Chapter 7 - Title Insurance
Title insurance is quite different from other types of insurance. Why? Because unlike other forms of insurance that provide coverage for unpredictable occurrences that could possibly happen in the future (such as life, health or casualty insurance), title insurance protects the party insured from loss that results due to events that happen before the effective date of the title insurance policy.
Another important difference is that title insurance is a single premium product. This means that the buyer pays a one-time only premium for the lenders benefit on the day the policy is issued. The amount of the title policy premium is based on the amount of money that is being insured by the loan. A trust deed investor always needs a title insurance policy.
How to obtain title insurance policy
A title company will open a standard insured loan transaction, and will research the property. When it comes to researching the property, the title company will begin from the time the government conveyed the property, and then move on to the original private owner, and continue on until the title company reaches the most recent record within its database.
Once the title company has finished its examination of the property, the title agent will then share the results of the research with the investor, revealing the title condition. The report that is conducted by the title company is known as a preliminary report or a prelim. The prelim is created from an itemized list of exceptions (title facts).
When it comes to preliminary reports, the most common exceptions include:
? Casements for a variety of purposes
? Real property taxes
? Any mineral uncertainties or the right to examine for them
? Covenants
? Any encumbrances or liens that presently affect the property
? Restrictions and conditions better known as CCRs.
Policy Types
Although there are different title insurance policies, the most common ones that are used today are:
1. American Land Title Association (ALTA) This policy is generally issued to a lender who holds a deed of trust in first position.
2. California Land Title Association (CLTA) - This policy is generally issued to a lender in second position, or to the purchaser of a property.
What is insured by policies?
Although it may appear that each title insurance policy listed above appear similar, that ALTA policy is recognized as being far superior to the CLTA policy. The reason is because ALTA provides a broader range of coverage compared to CLTA. However, despite their differences, each policy works to insure some the following (Note: The list below is only a small sample of the insurance provided by these two policies):
The deed of trust that is insured is recognized as a valid an enforceable lien.
No defects, encumbrances, or recorded liens appear on the title. All that appears is what is displayed within the policy.
The right of access to and from the property
The title to the property is made marketable
Any assignment of the trust deed that is displayed in the policy is valid and enforceable.
Even though each policy works in the best interest of the investor, ALTA is still considered to be the best choice among the two, and is something you should keep in mind when selecting a policy.
Endorsements
While some properties may look similar, you need to understand that no two pieces of land are the same. Different factors associated with each lot of land such as casements, CCRs, and location, make one piece of property different from the next. And depending on the results of these factors, they can determine if there is an unpleasant effect on title clarity and even on value. Due to the fact that there are so many diverse varieties of factors, additional forms of coverage have been continuously developed in forms of endorsement.
Endorsements are very similar to the riders found in a variety of other types of insurance, and they provide coverage for precise issues that are not covered in the pre-printed title insurance policy.
Title insurance, and the process that is associated with the creation of a title insurance policy, provides the investor with an in depth examination of the property title and everything that affects it. Ultimately, title insurance gives the investor reassurance that they are involved with a safe investment.
Residential Trust Deed Investments
Should a borrower file for bankruptcy, it is always in your best interest to respond as quickly as possible to ensure that you receive full payment of the amount owed to you.
The reason is because LTV means to loan a percentage of money that is less than the actual property value. Yes! The company providing escrow acts as the middle person in the transaction, and the escrow agent is the one who will process the transaction in accordance to the initial escrow instructions that were agreed on by the lender and the borrower.
Finally, the investor should make copies of all the important documents (for example- escrow instructions, trust deed, promissory note), and keep them at home where they can be easily accessed and referred to when needed.
These differences will be discussed later on in this chapter. The note, on the other hand, shows the initial amount that is owed based on the terms and conditions regarding the repayment of the trust deed. Remember, only through asking questions will you learn all the facts of purchasing a trust deed. The loan-to-value principal is what makes carrying a high yield with a trust deed investment secure.
Trust deeds can be traded4.
Should there be problems during the foreclosure, or should necessary negotiations need to take place during the process, in-house legal counsel is waiting to offer assistance to the investor. In fact, of all the investments you can make, mortgage loans are rated as one of the safest. This allows them the ability to approve and fund loans within hours or days of a submitted application. The standard yield is 11 V 14% per annum. A lien is a legally recognized claim or hold against one persons item by another which utilizes this item as security for a duty, debt or obligation. |
