Title and Vesting - Part 2 - Chapters 49-51 Flashcards
Apply the community property presumption when title to property is vested jointly in the names of a married couple
Community property vestings are limited to TWO people and are only available to a married couple or registered domestic partners. All property acquired jointly by a married couple during marriage, no matter how vested, is presumed to be community property, unless the couple clearly state their intention to own their individual interests as separate property. Under the community property vesting, the ownership interests are EQUAL.
Create a joint tenancy vesting based on the four unities in title
Although most joint tenancies are created by married couples, a joint tenancy can exist between non-married persons and is NOT limited to two individuals. Joint Tenants take EQUAL OWNERSHIP INTERESTS int the property. Traditionally, the creation of a joint tenancy requires the conveyance of four unities:
- Unity of TITLE - joint tenants take title by the same instrument, such as a single grant deed or court order
- Unity of TIME - joint tenants take receive interest at same time
- Unity of INTEREST - joint tenants own equal shares in the ownership of the property
- Unity of POSSESSION - each joint tenant has the right to possess the entire property.
Explain the right of survivorship and how it is served
The right of survivorship is provided under both a “community property with the right of survivorship” vesting and a “joint tenancy” vesting.
In JOINT TENANCY VESTING - The death of a joint tenant automatically extinguishes the deceased joint tenant’s interest in the real estate.
In COMMUNITY PROPERTY with the RIGHT of SURVIVORSHIP VESTING - On the death of a spouse, the surviving spouse automatically becomes the sole owner of the property.
Advise on how to clear title of a deceased joint tenant’s ownership by affidavit
To clear title of a deceased joint tenant’s ownership by affidavit the deceased joint tenants interest in the property needs to be cleared from the title before the surviving joint tenant will be able to sell, lease or encumber the property as the sole owner. The new ownership interest of the surviving joint tenant is documented by RECORDING AN AFFIDAVIT declaring the death of the joint tenant.
Recognize the tax aspects of a joint tenancy vesting
A surviving spouse is entitled to a FULLY STEPPED UP COST BASIS (to property’s FMV on the date of the other spouse’s death) in the real estate previously owned by the community without concern for whether the property was vested as a community property (with or without the right of survivorship), as joint tenants or in a revocable inter vivos (living) trust.
Federal law is unconcerned with the form in which title is taken to community property.
community property
Community property is all property acquired by husband or wife during a marriage when not acquired as the separate property of either spouse.
fully stepped -up cost basis
A Fully Stepped Up Cost Basis is the tax basis of community property a surviving spouse receives on the death of a spouse is stepped up to the property’s fair market value (FMV) on the date of death.
joint tenancy = EQUAL SHARE = FOUR UNITIES
Joint tenancy is the ownership of fractional interests in real estate by two or more individuals each holding an equal share with the right of survivorship. When a joint tenant dies, their interest is eliminated and the surviving joint tenants share the remaining ownership equally. Joint tenancy requires the conveyance of the FOUR UNITIES:
- TITLE - take title together on the same deed
- TIME - at the same time
- INTEREST - hold equal shares/interest in the ownership of the property,
- POSSESSION - each has the right to possess the entire property
ratify
To RATIFY means the later adoption or approval of an act performed on behalf of a person when the act was not previously authorized.
right of survivorship
The Right of Survivorship is the right of surviving joint tenants or a spouse to succeed to the entire interest of the deceased co-owner.
set aside
To SET ASIDE is to annul by court order a document transferring an interest in real estate. For example, if one spouse, without the consent of the other, sells, leases for more than one year, or encumbers community real estate, the non-consenting spouse may either ratify the transaction or have it set aside.
The non-consenting spouse has ONE YEAR from the recording of the non consented to transaction to file an action to set aside the transaction.
vesting
VESTING is a method of holding title to real estate. Differences in the types of title vestings present different consequences for persons who have interest in property. Title to real estate in California is held in one of FOUR basic vestings:
- JOINT TENANCY - multiple interests with EQUAL shares
- TENANCY IN COMMON - multiple interests with VARYING shares, no right of survivorship
- COMMUNITY PROPERTY - all prop acquired by a married couple in CA during a marriage
- COMMUNITY PROPERTY WITH RIGHT OF SURVIVORSHIP - identical to comm property vesting but the RofS
Recognize the nexus between a recorded lis pendens describing a parcel of RE and the litigation it references asserting a claim to an interest in title or right to possession of the real estate.
The purpose of recording a Lis pendens is to preserve a person’s rights to the real estate until the dispute with the owner is resolved. Thus buyers who acquire an ownership interest in a property after a Lis pendens describing the property has been recorded, take their interest in the property subject to someone else’s (the claimants) right.
Without a recorded Lis pendens, or physical possession of the real estate, the person who claims an interest in title or the right to possession runs the risk the owner will encumber or convey the property to another buyer, lender or tenant who is unaware someone else already holds an interest in the property.
Understand the interference a recorded lis pendens has on the owner’s ability to convey clear title
A Lis pendens in a buyer’s specific performance action does not interfere with a title company insuring a lenders trust deed which secures a debt in the amount less than the price the buyer will be paying for the property. As a result, property subject to specific performance actions by buyers is often rendered unmarketable while the Lis pendens remains in effect. The tremendous value of the Lis pendens to litigating buyers is its ability to preserve the buyers right to purchase the property. The recording of a Lis pendens often persuades a hedging seller to perform.
Explain an expungement of a lis pendens as the remedy for clearing title of the litigation so the property can be conveyed and title insurance issued
After a lis pendens has been recorded anyone with an interest in the property affected May file a motion asking the court to expunge the lis pendens. Expungement removes from title any restrictions sought to be imposed on title or to possession by the lawsuit.
absolutely privileged publication
An Absolutely Privileged Publication is any statement made as part of the legislative, judicial or other official proceeding authorized by law including a Lis Pendens, barring a slander of title action.
To record a Lis Pendens, the lis pendens is required to:
- IDENTIFY the parties to the lawsuit
- give an adequate DESCRIPTION of the real estate
A Lis Pendens is properly of record when it is FILED and INDEXED in the county recorder’s office of the county where the property is located.
While the OBJECT of the lawsuit and its effect on title or possession of real estate does not need to be stated in the Lis pendens, the OBJECTIVE of the lawsuit is to be stated in the list pendants for it to be considered an absolutely privileged publication.
expungement
Expungement is a court order removing from title to real estate the effect of a recorded Lis pendens regarding litigation asserting a claim to title or possession of the property. Anytime after a Lis pendens has been recorded anyone with an interest in the property affected may file a motion asking the court to remove the Lis pendens from the record called an expungement.
lis pendens
A LIS PENDENS (meaning pending litigation, or Notice of Pending Action) is a notice recorded for the purpose of warning all persons that the title or right to possession of the described real property is in litigation. The purpose of recording a Lis pendens is to preserve a person’s rights to the real estate until the dispute with the owner is resolved. thus buyers who acquire an ownership interest in property after a Lis pendens describing the property has been recorded take their interest in the property subject to someone else’s (the claimants) right.
specific performance action
Specific Performance Action is litigation to compel performance of an agreement. Title companies usually refuse to insure title when a Lis pendens is recorded which involves a Specific Performance Action. Without Title Insurance, buyers will not buy, lenders will not lend and tenants will not occupy the property. As a result, property subject to specific performance actions by buyers is often rendered unmarketable while the Lis pendens remains in effect.
Explain the function of a preliminary title report
A preliminary title report (PRELIM) is a report furnished by the title insurance company in connection with an application for title insurance disclosing the current vesting and encumbrances reflected on public record. A title insurer has no duty to accurately report all title defects and encumbrances on the prelim.
A prelim is NOT a representation of the condition of title and CANNOT BE RELIED ON by anyone and imposes no liability on the title company. Thus, a prelim is no more than an offer to issue a title insurance policy based on the contents of the prelim and any modifications made by the title company before the policy is issued.
Distinguish between a preliminary title report and an abstract title
Unlike a prelim, abstract of title are written statements which MAY BE RELIED ON by those who order them as a accurate, factual representation of title to the property being acquired, encumbered or leased.
abstract of title
Unlike a prelim, abstract of title are written statements which MAY BE RELIED ON by those who order them as a accurate, factual representation of title to the property being acquired, encumbered or leased.
An abstract of title is a “Statement of Facts” collected from the public records. An abstract is not an insurance policy with a dollar limit on the insurer’s liability as is set in a policy of title insurance.
The content of an abstract is intended by the insurance company to be relied upon as fact. Thus, the insurer is liable for all money losses of the policyholder flowing from a failure to accurately State all conditions of title in the abstract they issue.
date-down search
A DATE-DOWN SEARCH is a further search of the public records performed by a title insurer after preparing a preliminary title report and immediately prior to issuance of a policy of title insurance. The prelim and a last-minute date down search of title conditions, are used by escrow and the title insurer to reveal any title problems to be eliminated before closing and, as instructed, obtain title insurance for the documents when recorded.
After the date down search if any defects or encumbrances show up that were not included in the prelim, the title company may withdraw its offer under the prelim. The title company then issues a new prelim offering to issue a policy on different terms.
preliminary title report (PRELIM)
A PRELIMINARY TITLE REPORT (prelim) is a report constituting a revocable offer by a title insurer to issue a policy of title insurance, used by a buyer and escrow for an initial review of the vesting and encumbrances recorded and affecting title to a property.
Encumbrances reflected on a preliminary title report include:
- General and special taxes
- assessments and bonds
- CCnRs
- easements
- rights-of-way
- lien’s
- interests of others
A preliminary title report also known as a prelim is not a representation of the condition of title or a policy of title insurance. Unlike an abstract of title, a prelim cannot be relied upon by anyone and imposes no liability on the title company.
Explain how a policy of title insurance indemnifies a person who acquires an interest in real estate against a monetary loss caused by an undisclosed encumbrance
A policy of title insurance is the means by which a title insurance company indemnifies a person who acquires an interest in real estate against a monetary loss caused by an encumbrance on title that is not listed in the policy and the insured was unaware of when the policy was issued.
Differentiate between the various types of title insurance policies and endorsements available such as those presented by the California Land Title Association (CLTA) and the American Land Title Association (ALTA)
Several types of title coverage are available including:
- A California Land Title Association- the CLTA standard policy
- —Purchased solely by buyers, carryback sellers and private lenders and insures against all encumbrances affecting title which can be discoverd by a search of PUBLIC RECORDS. Any encumbrances not recorded, whether or not observable by an inspection or survey, is NOT covered due to the CLTA policy exclusions and standard exceptions. - ALTA-OWNERS (ALTA-O) extended coverage policy
- — An ALTA owner’s policy does not contain pre-printed exceptions, only the typewritten exceptions listing the encumbrances which are known to the title company and affect title to the property. this covers more so it costs more than the CLTA. - ALTA-RESIDENTIAL (ALTA-R) policy
- — For buyers of real estate containing 124 residential units, ALTA-R is available in lieu of a ALTA owners or homeowners policy. Parcels insured include lots and units in common interest developments, such a condos. ALTA-R is referred to by the title companies as the ‘plain language’ policy. ALTA-R is similar in coverage to ALTA owners policy but costs a bit less b/c it is usually only issued on parcels of real estate in an existing subdivision or CID which has no known problems with easements, encroachments, or legal access. - ALTA-HOMEOWNERS (ALTA-H) homeowners policy
—- most coverage but will only be issued to
**property improved with a 124 unit family residence and
** the buyer needs to be a natural person, not an entity such as a corporation or LLC or partnership.
In addition to risks covered by ALTA owners and ALTA-R, the ALTA Homeowners policy covers several risks which may arise AFTER CLOSING. The ALTA Homeowners policy is about 10% more expensive than CLTA and many title insurance companies default policy.
Comprehend the six operative sections of a title insurance policy
A policy of title insurance includes SIX OPERATIVE SECTIONS including:
- the risks of loss covered - called insuring clauses, which are based on a completely unencumbered title at the time of transfer
- the risks of loss not covered - called EXCLUSIONS
- identification of the insured - called Schedule A
- the recorded interests - called EXCEPTIONS and listed in schedule B
- the procedures - called CONDITIONS, for claims made and any endorsements for any additional coverage
- any endorsements for ADDITIONAL COVERAGE or removal of exclusions or pre-printed exceptions from the policy
Observe the dollar limitations placed on coverage provided under the policy exclusions
All title insurance policies provide coverage forever after the date and time the policy is issued. Coverage is limited to the dollar amount of the policy, which is generally adjusted for inflation. Coverage is further limited by the exclusions, exceptions and conditions on claims.
Understand the process of settling a claim
To begin the claims process on becoming aware of an encumbrance covered as a loss by the policy of title insurance, the insured promptly gives the title insurance company written NOTICE OF CLAIM.
Upon being notified of the claim the title company has 15 days to:
- acknowledge receipt of the claim or pay the claim
- provide the insured with all the forms, instructions, assistance and information necessary to prove the claim
- begin any investigation of the claim
Further, the insured needs to provide the title company with a PROOF-OF-LOSS STATEMENT within 90 days after incurring the loss.
After receipt of the 90-day proof of loss statement, the title insurance company has 40 days to accept or reject the claim, in whole or in part
On accepting the claim, the title company may handle the claim in one of several ways including:
- pay the policy limits
- pay the loss
- negotiate a settlement
- bring or defend a legal action on the claim
- for an insured lender purchase the mortgage from the lender for the amount owed by the borrower
abstract of title
An abstract of title is a representation issued by a title company as a guarantee to the named person, not an insurance policy, listing all recorded conveyances and encumbrances affecting title to the described real estate.
exception
An EXCEPTION is any encumbrances affecting title and any observable on-site activities which are listed as risks assumed by the insured and not covered by a policy of title insurance under Section B.
exclusion
In the case of a title insurance policy, the SECOND operative section is - The Risks of Loss Not Covered - called EXCLUSIONS - comprised of encumbrances arising after the transfer or known to or brought about by the insured, called Exclusions, which are a boilerplate set of title conditions. Exclusions are risks of loss not covered under a policy of title insurance, comprised of encumbrances arising after the transfer or known to or brought about by the insured.
proof-of-loss statement
A PROOF OF LOSS statement is a statement submitted to the title insurance company by the insured (within 90 days after incurring the loss) referencing the encumbrance discovered after they were issued the policy, the amount of the loss and the basis for calculating the loss.
Schedule A
in the case of a title insurance policy, the THIRD operative section is - SCHEDULE A - the identification of the insured, the property, the vesting, the dollar amount of coverage, the premium paid and the recording, called Schedule A. Therefore Schedule A is the identification of the property interest insured, the legal description of the insured property, the date and time coverage began, the premium paid for the policy and the total dollar amount to be paid for all claims settled.
Schedule B
In the case of a title insurance policy, the FOURTH operative section is - SCHEDULE B - The recorded interests, IE, any encumbrances affecting title and any observable on-site activities which are listed as risks agreed to and presume by the insured and not covered by the policy called EXCEPTIONS, which are itemized for all types of coverage in Schedule B. Therefore Schedule B are exceptions from coverage, both standard and itemized, by the title insurance policy.
title insurance
Title insurance is a form of indemnity insurance issued by a title insurance company which holds harmless the named insureds against monetary losses caused by an encumbrance not listed in schedule B of the policy and not known by the insured when the policy was issued.
Title insurance policies are issued on one of several general forms used by the entire title insurance industry in CA. The policies are typically issued to:
- buyers of Real Estate
- tenants acquiring long-term leases
- lenders whose mortgages are secured by real estate
As an Indemnity agreement a title insurance policy is a contract the terms of coverage in the policy set forth the extent of the title insurance company’s obligation, if any, to indemnify the policyholder for money losses caused by an encumbrance on title.
