Forms of Title Evidence
Title insurance is the application of the principles of insurance risks incident to real estate titles, but unlike other types of insurance, it protects against losses arising in the future out of what has happened in the past.
The principal forms of tile evidences fall into one of the following classifications:
TITLE INSURANCE is a contract of indemnity whereby the title company, as insurer, guarantees that the title of an owner, mortgagee or lessee is good and is free from defects, liens or encumbrances, existing at the date of the policy, excepting such as are specifically mentioned therein. By this, the title company obligates itself to defend the policyholder at its own cost against any claim of defect or loss of priority, and to pay any loss, up to the full amount of the policy, suffered by the insured by reason,of any defects, liens or encumbrances found to exist at the date of the policy and not excepted therein.
The purpose of a title insurance policy is to protect the owner, mortgagee or lessee of real estate against defects of the record title and, in addition, many defects which would not be disclosed by the most thorough examination of the record title, including the follows:
- Forged deeds.
- Forged mortgages.
- Forged waivers, assignments and cancellation of mortgages.
- False impersonation.
- Mortgages canceled by mistake.
- Undisclosed dower.
- Undisclosed heirs.
- Missing heirs presumed to be dead.
- Deeds and mortgages made by insane parties, the insanity proceedings not being of record in the County.
- Deeds and mortgages made by minors, there being nothing of record in the County to disclose the fact of minority.
- The undisclosed existence of children born or adopted after the execution of a will.
- Release of dower by a minor husband or wife, there being no record evidence of the minority.
- Deeds made under power of attorney that has been revoked by the death of the person executing the power.
- Divorce proceedings in a foreign County or State.
- Foreign bankruptcy proceedings.
- Probate of a will after deed executed and delivered by heirs.
- A recorded deed that was never delivered, deliver essential to the passing of title by deed.
- A deed delivered by an escrow agent in violation of instructions.
A TITLE GUARANTY is an indemnity contract whereby the title company, as insurer, guarantees that, so far as appears of record, the title to a designated parcel of and is good in the stated party subject only to such defects, liens and encumbrances as are set forth in the title guaranty. No coverage or protection is afforded in this form against liens or defects which are not revealed by the public records.
The purpose of a Title Guaranty is to protect is to protect a purchaser, mortgagee, or lessee of real estate as to the precise condition of the record title as of a specified date.
I. Forms of Title Insurance
(a) Owner's Policy
Designated to insure an owner's interest in a title. It may be a fee simple title or any lesser interest. The insurance company will have liability to the named insured so land as he remains in title, or so long as his heirs have an interest. Moreover, it remains to protect an insured owner on any warranties that the insured may make in any conveyance he makes in the future.
Owners insurance policies include an "inflation endorsement", which automatically raises the limit of liability on your policy up to 8% per year for 10 years. So, chances will not have to consider increasing your protection for a long period of time.
(b) Mortgage Policy
Is term insurance to protect the lien of the lender's security instrument, and insures validity and enforceability of the lien. Unlike liability under an Owner's Policy the liability of the insurer under a mortgage policy declines as the indebtedness is reduced and terminates entirely when the indebtedness secured by the mortgage is satisfied. The policy does not, contrary to some popular misconceptions, convert into an owner's policy upon foreclosure or acquisition of the title in satisfaction of the indebtedness. The benefits of the policy do, however, remain as a protection to the lender after acquisition, but only as of the effective date of the policy.
(c) Leasehold Policy
Has the same basic format as a owner's policy, but with language tailored to insure a leasehold interest in land. Primary difficulties are in determining insurable value of a leasehold interest. Is not intended to be used to insure oil and gas leases, or other materials interests.
(d) Title Guaranty
Designated to be issued either to owner or to mortgagee, or to both jointly. If to both jointly, the stated amount of insurance should be the fair market value of the land and improvements, and not merely the face amount of the mortgage.
(e) Commitment of items A through D above.
II. Guaranteed Certificate of Title
This form is used strictly locally and insures only the status of the record title as found in the various offices of the courthouse.
III. Judicial Report
Search made primarily for use in connection with foreclosure proceedings.
IV. Preliminary Report
Same as a Commitment for Title Insurance.
V. Attorney's Guarantee
Local form used for judicial proceedings; commonly called statement of owners and lienholders.
NOTE: Numbers I, II, III and IV are forms authorized by the Ohio Department of Insurance.
Title Insurance Forms
For many years, the American Land Title Association has developed title insurance forms for voluntary use by member title insurance underwriting companies. Before a new form is adopted, it first must be approved by a vote of the ALTA Active membership. Proposed new forms are continually being
developed and existing forms are reviewed by the Association's Title Insurance Forms Committee under the authority of the elected ALTA Board of Governors.
ALTA forms represent an ongoing effort by the Association to keep title insurance coverage responsive to the needs of customers and consistent with the requirements of regulatory authorities. At this writing, ALTA forms are used in all states except Texas.
This thumbnail guide presents a brief sketch of the ALTA forms existing in 1990. It is designed to provide a quick glimpse, but in no way purports to include a comprehensive explanation of these forms.
Specific questions and other points regarding title insurance in a given real estate transaction should be discussed with a representative of the individual title insurance company providing the coverage.
All ALTA basic policy forms (Owner's, Loan, Leasehold Owner's and Leasehold Loan) have the following basic components (1) Insuring Provisions, (2) Exclusions from Coverage, (3) Conditions and Stipulations, (4) Schedule A, (5) Schedule B.
The Insuring Provisions detail specific matters that are covered by the policy, while the Exclusions from Coverage set forth those matters not covered by the policy.
The Conditions and Stipulations detail the contractual relationship between the insurer and insured and set forth, among many other matters, the definitions of some important terms in the policy, situations when the coverage of the policy may continue, both the insured's and the insurer's rights and responsibilities in the event of a claim, limitations on liability, and an arbitration provision.
Schedule A. sets forth the name of the insured, the particular estate insured, the manner in which vesting of title is insured, and a description of the property covered by the policy.
Schedule B details the exceptions to coverage.
All basic ALTA policy forms include coverage insuring against the unmarketability of title and the lack of a legal right of access to and from the land. Also, these policies provide, subject to their conditions and stipulations, that the Company will pay for counsel to represent the insured as to any claim based on a matter covered by the policy.
The following are thumbnail profiles of the current ALTA forms:
ALTA Loan Policy.
Insures a lender making a loan secured by a mortgage on land with respect
to the title of the subject property, and with respect to the validity and priority of the mortgage lien. Coverage usually is in the amount of the mortgage loan and the amount of coverage decreases as the mortgage is paid.
ALTA Owner's Policy.
Insures an owner with respect to the title to the subject property. The
policy can be used for residential or commercial properties, or various other interests in real estate. The coverage remains in effect as long as the insured, or heirs or devisees of the insured, retain an interest in the subject property or remain liable under warranties given in the sale of that property. The minimum amount of coverage is generally the full purchase price of the real
estate, including any improvements to the property that constitute real property.
ALTA Leasehold Loan Policy.
Insures a lender making a loan secured by a mortgage on a "leasehold estate" with respect to the title to the subject property, and with respect to the validity and priority of the mortgage lien. The policy includes a definition of the "leasehold estate" and provides a basis for valuation of the leasehold estate for claims purposes. The policy specifies various miscellaneous items of loss in the event of eviction that are peculiar to a "leasehold estate" including the reasonable cost of removing and relocating personal property up to 25 miles, rent or damages that may be due to someone with superior title, the fair market value of any sublease under the insured leasehold, or damages that the insured's borrower may be obligated to pay any sublessee because of any breach of the sublease caused by eviction.
ALTA Leasehold Owner's Policy.
Insures the owner of the leasehold estate. Coverage is very similar to the ALTA Owner's Policy but this policy provides a definition of a "leasehold estate" and a method of valuation of the "leasehold estate" for claims purposes. Also, in the event of eviction, it provides for miscellaneous items of loss as set forth in the ALTA Leasehold Loan Policy.
ALTA Short Form Residential Loan Policy.
Insures the lender making a mortgage loan on a one to four family residence or condominium unit. The policy is an abbreviated short form version of the current ALTA Loan Policy, incorporating all of the terms and provisions of the
ALTA Loan Policy, which is designed to be delivered to the lender at closing. The policy contains blanket exceptions to taxes, covenants and restrictions, easements, reservations of minerals or mineral rights, and offers certain affirmative assurances with respect to those exceptions desired by lenders, including certain affirmative assurances with respect to survey matters. The policy also includes an Addendum, which can be used to set forth additional
exceptions or to limit the affirmative assurances. The policy is designed so that certain ALTA endorsement forms may be specified, and thus incorporated, by checking appropriate boxes.
ALTA Endorsement Form 1 - Street Assessments.
Insures a lender against loss as a result of an assessment for street improvements under construction or completed at date of policy, which
may gain priority over the lien of the insured mortgage.
ALTA Endorsement Form 2 - Truth in Lending.
Insures a lender against loss resulting from a determination that the lien of the mortgage has been terminated or the title acquired by the lender (in foreclosure) has been defeated by a valid exercise of the right of rescission pursuant to the Federal Truth in Lending Act, and that the right of rescission existed because neither the credit transaction nor the right of rescission was exempted or excepted by Regulation Z.
ALTA Endorsement Form 3 - Zoning.
Insures the lender that the vacant land described in the policy is zoned in a specific classification, and lists one or more of the uses allowed by that classification.
ALTA Endorsement Form 3.1 - Zoning, Completed Structure.
Insures the lender that the improved land described in the policy is zoned in a specific classification, and lists one or more of the uses allowed in that classification. Also affirmatively assures that the improvements comply with the zoning classification regarding use, building site dimension, floor space,
setback, and height.
ALTA Endorsement Form 4 - Condominium.
Insures a lender securing its loan with a mortgage lien on a condominium unit that (i) the unit is part of the condominium; (ii) the condominium documents comply with state requirements; (iii) there are no violations of restrictive covenants, and any violations of the covenants will not cause a forfeiture or reversion of title; (iv) the mortgage has priority over liens for charges and assessments; (v) the unit will be assessed for real property taxes as a separate parcel; (vi) there is no obligation to remove any improvements due to encroachments; (vii) there has been no prior right of first refusal which
could defeat the conveyancing title.
Endorsement Form 5 - Planned Unit Development.
Insures a lender securing its loan with a lien on a unit in a PUD that: (i) there are no violations of restrictive covenants, and any violation of the covenants will not cause a forfeiture or reversion of title; (ii) the mortgage has priority over liens for charges and assessments by any homeowner's association; (iii) no existing structure will have to be removed because of any encroachments; (iv) there has been no prior right of first refusal which could defeat the title.
Endorsement Form 6 and 6.1.
Insures a lender against the invalidity, unenforceability, or loss of priority of the lien of the insured mortgage as a result of changes in the rate of interest pursuant to a formula provided for in the insured mortgage.
Endorsement Form 6.2 - Variable Rate Mortgage, Negative Amortization.
Insures a lender against the invalidity, unenforceability, or loss of priority of the lien of the insured mortgage as a result of changes in the rate of interest, interest on interest, or increases in the unpaid principal balance of the loan resulting from the addition of unpaid interest pursuant to a formula provided for in the insured mortgage.
ALTA Endorsement Form 7 - Manufactured Housing Unit.
Insures the lender that the manufactured housing unit (a mobile home), affixed to the land, is included in the definition of term "land" used in the policy and, accordingly, the lien of the insured mortgage attaches to the manufactured housing unit.
Endorsement Form 8.1 - Environmental Protection Lien.
Insures the residential lender against loss of priority to (a) an environmental protection lien, federal or state, filed in the public records as defined in the endorsement at date of policy and (b) an environmental lien provided for by a state statute (superlien) in effect on the date of policy, except those statutes listed in Paragraph (b) of the endorsement.
Endorsement Form 9 - Restrictions, Encroachments, Minerals.
This endorsement offers the lender a variety of additional affirmative assurances including, but not limited to, assurance that there are no covenants, conditions, or restrictions under which the lien of the
mortgage can be divested, subordinated or extinguished, or its validity, priority or enforceability impaired; insurance against present violations of covenants, conditions, or restrictions; insurance against encroachments and against damage to existing improvements which encroach upon easement areas or damage resulting from the right to use the surface of the land for the extraction of minerals.