Posted by Charles_Ca on 1/9/07 2:13pm
Msg #170035

TitleGal, would you please answer a question?

I was meeting with a client on a sale today and a question came up. It was stated that title insurance covers the insured only to the dollar amount of equity held in the property by the insured at the time of the transaction. In other words if the insured had 20% equity by making a purchase with 20% down would the title insurance only cover that original 20% for the duration of the insured's ownership of the property? Once one thinks about it, it makes sense that the insurance company would not want to be liable for an indeterminate amount for the price of the original premium. The buyer claimed to have been burned by this once. So, how does one increase the coverage of title insurance to cover the cost of the potential loss due to a defective title as the property appreciates? Does one go into teir title companyh and ask to increase their coverage? Does one also shop around for the best price on the increased coverage? Can one buy an ALTA policy if one already has a CLTA policy? Your insight would be greatly appreciated.

Reply by PAW on 1/9/07 2:30pm
Msg #170038

I'm not TitleGal nor am I sure how things are done in Ca, but here in FL, on a purchase, typically the owner's coverage is for the sale price and the lender's coverage is for the loan amount. We actually show the values on the HUD (lines 1109 and 1110).

Reply by Charles_Ca on 1/9/07 3:59pm
Msg #170051

Thanks PAW, in California the title insurance premium

is a percentage of the full sale price of the property, and I always understood that it covered the loss to the sale price of the property. I normally would have thought that this client was blowing smoke but he is an attorney and so I thought it might be worth while to investigate this further before writing it off as BS. Thanks for you input and I do believe you are right! I don't think I'd confuse you with TitleGal !

Reply by Ronnie_WA on 1/9/07 7:51pm
Msg #170063

There are several types of owners policies but, generally speaking, an owner's policy will cover the cost of remedying the defect in title, up to the purchase price of the property. If they paid for an inflation endorsement, it will cover up to the replacement/market value. That's how it works in WA and I would assume other states are comparable, but can't say for certain. Escrow and title officers are usually available to take calls if you run into something like this again. They're very glad to help

Reply by Charles_Ca on 1/9/07 8:39pm
Msg #170069

Thanks Ronnie, I asked TitleGal because I know

that she deals with many different kinds of transactions and is a Title Officer with a great track record at one of the big title companies. An attorney made the statement and I wanted to find out if under some circumstances this was actually valid. Appears the attorney was talking through his hat! I'm still curious about upgrading ones title policy. For many years only banks were allowed to purchase extended policies.

Reply by TitleGalCA on 1/9/07 9:27pm
Msg #170071

Hi Charles

I'm going to post a link that is available to most RE Agents, and many of our customers that contain good explanations and definitions of title insurance, most specific to the ALTA Owners Policy and Lenders Policies.

https://www.agentxtra.net/Extranet/singlesource/NavMaster.asp?LinkID=4467451

First, without knowing the exact circumstance of your attorney's problem (and they do claim to have been 'burned' when in fact they didn't order the correct product for their transaction) I can't answer specifically, but I suspect your friends problem had something to do with the section named "Determination and Extent of Liability"...Section 7b for the 1987 ALTA Owners Policy, but I am only GUESSING.

I can't address it because I don't know the specifics...and even if I did, I would be required to check with our underwriters...if it were a claim on one of my closings.

Coverage can be increased in some products by buying additional insurance when improvements are made (and complete) and sometimes via endorsements....depending on the transaction. I don't know of any title insurance product that increases with appreciation, ever. The more complicated insurance products and endorsements have to do with commercial and major projects, and lender requirements, not homeowner policies.

In general, an owners policy protects them up to the amount of the purchase price of the land that insure against loss or damage arising from:

Title to the estate or interest described in Schedule A of the Policy being vested (owned) by any other than as stated in the policy;

any defect in or lien or encumbrance on title;

"unmarketability" of the title; or

lack of a right or access to and from the land.

and all AS OF THE DATE OF THE POLICY. Car insurance protects you from future events; title insurance protects an owner from past events to the date of the policy, thereby insuring they do, in fact own their land, have access to it, it can be 'marketed', and there are no other liens or encumbrances other than what is shown in Schedule B.

Most individual homeowners don't understand the specifics of their coverage, but the seller is required to provide it for many, many good reasons. It is protection, very needed protection, for any owner of real property. The title industry is under attack, literally, these days due to large financial publications who have printed articles containing false and inflammatory information about the need -or lack thereof- for title insurance. I won't take up the call to arms in this notary forum for two reasons - it's not exactly pertinent to notaries interests (although it is nice to know...hence the link) and second, I'm not qualified to do so. Bigger and better minds than mine are answering this unreasonable attack.

One other point - our rates are determined by the Insurance Commissioner. "Shopping around" is possible...and there are many TC's that might cut rates in order get the business but it's illegal. My company is adhering to posted rates, period. This is important because it's been said that title companies charge too much and are then investigated by the State, but the opposite is true. Some TC's will charge the customer LESS, not more, to increase market share. So much for 'gauging' the public.

You have my email addy at work - if you like and can provide some detail, I'll be happy to run it by my Chief Title Officer for you to answer your question more specifically.

Best regards.

Reply by MikeC/NY on 1/9/07 11:09pm
Msg #170088

Re: Endorsements

"I don't know of any title insurance product that increases with appreciation, ever. The more complicated insurance products and endorsements have to do with commercial and major projects, and lender requirements, not homeowner policies."

I'm just coming out of a class on title closing so maybe this is not what you're referring to, but in NY the title companies are required by law to offer a "Market Value endorsement" on the homeowner's policy. This allows for full market value if the property appreciates AND there's a total loss claim. The instructor (an attorney who also owns a TC) said that this rarely happens, and about the only time he advises his clients to purchase the endorsement is if there's a foreclosure or death in the title chain. I don't think the endorsement is available on the lender's policy.

Reply by TitleGalCA on 1/10/07 12:20am
Msg #170097

OT: Re: Endorsements

"I don't know of any title insurance product that increases with appreciation, ever"

I said I didn't know of any, and didn't mean they couldn't exist in other states. I just have no experience in issuing them.

Still...these 'rare' circumstances you mention...If there is a foreclosure or death in the title chain? Anywhere in the title chain from the beginning of time to present? Sorry - I can't connect the circumstance with the endorsement, but like I said, no experience there.

Again...this isn't a topic for a notary forum. My comments were intended to be general and helpful, without going into underwriting practices for all states.

Reply by MikeC/NY on 1/10/07 7:04am
Msg #170112

Re: OT: Re: Endorsements

It wasn't meant as criticism or complaint about your comments, and if that's the way it came across I apologize. I was just pointing out that such endorsements do exist. As far as death or foreclosure anywhere in the chain of title, that would be subject to statutes of limitation for a claim.

Reply by TitleGalCA on 1/10/07 12:17pm
Msg #170159

=) None taken! n/m

Reply by Charles_Ca on 1/10/07 1:06pm
Msg #170173

Thanks TitleGal, a great explanation as anticipated....

I apreciate the response and even though I've been in the business for a long long time this is the first time I've seen that website. This is the reason networking is so helpful. The whole situation is moot now, the seller didn't have the capacity to grant. The seller was trying to contort the definition of community property to suit his purposes even though the property was vested as his wifes separate and personal property. As you know a lot of real estate agents don't check carefully and in our state either spouse can sell the property, this guy just pushed it a little too far even for a commercial deal. Thanks again. Good luck with your RE lic. I've always liked John Lumbleau's courses, he's been around for a long time and is still very successful in creating new RE Agents.

Reply by TitleGalCA on 1/10/07 8:08pm
Msg #170238

Re: Thanks TitleGal, a great explanation as anticipated....

Quite welcome, Charles. And thank you for the recommendation. I had done my homework, found one or two schools, but your thoughts were invaluable - and so was the website for Lumbleau. It had features the others didn't, the price was inline with what I've found (reasonable, in fact), and the testimonials supported what you said.

Consider this customer sold. Thank you very much.