What is Title Insurance?

Title insurance, unlike other forms of insurance, such as automobile or life insurance, involves a one-time premium, paid when you close the real estate transaction.  When you purchase title insurance, you don't have to make monthly, quarterly or yearly payments as you do with car and life insurance.  Unlike medical and casualty insurance premiums, which are paid to insure against an unpredictable future event, title insurance guarantees that all events in the past have been cleared. This is an important distinction. Since a title company has searched and evaluated the condition of the title to your property, title insurance guarantees that the title company has not missed any items which may affect your property.

The goal of title companies is to conduct such a thorough search and evaluation of public records that no claims will ever arise.  Of course, as humans we are never 100% right!  Title insurance means that you can make a claim in the event that the conditions of your title is not as we say it is.  In fact, title insurance companies set aside a percentage of their profits to pay for any claims that arise.  In actuality; however, the number of claims is relatively small.  When your escrow closes, the title company will issue you a policy of insurance.  Keep this with your home records, as a copy of it will come in handy in the unlikely event that a problem does arise. Title companies keep records that go back decades, so we will always be ready to back up our policy.

Types of Policies 

There are basically two types of title insurance policies --  one for property owners and one for lenders.  Policies for both owners and lenders are written according to guidelines set down by the American Land Title Association (ALTA) and the California Land Title Association (CLTA).  The standard in Arizona is an ALTA policy for owners and for lenders. However; some people do request the additional residential coverage provided by the ALTA RESIDENTIAL policy, which usually requires a physical inspection and covers some items not covered in the ALTA owner's policy.  Here is a summary of the types of policies and what they cover:

CLTA POLICIES

.

CLTA HOMEOWNER'S POLICY:

.

This is a new and enhanced policy which is now the standard in residential policies.  The CLTA Homeowner's Policy insures:

.

That there is access if the property abuts upon an open, public, dedicated street

That there are no forgeries or failed conveyances in the chain of title That the insured has a marketable interest in the real property

.

In addition, the Homeowner's Policy offers some expanded features not available in other policies:

.

Coverage for building permit violations incurred by previous owner

Protection against forgeries which may occur in the future to cloud title Protection in the event a structure encroaches into the insured property Enhanced right of access coverage, including vehicular and pedestrian access

Several other features including Subdivision Map Act coverage, Restrictive Covenant Violations coverage, Structural Damage from Mineral Extraction coverage, Map Inconsistencies coverage and Post Policy Increase in Value to 125%.

.

ALTA POLICIES

ALTA RESIDENTIAL POLICY

The ALTA Residential Policy is an owner's policy insuring owners of 1-4 family residential lots or condominium units.  In addition to the basic coverage provided by the CLTA policy, the ALTA residential policy protects the insured against losses caused by:

.

Mechanic Liens (labor and material liens) arising out of work done on the property which the insured did not agree to or agree to pay for

Major encroachments – The insured is protected against forced removal of an existing structure (other than a boundary wall or fence) because it extends onto adjoining land or onto an easement

Unrecorded interest arising from off record leases, contracts or option Zoning Compliance (as long as property in question and zoning are both residential) CC&Rs compliance

.

Most title companies will insure a seller carryback deed of trust under an ALTA residential policy by endorsement (an addendum to a title policy with a small additional cost).  This is the only type of deed of trust that may be insured under this policy.

ALTA LENDERS POLICY

The ALTA Lenders Policy is for institutional lenders only (such as banks and savings and loans).  It insures lender priority and the fact that it is marketable.  It covers both recorded matters as well as unrecorded matters such as:

.

Unrecorded easements

Access

Loss of priority

Unrecorded liens and encumbrances.

.

The coverage on this policy is quite broad. A survey or inspection is sometimes required before a policy is issued  This policy can be issued on 1 - 4 family owner-occupied residential property consisting of whole lots in recorded subdivisions.

ALTA OWNERS POLICY

Do not confuse this with an ALTA residential owners policy. This is the broadest form of insurance given in Arizona. This policy requires an ALTA survey to be provided to the title company.  In addition to the coverage given by a CLTA policy, it insures:

Encroachments

Access

Rights of parties in possession

Unrecorded liens and encumbrances

Taxes

Matters which correct survey would show

An ALTA OWNER'S POLICY DOES NOT COVER MATTERS KNOWN CREATED OR ASSUMED BY OUR INSURED.  

When this policy is requested, we may require:

An ALTA survey (usually  at a cost of between $3,000 and $7,000)

A field inspection by our chief title officer

A check with all utilities to make sure they have no unrecorded easements

Copies of all leases and or tenant lists