Title insurance protects a title holder from some pretty scary potential problems. When buying or selling a house in California it is pretty common to be required to buy title insurance, but there is an exception or two.
In most transactions there are 2 title policies that need to be purchased: The owner’s title policy, and the lender’s title policy.
The Owner’s Title Insurance protects the new owner of the property from title defects. This policy will insure the full purchase price of the property.
The Lender’s Title Insurance protects against the same potential problems, but it protects the bank rather than the owner. It also only protects up to the amount of the loan, instead of the full purchase price of the property.
Either of these two policies can be an CLTA Title Policy, or a ALTA Title Policy. So what’s the difference?
CLTA Title Policy
CLTA stands for the California Land Title Association, which is a trade organization representing title companies throughout the state.
A CLTA policy protects a homeowner from losses due to recorded title issues such as fraud, forgery, recorded claims to title by other parties, or even unpaid taxes. Because CLTA coverage is limited to matters of record, this is considered to be the more “basic” of the two policies.
Advantage of CLTA Policy
The only advantage of this policy is that the premium is lower. If you are a seller and have agreed to provide the buyer with a title policy you may want to stipulate that you are providing a CLTA policy.
However, expect a savvy buyer (or a buyer with savvy representation) to fight back with you on this in California.
ALTA Title Policy
ALTA stands for American Land Title Association, and ALTA policies are a bit more robust than the CLTA policy.
The ALTA policy carries all of the same protections as the CLTA policy, protecting against matters of record such as errors and fraud. However, it also includes additional protections including, but not limited to:
- Unrecorded mechanic’s liens
- Water rights
- Mining rights
- Boundary line conflicts
- Lack of property access
Institutional banks require ALTA policies
Banks will almost always insist that the Lender’s title policy be an ALTA policy. The bank is in the business of reducing risk. They are willing to give buyers loans because those loans are backed by real estate, but that real estate may not do them any good if there are clouds on title. This is why banks insist on the ALTA policy, because they are relying on the robustness of the superior coverage to protect their investment.
In Orange County and most of Southern California, the buyer is generally responsible for paying the premium for the Lender’s policy.
So There You Have It
the ALTA policy is basically just an improved and more pricey version of the CLTA policy. The price difference is not “huge,” however, so I typically encourage all of my client’s to go for the ALTA policy. You may never need it, but the consequences of not having it can be huge.