Title insurance: preliminary reports and CLTA and ALTA policies

From preliminary report to policy

Title insurance protects an insured owner or lender against covered title defects, liens, or competing claims, usually arising before the policy date. It addresses title risk rather than physical damage to the building. A premium ordinarily buys coverage for the policy's duration rather than one year of renewable protection.

A California preliminary title report describes the estate and proposed insured and lists matters the insurer expects to except from coverage. It is an offer to issue insurance subject to stated requirements and exceptions, not an abstract of title or a guarantee that title is clear. Review the legal description, vesting, liens, easements, restrictions, and conditions for issuance. A listed deed of trust may need payoff and reconveyance; a recorded easement may remain and be excepted. An exception removes a particular matter from coverage; a requirement identifies something that must be done to issue the proposed coverage.

Compare coverage and insured interests

CLTA means California Land Title Association; ALTA means American Land Title Association. In traditional California exam terminology, CLTA standard coverage principally addresses public-record title risks, along with certain covered defects such as forgery. ALTA extended coverage broadens protection to certain off-record risks, potentially including unrecorded interests, possession claims, or survey matters. An inspection, survey, or additional underwriting may be needed. The association name alone does not establish coverage: read the policy form, exclusions, exceptions, and endorsements. Extended coverage does not remove every exception or insure against every boundary problem.

An owner's policy protects the insured owner's title interest up to applicable policy limits. A lender's policy protects the lender's insured security interest and lien priority, subject to its terms. A buyer does not receive owner's protection merely because the lender requires a loan policy. Standard versus extended coverage and owner versus lender identify different dimensions of the insurance.

Choosing the title company

For a purchase assisted by a federally related mortgage loan, federal RESPA prohibits the seller from conditioning the sale on the buyer purchasing title insurance from a particular company. Under 12 U.S.C. § 2608, a violating seller is liable to the buyer for three times all charges for that insurance. This federal protection applies to qualifying California transactions too.

Before closing, resolve unwanted exceptions or understand their consequences, confirm the intended insured and coverage, and distinguish the preliminary proposal from the policy actually issued.