contemplating the manner in which to hold title to real property. When a property is held in a Living Trust, title companies have particular requirements to facilitate the transaction. While not comprehensive, answers to many commonly asked questions are below. If you have questions that are not answered below, your title company representative may be able to assist you, however, one may wish to seek legal counsel. Who are the parties to a Trust? A Family Trust is a typical trust in which the Husband and Wife are the Trustees and their children are the Beneficiaries. Those who establish the trust and transfer their property into it are known as Trustors or Settlors. The settlors usually appoint themselves as Trustees and they are the primary beneficiaries during their lifetime. After their passing, their children and grandchildren usually become the primary beneficiaries if the trust is to survive, or the beneficiaries receive distributions directly from the trust if it is to close out. What is a Living Trust? Sometimes called an Inter-vivos Trust, the Living Trust is created during the lifetime of the Settlors (as opposed to being created by their Wills after death) and usually terminates after they die and the body of the Trust is distributed to their beneficiaries. Can a Trust hold title to Real Property? No, the Trustee holds the property on behalf of the Trust. Is a Trust the best way to hold my property? Only your attorney or accountant can answer that question. Some common reasons for holding property in a Trust are to minimize or postpone death taxes, to avoid a time consuming probate, and/or to shield property from attack by certain unsecured creditors. What taxes can I avoid by putting my property in trust? Married persons can usually exempt a significant part of their assets from taxation and may postpone taxes after the first of them to die passes. You should check with your attorney or accountant before taking any action. Can I homestead property that is held in a Trust? Yes, if the property otherwise qualifies. Can a Trustee borrow money against the property? A Trustee can take any action permitted by the terms of the Trust, and the typical Trust Agreement does give the Trustee the authority to borrow and encumber real property. However, not all lenders will lend on a property held in trust, so check with your lender first. Can someone else hold title for me “in trust?” Some people who do not wish their names to show as titleholders make private arrangements with a third party Trustee; however, such an arrangement may be illegal, and is always inadvisable because the Trustee of record is the only one who is empowered to convey, or borrow against, the property, and a Title Insurer cannot protect you from a Trustee who is not acting in accordance with your wishes despite the existence of a private agreement you have with the Trustee.

The Mechanics’ Lien law provides special protection to contractors, subcontractors, laborers and suppliers who furnish labor or materials to repair, remodel or build your home. If any of these people are not paid for the services or materials they have provided, your home may be subject to a mechanics’ lien and eventual sale in a legal proceeding to enforce the lien. This result can occur even when the homeowner has made full payment for the work of improvement. The mechanics’ lien is a right that a state gives to workers and suppliers to record a lien and ensure payment. This lien may be recorded where the property owner has paid the contractor in full and the contractor then fails to pay the subcontractors, suppliers, or laborers. Thus, in the worst case, a homeowner may actually end up paying twice for the same work. The theory is that the value of the property upon which the labor or materials have been bestowed has been increased by virtue of these efforts and the homeowner who has reaped this benefit is required in return to act as the ultimate guarantor of full payment to the persons responsible for this increase in value. In practice, a homeowner faced with a valid mechanics’ lien may be compelled to pay the lien claimant and then pursue conventional legal remedies against the contractor or subcontractor who initially failed to pay the lien claimant but who himself was paid by the homeowner. Another justification for this result relates to the relative financial strengths of the parties to a work of improvement. The law views the property owner as being in a better situation to absorb the financial setback occasioned by having to pay the amount of a valid mechanics’ lien, as opposed to a laborer or material man who is viewed as being less able to absorb the financial burdens occasioned by not being paid for services or materials provided in connection with a work of improvement. The best protection against these claims is for the homeowner to employ reputable firms with sufficient experience and capital and/or require completion and payment bonding of the construction work. The issuance of checks payable jointly to the contractor, material men and suppliers is another protective measure, as is the careful disbursement of funds in phases based upon the percentage of completion of the project at a given point in the construction process. The protection offered by mechanics’ lien releases can also be helpful. Even if a mechanics’ lien is recorded against your property you may be able to resolve the problem without further payment to the lien claimant. This possibility exists where the proper procedure for establishing the lien was not followed. While it is true that persons who have provided labor, services, or materials to a job site may record mechanics’ liens, each is required to strictly adhere to a well-established procedure in order to create a valid mechanics’ lien. Needless to say, this is one area of the law that is very complex, thus it may be worthwhile to consult an attorney if you become aware that a mechanics’ lien has been recorded against your property. In the event you discover that a lien has been recorded but no effort has been made to enforce the lien, a title company may decide to ignore the lien. However, be prepared to be presented with a positive plan to eliminate the title problems created by this type of lien. This may be accomplished by means of a recorded mechanics’ lien release from the person who created the lien, or other measures acceptable to the title company. As in all areas of the real estate field, the best advice is to investigate the quality, integrity, and business reputation of the firm with whom you are dealing. Once you are satisfied you are dealing with a reputable company and before you begin your construction project, discuss your concerns about possible mechanics’ lien problems and work out, in advance, a method of ensuring that they will not occur.

How Should I Take Ownership of the Property I am Buying in Silicon Valley? When buying real estate in Silicon Valley, understanding how to take ownership of the property is crucial. The form of ownership—also known as the vesting of title—impacts who can sign documents, future rights, property taxes, inheritance, and even exposure to creditor claims. Why Title Vesting Matters in the Silicon Valley Real Estate Market: Choosing the right way to hold title affects important legal and financial issues such as: Real property taxes specific to Silicon Valley homes. Income and inheritance tax implications. Transferability of title when buying or selling Silicon Valley real estate. Probate and estate planning considerations unique to the area. Given the complexity of property ownership, especially in a dynamic market like Silicon Valley's, buyers are encouraged to consult with legal counsel or their trusted Silicon Valley real estate agent to determine the most advantageous form of ownership. Methods of Holding Title in Silicon Valley Real Estate Transactions: Here are some of the most common ways to vest title when purchasing property in Silicon Valley: SOLE OWNERSHIP: Single Man/Woman: For example, a single individual buyer like Bruce Buyer. Unmarried Man/Woman: A divorced individual owning property separately, e.g., Sally Seller. Married Man/Woman Holding Sole and Separate Property: A spouse purchasing property exclusively in their name. CO-OWNERSHIP In Silicon Valley, if a married person acquires title, the spouse may need to disclaim interest to establish sole ownership, typically handled by your real estate agent and title company. Title Vesting Forms for Multiple Homeowners Community Property: Common among married couples in California, including Silicon Valley. Both spouses equally own the property and must consent to any transfer. For example, Bruce Buyer and Barbara Buyer as community property owners. Joint Tenancy: Ownership by two or more persons with equal shares and right of survivorship—commonly used in Silicon Valley for estate planning. Tenancy in Common: Allows owners to hold unequal shares and independently transfer interest, practical for non-married partners or investors. Consult a Local Silicon Valley Real Estate Expert for Title Vesting Guidance: Navigating ownership options and title vesting is a key step in any Silicon Valley home buying process. Your Silicon Valley real estate agent can provide valuable insight about title options and work closely with title companies and legal advisors to ensure your ownership setup aligns with your financial goals and family situation.

Buying or selling a home (or other piece of real property) usually involves the transfer of large sums of money. It is imperative that the transfer of these funds and related documents from one party to another be handled in a neutral, secure and knowledgeable manner. For the protection of buyer, seller and lender, the escrow process was developed. As a buyer or seller, you want to be certain all conditions of sale have been met before property and money change hands. The technical definition of an escrow is a transaction where one party engaged in the sale, transfer or lease of real or personal property with another person delivers a written instrument, money or other items of value to a neutral third person, called an escrow agent or escrow holder. This third person holds the money or items for disbursement upon the happening of a specified event or the performance of a specified condition. Simply stated, the escrow holder impartially carries out the written instructions given by the principals. This includes receiving funds and documents necessary to comply with those instructions, completing or obtaining required forms and handling final delivery of all items to the proper parties upon the successful completion of the escrow. The escrow must be provided with the necessary information to close the transaction. This may include loan documents, tax statements, fire and other insurance policies, title insurance policies, terms of sale and any seller-assisted financing, and requests for payment for various services to be paid out of escrow funds. If the transaction is dependent on arranging new financing, it is the buyer’s or the buyer’s agent’s responsibility to make the necessary arrangements. Documentation of the new loan agreement must be in the hands of the escrow holder before the transfer of property can take place. A real estate agent can help identify appropriate lending institutions. When all the instructions in the escrow have been carried out, the closing can take place. At this time, all outstanding funds are collected and fees- such as title insurance premiums, real estate commissions, termite inspection charges- are paid. Title to the property is then transferred under the terms of the escrow instructions and appropriate title insurance is issued. Payment of funds at the close of escrow should be in the form acceptable to the escrow, since out-of-town and personal checks can cause days of delay in processing the transaction. The following items represent a typical list of what an escrow holder does and does not do: THE ESCROW HOLDER: Serves as the neutral “stakeholder” and the communications link to all parties in the transaction; Prepares escrow instructions; Requests a preliminary title search to determine the present condition of title to the property; Requests a beneficiary’s statement if debt or obligation is to be taken over by the buyer; Complies with lender’s requirements, specified in the escrow agreement; Receives purchase funds from the buyer; Prepares or secures the deed or other documents related to escrow; Prorates taxes, interest, insurance and rents according to instructions; Secures releases of all contingencies or other conditions as imposed on any particular escrow; Records deeds and any other documents as instructed; Requests issuance of the title insurance policy; Closes escrow when all the instructions of buyer and seller have been carried out; Disburses funds as authorized by instructions, including charges for title insurance, recording fees, real estate commissions and loan payoffs; Prepares final statements for the parties accounting for the disposition of all funds deposited in escrow (these are useful in the preparation of tax returns). THE ESCROW HOLDER DOES NOT: Offer legal advice; Negotiate the transaction; Offer investment advice. Your local title company should be happy to provide additional information.

Sellers of real property will have certain information regarding the sale reported to the Internal Revenue Service. This required reporting is a consequence of the Tax Reform Act of 1986; it is intended to encourage taxpayer compliance and aid in audit and enforcement efforts by the I.R.S. To help you better understand this subject, the Land Title Association has answered some of the questions most commonly asked about Required Reporting to the I.R.S. Who is required to report to the I.R.S.? Sellers of real property, under guidelines established by the I.R.S., are required to have their gross proceeds from the sale reported on a Form 1099S. When a settlement agent is used, the I.R.S. makes this agent responsible for the delivery of the information on the Form 1099S. The settlement agent generally will be the escrow agent or title company; however, it may be an attorney, real estate broker or other person providing settlement services. What is an I.R.S. Form 1099S, and what will be reported? The Form 1099S is the reporting form adopted by the I.R.S. for submitting the information required by law. The information will be transferred onto magnetic media by the settlement agent who will store the information and make the required report to the I.R.S. The settlement agent is also responsible for keeping a master copy of all transactions reported. In general, information required by the I.R.S. falls into the following categories: The name, address and taxpayer ID number (social security or tax identification number) of the seller(s) A general description of the property (in most cases an address) The closing date of the transaction The gross proceeds of the transaction (even though gross proceeds do not correspond to taxable income) Any property involved as part of the transaction other than cash or cash equivalent The name, address and taxpayer identification number of the settlement agent. Real estate tax paid in advance that is allocable to the buyer. On what type of transactions is a Form 1099S required? Currently, typical homeowner transactions covered include sales and exchanges of 1-4 family residential properties such as houses, townhouses, and condominiums. Also reportable are sales or exchanges of improved or unimproved land, commercial or industrial buildings, condominiums, stock in a cooperative housing corporation and mobile homes (manufactured homes) affixed to real property. Specifically excluded from reporting are foreclosures and abandonment of real property and financing or refinancing of properties. What happens if the seller(s) refuses to provide the taxpayer identification number for the Form 1099S? The settlement agent is required to request the transferor’s taxpayer identification number(s) (TIN(s)) before the time of closing. You may request a TIN on Form W-9 or use an alternative written request. The IRS has included sample wording of an alternative written request in the instructions for preparation of Form 1099S. Should the seller fail to provide the identification number and certify its correctness, the settlement agent may choose to: Delay the closing of the transactions until the information is furnished, or complete the transaction and report to the I.R.S. that an attempt was made to obtain the information from the seller. How is the sale reported when there is more than one seller involved or when multiple sellers do not own equal interests in the property? Multiple sellers may allocate the gross proceeds among themselves for purposes of reporting. If there is no allocation, an incomplete allocation or conflicting allocations, then the entire gross proceeds will be reported for each seller. Where can I go for further information on taxation of real property? The I.R.S. provides free publications that explain the tax aspects of real estate transactions. You may wish to order: Publication #523 “Tax Information on Selling Your Home” Publication #530 “Tax Information for Home Owners” Publication #544 “Sales and Other Dispositions of Assets” Publication #551 “Basis of Assets”

After months of searching, you’ve finally found it -- your perfect dream home. But is it perfect? Will you be purchasing more than just a beautiful home? Will you also be acquiring liens placed on the property by prior owners? Have documents been recorded that will restrict your use of the property? The preliminary report will provide you with the opportunity, prior to purchase, to review matters affecting your property which will be excluded from coverage under your title insurance policy unless removed or eliminated before your purchase. To help you better understand this often bewildering subject, the Land Title Association has answered some of the questions most commonly asked about preliminary reports . What is a Preliminary Report? A preliminary report is a report prepared prior to issuing a policy of title insurance that shows the ownership of a specific parcel of land, together with the liens and encumbrances thereon which will not be covered under a subsequent title insurance policy. What Role Does a Preliminary Report Play In The Real Estate Process? A preliminary report contains the conditions under which the title company will issue a particular type of title insurance policy. The preliminary report lists, in advance of purchase, title defects, liens and encumbrances which would be excluded from coverage if the requested title insurance policy were to be issued as of the date of the preliminary report. The report may then be reviewed and discussed by the parties to a real estate transaction and their agents. Thus, a preliminary report provides the opportunity to seek the removal of items referenced in the report which are objectionable to the buyer prior to purchase. When and How Is The Preliminary Report Produced? Shortly after escrow is opened, an order will be placed with the title company which will then begin the process involved in producing the report. This process calls for the assembly and review of certain recorded matters relative to both the property and the parties to the transaction. Examples of recorded matters include a deed of trust recorded against the property or a lien recorded against the buyer or seller for an unpaid court award or unpaid taxes. These recorded matters are listed numerically as “exceptions” in the preliminary report. They will remain exceptions from title insurance coverage unless eliminated or released prior to the transfer of title. What Should I look for When Reading My Preliminary Report? You will be interested, primarily, in the extent of your ownership rights. This means you will want to review the ownership interest in the property you will be buying as well as any claims, restrictions or interests of other people involving the property. The report will note in a statement of vesting the degree, quantity, nature and extent of the owner’s interest in the real property. The most common form of interest is “fee simple” or “fee” which is the highest type of interest an owner can have in land. Liens, restrictions and interests of others which are being excluded from coverage will be listed numerically as exceptions in the preliminary report. These may be claims by creditors who have liens or liens for payment of taxes or assessments. There may also be recorded restrictions which have been placed in a prior deed or contained in what are termed CC&Rs- covenants, conditions and restrictions. Finally, interests of third parties are not uncommon and may include easements given by a prior owner which limit your use of the property. When you buy property you may not wish to have these claims or restrictions on your property. Instead, you may want to clear the unwanted items prior to purchase. In addition to the limitations noted above, a printed list of standard exceptions and exclusions listing items not covered by your title insurance policy may be attached as an exhibit item to your report. Unlike the numbered exclusions, which are specific to the property you are buying, these are standard exceptions and exclusions appearing in title insurance policies. The review of this section is important, as it sets forth matters which will not be covered under your title insurance policy, but which you may wish to investigate, such as governmental laws or regulations governing building and zoning. Will the Preliminary Report Disclose the Complete Condition of The Title to a Property? No. It is important to note that the preliminary report is not a written representation as to the condition of title and may not list all liens, defects, and encumbrances affecting title to the land, but merely report the current ownership and matters that the title company will exclude from coverage if a title insurance policy should later be issued. Is a Preliminary Report the same thing as title insurance? Definitely not. A preliminary report is an offer to insure, it is not a report of a complete history of recorded documents relating to the property. A preliminary report is a statement of terms and conditions of the offer to issue a title insurance policy, not a representation as to the condition of title. These distinctions are important for the following reasons: first, no contract or liability exists until the title insurance policy is issued; second, the title insurance policy is issued to a particular insured person and others cannot claim the benefit of the policy. Can I Be Protected Against Title Risks Prior to The Close of The Real Estate Transaction? Yes, you can. Title companies can protect your interest through the issuance of “binders” and “commitments”. A binder is an agreement to issue insurance giving temporary coverage until such time as a formal policy is issued. A commitment is a title insurer’s contractual obligation to insure title to real property once its stated requirements have been met. Discuss with your title insurer the best means to protect your interests. How Do I Go About Clearing Unwanted Liens and Encumbrances? You will wish to carefully review the preliminary report. Should the title to the property be clouded, you and your agents will work with the seller and the seller’s agents to clear the unwanted liens and encumbrances prior to taking title. Who Can I Turn to For Further Information Regarding Preliminary Reports? Your real estate agent and your attorney, should you choose to use one, will help explain the preliminary report to you. Your escrow and title company can also be helpful sources. The Bottom Line:  In a business which is directed at risk elimination, the efforts leading to the production of the preliminary report, which is designed to facilitate the issuance of a policy of title insurance, is perhaps the most important function undertaken.

What's in a name? When a title company seeks to uncover matters affecting title to real property, the answer is, “Quite a bit.” Statements of Information provide title companies with the information they need to distinguish the buyers and sellers of real property from others with similar names. After identifying the true buyers and sellers, title companies may disregard the judgments, liens or other matters on the public records under similar names. To help you better understand this sensitive subject, the Land Title Association has answered some of the questions most commonly asked about Statements of Information. What is a Statement of Information? A Statement of Information is a form routinely requested from the buyer, seller and borrower in a transaction where title insurance is sought. The completed form provides the title company with information needed to adequately examine documents so as to disregard matters which do not affect the property to be insured, matters which actually apply to some other person. What does a Statement of Information do? Every day documents affecting real property--liens, court decrees, bankruptcies--are recorded. Whenever a title company uncovers a recorded document in which the name is the same or similar to that of the buyer, seller or borrower in a title transaction, the title company must ask, “Does this document affect the parties we are insuring?” Because, if it does, it affects title to the property and would, therefore, be listed as an exception from coverage under the title policy. A properly completed Statement of Information will allow the title company to differentiate between parties with the same or similar names when searching documents recorded by name. This protects all parties involved and allows the title company to competently carry out its duties without unnecessary delay. What types of Information are requested in a Statement of Information? The information requested is personal in nature, but not unnecessarily so. The information requested is essential to avoid delays in closing the transaction. You, and your spouse if you are married, will be asked to provide full name, social security number, year of birth, birthplace, and information or citizenship. If you are married, you will be asked the date and place of your marriage or registered domestic partnership. Residence and employment information will be requested, as will information regarding previous marriages or registered domestic partnerships. Will the information I supply be kept confidential? The information you supply is completely confidential and only for title company use in completing the search of records necessary before a policy of title insurance can be issued. What happens if a buyer, seller or borrower fails to provide the requested Statement of Information? At best, failure to provide the requested Statement of Information will hinder the search and examination capabilities of the title company, causing delay in the production of your title policy. At worst, failure to provide the information requested could prohibit the close of your escrow. Without a Statement of Information, it would be necessary for the title company to list as exceptions from coverage judgments, liens or other matters which may affect the property to be insured. Such exceptions would be unacceptable to most lenders, whose interest must also be insured. Conclusion Title companies make every attempt in issuing a policy of title insurance to identify known risks affecting your property and to efficiently and correctly transfer title so as to protect your interests as a homebuyer. By properly completing a Statement of Information, you allow the title company to provide the service you need with the assurance of confidentiality.

In today’s busy Silicon Valley real estate market with crowded probate courts and high estate taxes, the living trust has become a common way to hold title to real property. Understanding the title insurance requirements when property is conveyed to the trustee of a living trust can help streamline your transaction and avoid delays. What is a Trust in Real Estate? A trust is a legal agreement between a trustor and a trustee. The trustee holds title to and manages the designated assets of the trustor, including real property, for the benefit of one or more beneficiaries. In Silicon Valley, many homeowners use trusts to protect assets and simplify transfers. Can a Trust Acquire or Convey Real Property? A trust itself cannot hold title or convey interests in real estate. Only the trustee, acting on behalf of the trust, can own and transfer property titles. The trustee’s powers, including conveyance rights, must be specifically granted by the trust document. Title Company Requirements for Trust-Owned Properties in Silicon Valley: When a trustee holds title to real estate as part of a living trust, the title insurer in Silicon Valley typically requires a certification of trust that includes: The date the trust was executed. Identification of the trustor and trustee(s). Powers granted to the trustee(s). Identification of any person authorized to revoke the trust. Signatory authority for trustee(s). Instructions on how title should be vested. A legal description of the property interests held in trust. A statement confirming the trust has not been revoked, modified, or amended in ways that affect the certification. These requirements ensure the title insurance policy accurately reflects ownership and protects both buyers and lenders during property transactions in Silicon Valley. Privacy Considerations in Trust Documentation: If your trust contains confidential financial details, such as charitable donations, you may request to omit or redact certain pages when providing documents to the title company. Most Silicon Valley title insurance companies accept certifications or redacted copies, balancing privacy with legal verification. Signing Authority and Trustee Powers: If there are multiple trustees, usually all must sign documents unless the trust explicitly allows otherwise: A trustee can grant power of attorney only if explicitly authorized in the trust. If all trustees are deceased or unable to act, courts in Silicon Valley may appoint a successor trustee per trust or probate laws. Notary acknowledgments of trustee signatures must clearly state the trustee’s capacity in accordance with title insurance standards. How would the Deed do the Sample Deed Wording for Trust Ownership in Silicon Valley: Example wording on a deed conveying property to trustees typically reads: “John Doe and Mary Doe, as trustees of the Doe Family Trust under Declaration of Trust dated January 1, 1992.” Limitations on Trustee Authority in Silicon Valley Real Estate: Trustees must act within the powers granted by the trust agreement. California probate codes provide general trustee powers focused on sale, conveyance, and refinancing, which title insurers in Silicon Valley rely upon to issue policies confidently.

What is Title Insurance? Newspapers refer to it in the weekly real estate sections and you hear about it in conversations with real estate brokers. If you’ve purchased a home you may be familiar with the benefits of title insurance. However, if this is your first home, you may wonder, “Why do I need yet another insurance policy?” While a number of issues can be raised by that question, we will start with a general answer. The purchase of a home is one of the most expensive and important purchases you will ever make. You and your mortgage lender will want to make sure the property is indeed yours and that no one else has any lien, claim or encumbrance on your property. The Land Title Association, in the following pages, answers some questions frequently asked about an often misunderstood line of insurance - title insurance. What is the difference between Title Insurance and Casualty Insurance? Title insurers work to identify and eliminate risk before issuing a title insurance policy. Casualty insurers assume risks. Casualty insurance companies realize that a certain number of losses will occur each year in a given category (auto, fire, etc.). The insurers collect premiums monthly or annually from the policy holders to establish reserve funds in order to pay for expected losses. Title companies work in a very different manner. Title insurance will indemnify you against loss under the terms of your policy, but title companies work in advance of issuing your policy to identify and eliminate potential risks and therefore prevent losses caused by title defects that may have been created in the past. Title insurance also differs from casualty insurance in that the greatest part of the title insurance premium dollar goes towards risk elimination. Title companies maintain title plants, which contain information regarding property transfers and liens reaching back many years. Maintaining these title plants, along with the searching and examining of title, is where most of your premium dollar goes. Who needs Title Insurance? Buyers and lenders in real estate transactions need title insurance. Both want to know that the property they are involved with is insured against certain title defects. Title companies provide this needed insurance coverage subject to the terms of the policy. The seller, buyer and lender all benefit from the insurance provided by title companies. What does Title Insurance insure? Title insurance offers protection against claims resulting from various defects (as set out in the policy) which may exist in the title to a specific parcel of real property, effective on the issue date of the policy. For example, a person might claim to have a deed or lease giving them ownership or the right to possess your property. Another person could claim to hold an easement giving them a right of access across your land. Yet another person may claim that they have a lien on your property securing the repayment of a debt. That property may be an empty lot or it may hold a 50-story office tower. Title companies work with all types of real property. What types of policies are available? Title companies routinely issue two types of policies: An “owner’s policy” which insures you, the Homebuyer, for as long as you and your heirs own the home; and a “lender’s” policy which insures the priority of the lender’s security interest over the claims that others may have in the property. What protection am I obtaining with my Title Policy? A title insurance policy contains provisions for the payment of the legal fees in defense of a claim against your property which is covered under your policy. It also contains provisions for indemnification against losses which result from a covered claim. A premium is paid at the close of a transaction. There are no continuing premiums due, as there are with other types of insurance. What are my chances of ever using my Title Policy? In essence, by acquiring your policy, you derive the important knowledge that recorded matters have been searched and examined so that title insurance covering your property can be issued. Because we are risk eliminators, the probability of exercising your right to make a claim is very low. However, claims against your property may not be valid, making the continuous protection of the policy all the more important. When a title company provides a legal defense against claims covered by your title insurance policy, the savings to you for that legal defense alone will greatly exceed the one-time premium. What if I'm buying a property from someone I know? You may not know the owner as well as you think you do. People undergo changes in their personal lives that may affect title to their property. People get divorced, change their wills, engage in transactions that limit the use of the property and have liens and judgments placed against them personally for various reasons. There may also be matters affecting the property that are not obvious or known, even by the existing owner, which a title search and examination seeks to uncover as part of the process leading up to the issuance of the title insurance policy. Just as you wouldn’t make an investment based on a phone call, you shouldn’t buy real property without assurances as to your title. Title insurance provides these assurances. The process of risk identification and elimination performed by the title companies, prior to the issuance of a title policy, benefits all parties in the property transaction. It minimizes the chances that adverse claims might be raised, and by doing so reduces the number of claims that need to be defended or satisfied. This process keeps costs and expenses down for the title company and maintains the traditional low cost of title insurance. STANDARD (CLTA) coverage handles such risks as: Forgery and impersonation Lack of competency, capacity or legal authority of a party Deed not joined in by a necessary party (co-owner, heir, spouse, corporate officer, or business partner) Undisclosed (but recorded) prior mortgage or lien Undisclosed (but recorded) easement or use restriction Erroneous or inadequate legal descriptions Lack of a right of access Deed not properly recorded CLTA policies cover all of the big worries a home buyer has nightmares about, like a forged deed, some type of title fraud or unpaid claims that have not been recorded. If these turn up, a CLTA policy will take care of the issue and make you whole financially. However, CLTA policies routinely exclude boundary disputes including easement or encroachment issues. An EXTENDED (ALTA) coverage policy may be requested to protect against such additional defects as: Off-record matters, such as claims for adverse possession or prescriptive easement Deed to land with buildings encroaching on land of another Incorrect survey Silent (off-record) liens (such as mechanics' or estate tax liens) Pre-existing violations of subdivision laws, zoning ordinances or CC&R's. ALTA title policies are issued by the American Land Title Association, and are referred to as "Lenders' Policies." They are regularly used to protect the bank or other lender's interests in the property. This type of policy offers more protection than the basic CLTA policy, including many types of unrecorded property matters like easements and unrecorded liens. Needless to say, the ALTA is more expensive. If a seller of commercial real property is required to provide the buyer a title policy, it often provides the CLTA Standard Owner’s Coverage policy. A buyer who wants the ALTA Extended Coverage Policy must pay the difference herself to upgrade protection. A land contract can be helpful for those who need time to establish or improve their credit rating. There are only small closing costs, and payment can help establish a good mortgage payment record. This can help establish an overall good credit rating, and it is possible for the buyer to later refinance the land contract with a conforming loan. On the other hand, there are risks associated with land contracts. Land contract purchases are not necessarily recorded in the public record, and there are no guarantees that the seller will be able to transfer a clear title to the buyer upon fulfillment of the land contract. There also is no lender assuring that the purchase price for the property is justified, and no inspection of the property’s condition. Another alternative to a non-conforming loan is assuming the seller’s mortgage. By assuming a mortgage, if the mortgage is assumable, it is possible to save on closing costs, and may allow you to obtain a favorable interest rate.