Recording is the process of depositing original documents with the county recorder's office to create a permanent, public record of transactions affecting real property. California's recording system allows anyone to search public records to discover liens, encumbrances, deeds, and other interests affecting a parcel.
Why record?
What can be recorded: Deeds, deeds of trust, liens, mechanics' liens, lis pendens (notice of pending litigation), notices of default, easements, CC&Rs, and other instruments affecting title.
Requirements for recording:
A deed is valid between the parties without recording. Recording is required only to protect against subsequent claimants.
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Escrow is a neutral depository arrangement where a third party (escrow holder) holds funds, documents, and instructions from both buyer and seller and carries out their mutual instructions upon satisfaction of agreed conditions.
Escrow is an agent of both parties — a limited dual agent for the narrow purpose of carrying out the escrow instructions. The escrow holder owes equal duties to both buyer and seller.
Escrow holders in California:
Escrow process: 1. Buyer and seller agree on terms (accepted offer) 2. Escrow instructions are prepared and signed by both parties 3. Buyer deposits earnest money into escrow 4. Lender deposits loan funds when ready 5. Title search is completed; title insurance ordered 6. All contingencies are satisfied and removed 7. Documents are signed (loan docs, grant deed) 8. Escrow holder records the deed and deed of trust 9. Funds are disbursed: seller receives net proceeds; buyer receives title
Prorations in escrow — ongoing expenses (property taxes, HOA dues, rents) are divided between buyer and seller as of the close of escrow date. A 30-day month or 360-day year is commonly used. The closing day typically belongs to the buyer.
Proration example: Property taxes of $6,000/year. Escrow closes on March 15. Second tax installment covers January 1 – June 30 (180 days). Seller owns the property Jan 1 through March 14 (73 days). Daily rate = $6,000 / 360 = $16.67. Seller owes $16.67 × 73 days = $1,217 credit to buyer (if taxes are paid in arrears).
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Title insurance protects the insured against losses from defects in title that existed before the policy date — claims, liens, encumbrances, and problems not disclosed in the policy. Unlike other insurance, title insurance is a one-time premium paid at closing that covers past events (not future ones).
Does NOT protect against:
Common usage: Lenders typically require an ALTA lender's policy. Buyers receive an owner's policy (CLTA or ALTA).
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Quiz Questions:
Q1. A buyer's agent discovers after closing that the seller had an undisclosed tenant living in the guest house. The buyer's CLTA standard coverage title insurance policy:
A) Covers this — CLTA protects against all undisclosed interests B) Does not cover rights of parties in possession — the buyer needs an ALTA policy for this protection C) Covers this because the tenant was not disclosed on the TDS D) Covers this if the tenant was on the property for less than 1 year
Answer: B — CLTA standard coverage does not cover rights of parties in actual possession of the property. ALTA extended coverage does cover this risk. Buyers who want protection against undisclosed occupants (tenants, adverse possessors) should obtain ALTA coverage.
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Q2. A property closes escrow on August 20. Monthly HOA dues are $400. The dues for August were paid by the seller on August 1. Using a 30-day month (closing day belongs to buyer), how much does the buyer owe the seller as a proration credit?
A) $400 (full month) B) $133 (seller's 10 days) C) $267 (buyer's 20 days × $13.33/day) D) $0 — HOA dues are not prorated
Answer: C — Daily rate: $400/30 = $13.33/day. Seller owns days 1–19 (19 days); buyer owns days 20–31 (closing day belongs to buyer: days 20–30 = 11 days... Using standard convention: seller gets days 1-19 (19 days), buyer gets days 20-30 (11 days). Buyer owes seller: 11 × $13.33 = $146.67. Note: The answer depends on the counting convention used. Most CA exams use: seller gets days 1 through closing day - 1; buyer gets closing day through end of month. Using that: buyer pays for 11 days = $146.67. For the exam, always confirm the counting convention stated in the problem.
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Q3. Which statement correctly describes the preliminary title report?
A) It is a title insurance policy that protects the buyer from the moment of application B) It is a report of the current state of title issued before the title policy; it shows existing liens, encumbrances, and vesting — but is not itself insurance C) It is required by California law and must be delivered to the buyer 10 days before closing D) It guarantees that the property will receive a clean title policy at closing
Answer: B — The preliminary title report describes the current state of title — who holds title, what liens and encumbrances are recorded — and forms the basis for the title company deciding whether to issue a policy and on what terms. It is NOT a title insurance policy and provides no coverage. Buyers and agents should review it carefully for unexpected items.
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Q4. In California, who typically handles escrow in Southern California vs. Northern California?
A) Title companies exclusively in both regions B) Northern CA: independent escrow companies; Southern CA: title companies C) Southern CA: independent escrow companies (common); Northern CA: title companies (common) D) Attorneys handle all California escrows under state law
Answer: C — By tradition and market convention, Southern California uses independent escrow companies more frequently, while Northern California typically combines title and escrow through the same title company. Both are legally permissible.
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Q5. A new lender purchasing a loan on an existing property wants the broadest possible title insurance protection, including coverage for encroachments that a survey would reveal. The lender should require:
A) CLTA standard coverage — the most common policy type B) ALTA extended coverage lender's policy — covers survey/inspection matters, parties in possession, and unrecorded easements C) A preliminary title report — which provides comprehensive coverage D) An owner's policy — which automatically protects the lender
Answer: B — Lenders consistently require ALTA extended coverage lender's policies because they protect against survey/inspection matters, unrecorded easements, and parties in possession — risks that CLTA standard coverage excludes. The lender's policy protects the lender (not the buyer); the buyer needs a separate owner's policy.