Title and Vesting - Part 3 - Chapters 52-54 Flashcards
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
- an American Land Title Association (ALTA-O) owners extended coverage policy
- an ALTA residential (ALTA-R) policy
- an ALTA (ALTA-H) homeowners policy (which 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 an 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 give is the title insurance company written NOTICE OF CLAIM.
Upon be 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.
Advise a homeowner whether they qualify to voluntarily sell and protect the equity in their residence from creditor seizure
A Declaration of Homestead allows homeowners to voluntarily sell their home, receive the net sales proceeds up to the dollar amount of the homestead and reinvest the funds in another home.
A homeowner who voluntarily sells their residence when title is subject to a creditors lien CANNOT use the automatic homestead exemption to protect the sales proceeds from being taken by the Judgment creditor.
In contrast a Declaration of Homestead recorded prior to the recording of the Judgment lien allows the homeowner who voluntarily sells their home to first withdraw their homestead amount from the net sales proceeds before the Judgment creditor receives any funds.
Although an insufficient net equity may exist barring the judgment creditor from forcing a sale of the home, the homeowner claiming only an Automatic homestead exemption may NOT USE A QUIET TITLE ACTION to remove the lien and sell the home, unlike what CAN BE ACCOMPLISHED under a Declared Homestead.
Differentiate between and automatic homestead and a recorded declaration of homestead and the protections afforded under each
A homestead is the dollar amount of equity in a homeowner’s dwelling the homeowner qualifies to exempt from creditor seizure. Two types of Homestead procedures are available to California homeowners:
- the Automatic Homestead - which is not recorded, but is always available on the principle dwelling occupied by the homeowner or their spouse and applies to the equity in: a RE dwelling, mobile home, condo, planned development, stock cooperative, apartment complex together with the land it rests on, or houseboat used as a dwelling.
- the Declaration of Homestead - which is recorded, and applies only to real estate dwellings, thus mobile homes and houseboats are not protected by a recorded homestead.
Both Homestead Arrangements provide the same dollar amount of home equity protection in California.
However, a homeowner needs to record a Declaration of Homestead to receive all the benefits of available under the Homestead laws. These benefits allow homeowners the right to sell, receive the net sales proceeds up to the dollar amount of the homestead, and reinvest the funds in another home.
Determine the specified dollar amounts of net equity homestead protection available
The dollar amount of home equity protection a homeowner qualifies to preserve is the same under either the Automatic Homestead or Recorded Declaration of Homestead.
Homeowners qualify for one of three dollar amounts of net Equity Homestead protection:
- a $75,000 equity for an individual homeowner with no dependents
- a $100,000 equity for a head of household
- a $175,000 equity for homeowners who are age 65 years or older, disabled, or age 55 years or older with an annual income of less than $25,000 or a combined gross annual income of no more than $35,000 if married.
