Title insurance is fundamentally different from property insurance or health insurance: it protects against past events (defects in title that existed before the policy date) rather than future risks. A single premium is paid at closing, and the policy remains in effect for as long as the insured holds an interest in the property (for owner's policies) or until the loan is repaid (for lender's policies).
Title defects can arise from many sources: errors or omissions in public records, forged documents in the chain of title, undisclosed heirs, improperly executed deeds, errors in legal descriptions, undisclosed prior encumbrances, fraud, and survey errors. Without title insurance, a buyer has no protection if a defect surfaces years after closing.
---
Covers:
Does NOT cover:
Lenders almost universally require ALTA lender's policies for loans secured by California real estate. Buyers may choose CLTA or ALTA owner's coverage.
---
| Feature | Owner's Policy | Lender's Policy | |---|---|---| | Who is protected | The property owner/buyer | The lender (beneficiary of deed of trust) | | Coverage amount | Purchase price (adjusts upward with some policies) | Loan balance (decreases as loan is paid down) | | Duration | As long as owner or heirs have an interest | Until loan is repaid | | Required by? | Optional (but strongly recommended) | Required by nearly all institutional lenders |
Both parties need their own policy. A lender's policy does not protect the owner; an owner's policy does not protect the lender.
---
Common title claims in California practice: 1. Undisclosed heir: A property passed through an estate without proper notice to all heirs; a previously unknown heir surfaces years later claiming ownership 2. Forged deed: A prior deed in the chain of title was forged (e.g., by a dishonest real estate agent or family member) 3. Missing spousal signature: Community property transferred without the required spousal consent 4. Mechanic's lien: A contractor who worked on the property under the prior owner records a lien after the new owner has taken title 5. Errors in recording: County recorder error causes a lien to be indexed under the wrong name or property description 6. Boundary encroachment: Neighbor's fence or structure encroaches onto the insured property (covered by ALTA, not CLTA)
---
Before issuing a policy, the title company performs a title search — reviewing public records to trace the history of ownership (chain of title) and identify all recorded encumbrances. The results are compiled in a preliminary title report (prelim), which is delivered to the buyer, seller, and their agents for review.
The prelim discloses:
Buyers and agents should always review the prelim carefully. Unexpected items — unpermitted work liens, disputed easements, HOA collection actions — should be resolved before closing.
---
---
Quiz Questions:
Q1. A buyer discovers 3 years after closing that a neighbor's garage encroaches 2 feet onto their property. Would a CLTA standard coverage owner's policy cover this loss?
A) Yes — CLTA covers all title defects regardless of whether they appear in the records B) No — encroachments and boundary issues visible on a survey are excluded from CLTA standard coverage; ALTA coverage would be needed C) Yes — encroachments are covered if they were not disclosed on the TDS D) No — encroachments are never covered by any title insurance policy
Answer: B — An encroachment (neighbor's structure on the insured property) is exactly the type of matter a physical survey would reveal — and CLTA standard coverage explicitly excludes survey-related matters. ALTA extended coverage protects against this.
---
Q2. A buyer paid $800,000 for a home in Pasadena and obtained an ALTA extended coverage owner's policy. Ten years later, a previously unknown heir of a deceased former owner surfaces with a valid claim to title, clouding the buyer's ownership. What does the title insurance company do?
A) Deny the claim because the defect occurred before the buyer owned the property B) The buyer has no recourse because title insurance only covers future events C) The title insurer defends the buyer's title and/or compensates the buyer up to the policy limits — this is exactly the type of past defect title insurance covers D) The insurer pays only if the claim was disclosed in the preliminary title report
Answer: C — An undisclosed heir surfacing after closing is a classic title defect from the past — precisely what title insurance covers. The insurer will defend the insured's title in court and/or compensate the buyer if the claim has merit. The coverage is for the purchase price amount (ALTA policies often provide some inflation protection as well).
---
Q3. A lender providing a $640,000 purchase money loan on a San Diego property requires which type of title insurance?
A) CLTA standard coverage owner's policy B) ALTA extended coverage lender's policy C) Either CLTA or ALTA — the lender decides based on cost D) No title insurance — Fannie Mae loans are self-insured
Answer: B — Institutional lenders uniformly require ALTA extended coverage lender's policies for purchase money loans. CLTA standard coverage is insufficient for lender protection because it excludes survey matters and parties in possession — risks lenders cannot accept.
---
Q4. A preliminary title report shows an unpaid mechanic's lien from a contractor who reroofed the property 8 months ago. The seller claims the contractor was paid. What should the buyer's agent do?
A) Advise the buyer to close as scheduled — the title company will sort it out later B) Flag the lien as a title issue; require the seller to provide proof of payment, a recorded lien release, or a lien bond before closing proceeds C) Ignore it — mechanic's liens automatically expire 90 days after recording D) Advise the buyer to waive this title exception to avoid delays
Answer: B — An unresolved mechanic's lien is a financial encumbrance that clouds title and can be enforced against the new buyer. The seller must resolve it — providing a recorded release (lien waiver from contractor), proof the lien was paid, or a bond — before the title company will issue a clean policy and before escrow can close.
---
Q5. What is the key difference between a preliminary title report and a title insurance policy?
A) The preliminary report is binding on the title company; the policy is only advisory B) The preliminary report shows the current state of title and is used to order the policy; it provides no insurance coverage — only the issued policy protects the insured C) The preliminary report covers more risks than the actual policy D) There is no difference — the preliminary report becomes the policy automatically at closing
Answer: B — The preliminary title report is a snapshot of current title status used to identify issues before closing. It is NOT insurance and provides no protection. The actual title insurance policy is issued at or after closing and provides the contractual indemnification for covered losses.