What You Should Know About Title Insurance (Part 2)

By Laurie Murphy

In a prior blog, we introduced the two types of title insurance available in California to protect a buyer against claims related to title.   

The blog discussed the coverage provided and excluded by a standard CLTA policy.  A standard CLTA policy covers the property owner and the lender.  It does not cover a subsequent purchaser and it does not automatically cover a trust if the insured buyer transfers title to his or her family trust.  However, endorsements for such transfers are available.  Typically a title insurer is not liable to the insured if the property in question is smaller than stated in the policy so long as the boundary lines are properly described in the policy.  A standard CLTA policy insures the owner against any loss associated with the property not being vested in the name stated on the policy.  It also protects against any losses arising out of any recorded lien or encumbrance with the exception of those which were listed on the policy.  

An encumbrance refers to taxes, assessments, and all liens. Not all recorded documents, however, are encumbrances.  Thus, a CLTA policy will not cover a recorded notice by the department of building and safety of a violation of building code(s).  Such a violation affects the market value of the property, not the marketability of the property –i.e. title. The same holds true for environmental cleanup costs – title insurance does not cover the cost of removing hazardous waste material.  A CLTA policy covers losses suffered by an insured based upon the lack of a right of access to an open street or highway.  Thus, if the parcel in question is truly landlocked, the policy would cover the cost of obtaining physical access to an open street or highway.  However, that policy provision is not triggered unless the parcel is truly landlocked. If the parcel has access to an open street or highway which would be impractical, difficult or expensive to create, the coverage is not triggered since access must be entirely lacking.   

Standard CLTA policies expressly exclude coverage for laws, ordinances and governmental regulations (including building and zoning laws).  A recorded notice of a building code violation might be covered if it was not listed as an exclusion in the policy.  In addition, there is no coverage for losses resulting from title defects, liens or encumbrance created, assumed or agreed to by the insured, unrecorded but known to the insured at time of purchase and not disclosed in writing to the insurer, losses caused by title defects, liens or encumbrances created after the date of the policy or disclosed by the seller to the buyer such as unrecorded easements claimed by adjoining parcel owners which are not disclosed in the public records, nor are conflicts in boundaries or any such facts that a correct survey would disclose covered.  The insured can buy extended coverage (an ALTA policy) at generally twice the premium which will be discussed in a later blog.