What is a Preliminary Title Report?

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A preliminary report is designed to facilitate the issuance of a particular type of policy. The preliminary report identifies the title to the estate or interest in the described land. It also contains a list of defects, liens and encumbrances and restrictions which would be excluded from coverage if the requested policy were to be issued as of the date of the report, together with a disclosure of selected policy boilerplate provisions attached as an exhibit to each report.

A realtor will often obtain a copy of the preliminary report in order to discuss the matters set forth in it with his or her clients. Thus, a preliminary report provides the opportunity to seek the removal of items referred in the report which are objectionable to the prospective insured. Such arrangements can be made with the assistance of the escrow

Preliminary reports are furnished in connection with an application for title insurance and are offers to issue a title policy subject to the stated exceptions set forth in the reports and such other matters as may be incorporated by reference therein. The reports are not abstracts of title, nor are any of the rights, duties or responsibilities applicable to the preparation and issuance of an abstract of title applicable to the issuance of any report. Any such report shall not be construed as, or constitute a representation as to the condition of title to real property, but shall constitute a statement of the terms and conditions upon which the issuer is willing to issue its title policy, if such offer is accepted.

Based on this definition, a preliminary report does not necessarily show the condition of the title, but merely reports the current vesting of title and the items the title company will exclude from coverage is a policy should later be issued. The elements of this definition are threefold. First, a preliminary report is an offer. Second, it is not an abstract of title reporting a complete chain of title. Lastly, it is a statement of the terms and conditions of the offer to issue a title policy.

THE PURPOSE OF A PRELIMINARY REPORT

1. To show in written form the following:

Ownership • Easements and CC&R’s

Estate • Defects in title and requirements

Legal Description • Trust Deeds ( loans)

Tax and Bond Information • Personal recorded liens on buyers & sellers

 

1                 Used by buyers and sellers to consummate an escrow

2                 Used as a preview of our Title Policy

 

THE PROCESSING OF A PRELIMINARY REPORT

1. Searching of Title (gathering information)

  • Verify legal and address to make sure we are searching the correct property.
  • Start at the last point of insurance we have (starter.)
  • Run a complete chain of title on P.I.Q. (property in question) from our last starter date to today. The items covered by this part of the search are items 1,2,3,5,7 in category #1.
  • Use of our back up system (Grantor/Grantee) when any flaws or breaks appear in the chain of title.
  • Run the buyers, sellers and former owners on the General Index for recorded personal liens.
  • Attach a map identifying our property.

 

2. Examination of Title

Review everything in title search

• Examine the documents in chain of title for:

  • Execution and signatures
  • Possible forgeries
  • Prepare the items to be shown in the report by using our computer coding system.
  • Set for the any conditions which will need to be met before we can issue a policy of title insurance.
  • Send to typist with complete write-up (instructions) as to what is to be shown in the report.

 

3. Typing and Proofing The report is typed in to our disc retrieval system. This will store information on a memory system for use in producing our title policy at a later date. The typed report is then reviewed by another person for accuracy and returned to the title unit.

Requirements for Insuring Trusts

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In today’s world of busy probate courts and exorbitant death taxes, the living trust has become a common manner of holding title to real property.  The following may help you understand a few of the requirements of the title insurance industry if title to property is conveyed to the trustee of a living trust.

WHAT IS A TRUST?

An agreement between a trustor and trustee for the trustee to hold title to and administer designated assets of the trustor for the use and benefit of one or more beneficiaries.

CAN A TRUST ITSELF ACQUIRE AND CONVEY INTEREST IN REAL PROPERTY?

No. The trust is an arrangement between a trustee and the trustor only.  The trustee, on behalf of the trust, may own and convey any interest in real property so long as the trustee acts within the powers granted by the trust to the trustee.

CAN THE TRUSTEE GIVE SOMEONE A POWER–OF–ATTORNEY?

Only if the trust specially provides for the appointment of an attorney in fact.

WHAT WILL THE TITLE COMPANY REQUIRE IF A TRUSTEE HOLDS THE TITLE TO THE PROPERTY WHICH IS PART OF THE TRUST?

First, a full copy of the trust and any amendments.  Second, a certification that the copy of the trust and amendments (if any) are complete and true copies, and the names of the present trustees of the trust.

MY TRUST CONTAINS A CERTAIN AMOUNT OF MONEY TO BE GIVEN TO VARIOUS CHARITIES WHICH IS NONE OF YOUR BUSINESS. CON I OMIT THESE PAGES?

Because many provisions may be on the same page, the answer must be no – but the companies may accept a copy of the trust with those amounts blacked out.

IF THERE IS MORE THAN ONE TRUSTEE, CAN JUST ONE SIGN?

Maybe. The trust must specifically provide for less than all to sign.

WHAT WILL THE TITLE COMPANY REQUIRE IF ALL THE TRUSTEES HAVE DIED OR ARE UNWILLING TO ACT?

If the trustor is not able to, or the trust provisions prohibit the trustor from appointing a new trustee, the court must do so.

WHO CAN BE A TRUSTEE?

Any individual not under a legal disability or a corporation that has qualified to do a trust business in California.

HOW DOES A NOTARY ACKNOWLEDGE THE SIGNATURE OF THE TRUSTEE?

Title is vested in the trustee.  Hence, if the trustee is an individual or corporation, then the new general form of acknowledgement will be prepared to reflect the intrinsic nature of the trustee.

HOW WOULD THE DEED TO THE TRUSTEE ORDINARILY BE WORDED TO TRANSFER TITLE TO THE TRUSTEE?

“John Doe and Mary Doe, as trustees of the Doe family trust, under declaration of trust deed dated January 1, 1992.”

ARE THERE ANY LIMITATIONS ON WHAT A TRUSTEE MAY DO?

Yes, the trustee is limited principally and most importantly by the provisions of the trust and, thus, may only act within the terms of the trust.  The probate code contains general powers which, unless limited by the trust agreement, are sufficient for title insurers to rely on for sale, conveyance and refinance purposes.

Understanding Title Insurance Requirements for Insuring Living Trusts

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In today’s world of busy probate courts a desire for privacy, the living trust has become a common manner of holding title to real property.  The following may help you understand a few of the requirements of the title insurance industry if title to property is conveyed to the trustee of a living trust.

What is a trust?

An agreement between a trustor and trustee for the trustee to hold title to and administer designated assets of the trustor for the use and benefit of one or more beneficiaries.

Can a trust itself acquire and convey interests in real property?

No. The living trust is an arrangement between a trustee and a trustor.  Only the trustee, on behalf of the trust, may own and convey any interest in real property. The trustee may only exercise the powers granted in the trust.

What will the title company require if a trustee holds the title to the property which is part of the trust?

A certification of trust containing the following information:  1) date of execution of the trust instrument, 2) identity of the trustor and trustee, 3) powers of the trustee, 4) identity of person with power to revoke trust, if any, 5) signature authority of the trustees, 6) manner in which title to the trust assets should be taken, 7) legal description of any interest in the property held by the trust, and 8) a statement that the trust has not been revoked, modified, or amended in any manner which would cause the certification to be incorrect and that the certification is being signed by all currently acting trustees of the trust.

If there is more than one trustee, can just one join?

Maybe. The trust must specifically provide for less than all to sign.

Can the trustee give someone a power-of-attorney?

Only if the trust specifically provides for the appointment of an attorney-in-fact.

What will the title company require if all the trustees have died or are unwilling to act?

If the trustor is not able to do so, or the trust provisions prohibit the trustor from appointing a new trustee, the court may do so.

Who can be trustee?

Any individual not under a legal disability or a corporation that has qualified to do a trust business in the state of California.

How does a notary acknowledge the signature of the trustee?

Title is vested in the trustee.  Hence, if the trustee is an individual or a corporation, then the new general form of acknowledgment will be prepared to reflect the intrinsic nature of the trustee.

How would the deed to the trustee ordinarily be worded to transfer title to the trustee?

“John Doe and Mary Doe, as trustees of the Doe family trust, under declaration of trust dated January 1, 1992.”

Are there any limitations on what a trustee may do?

Yes, the trustee is limited principally and most importantly by the provisions of the trust and, thus, may only act within the terms of the trust.  The Probate Code contains general powers which, unless limited by the trust agreement, are sufficient for title insurers to rely on for sale, conveyance, and refinance purposes.

Understanding Living Trusts

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Understanding Living Trusts

Estate planners often recommend “Living Trusts” as a viable option when contemplating the manner in which to hold title to real property. When a property is held in a Living Trust, title companies have particular requirements to facilitate the transaction. While not comprehensive, following are answers to many commonly asked questions. If you have questions that are not answered below, your title company representative may be able to assist you, however, one may wish to seek legal counsel.

Who are the parties to a Trust?

A typical trust is the Family Trust in which the Husband and Wife are the Trustees and, with their children, the Beneficiaries. Those who establish the trust and transfer their property into it are known as Trustors or Settlors. The settlor’s usually appoint themselves as Trustees and they are the primary beneficiaries during their lifetime. After their passing, their children and grandchildren usually become the primary beneficiaries if the trust is to survive, or the beneficiaries receive distributions directly from the trust if it is to close out.

What is a Living Trust?

Sometimes called an Inter-vivos Trust, the Living Trust is created during the lifetime of the Settlors (as opposed to being created by their Wills after death) and usually terminates after they die and the body of the Trust is distributed to their beneficiaries.

Can a Trust hold title to Real Property?

No. The Trustee holds the property on behalf of the Trust.

Is a Trust the best way to hold my property?

Only your attorney or accountant can answer the question; some common reasons for holding property in a Trust are to minimize or postpone death taxes, to avoid a time consuming probate, and to shield property from attack by certain unsecured creditors.

Quiet Title Law in California – Overview

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The purpose of a quiet title action is to establish title against adverse claims to real property or any interest in the property. [Code Civ. Proc. §760.020] The remedy of quiet title can be combined with other causes of action or other remedies. In an action or proceeding in which establishing or quieting title to property is in issue, the court may, in its discretion and on the motion of any party, require that the issue be resolved pursuant to the Code Civ. Proc. provisions relating to quiet title actions. [Code Civ. Proc. §760.030]

Jurisdiction

A quiet title action must be brought in the superior court of the county in which the real property is located. Once the action is before the court, the court has complete power to determine title issues. [Code Civ. Proc. §§760.040, 760.050]

Requirements

A complaint to quiet title must be verified and must contain all of the following information [Code Civ. Proc. §761.020]:

1                 a description of the property that is the subject of the action. This must include both the legal description and the street address or common designation, if any.

2                 the title of the plaintiff as to which a determination of quiet title is sought. If the complaint is based on adverse possession, the complaint must allege the specific facts constituting the adverse possession.

3                 the adverse claims to plaintiff’s title.

4                 the date as of which the determination is sought. If the determination is sought as of a date other than the date the complaint is filed, the complaint must include a statement of the reasons why a determination as of that date is sought.

5                 a prayer for the determination of plaintiff’s title against the adverse claims.

 

The plaintiff must name as defendants all persons known or unknown claiming an interest in the property. [Code Civ. Proc. §§762.010, 762.020] Any person who claims an interest in the property can join in the action, whether or not named as a defendant. [Code Civ. Proc. §762.050]

Notice Of Pending Action (Lis Pendens)

A notice of pendency of action is required in any quiet title action. [Code Civ. Proc. §761.010] A “notice of pendency of action” or “notice” is a notice of the pendency of an action in which a real property claim is alleged. [Code Civ. Proc. §405.2] Formerly known as a “lis pendens”, a notice of pendency of action provides constructive notice to purchasers or encumbrancers of real property of any pending actions affecting title to or possession of the real property and enables those parties to find notice of pending litigation in the recorder’s office in which the real property is located. It furnishes the most certain means of notifying all persons of the pendency of the action and to warn them against any attempt to acquire a legal or equitable interest in the real property.

Proof Requirements

A plaintiff seeking to quiet title against a person with legal title to property has the burden of proving title by clear and convincing proof, rather than by the preponderance of evidence usually used in civil cases. [Evid. Code §662] Evidence Code §662 does not apply when legal title itself is disputed. In that case, factual issues are determined by the preponderance of the evidence standard of proof.

Trial

An action to quiet title is an equitable action; there is no right to a jury trial. Quiet title is generally an equitable claim, and equitable defenses may be asserted against it. However, if the plaintiff is out of possession and seeks to recover possession by a quiet title action, the action is legal. [Medeiros v. Medeiros (1960, 3rd Dist) 177 Cal App 2d 69, 1 Cal Rptr 696]

Judgment

A judgment in an action to quiet title is binding and conclusive on all persons known or unknown who were parties to the litigation and who have a claim to the property. [Code Civ. Proc. §764.030] The judgment will not affect title of a person who was not a party to the action if their claim was of record or if the claim was actually known, or should reasonably have been known, to the plaintiff. [Code Civ. Proc. §764.045]

Fidelity National Title’s Homeowner Policy

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While buyers or sellers have the right to choose any title company, here are some features of a title homeowner policy:

Fidelity Homeowner’s Policy includes the following basic coverage:

  • False impersonation of the true owner of the property
  • Forged deeds, releases or wills
  • Undisclosed or missing heirs
  • • Instruments executed under invalid or expired power of attorney Fidelity Homeowner’s Policy also Provides Additional Benefits
  • Pre and Post Policy Protections
  • Expanded Access Coverage
  • Restrictive Covenant Violations
  • Building Permit Violations
  • Subdivision Law Violations
  • Zoning Law Violations
  • Encroachment Protection
  • Water and Mineral Rights Damage
  • Supplemental Tax Lien
  • Map Inconsistencies
  • Continuous Coverage
  • Value-Added Protection

 

Fidelity Homeowner’s Policy coverage protects homeowners against claims arising both before and after the policy date.

The Interim Binder The Key to Substantial Title Insurance Savings

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Investors who plan to “turn over” their properties within a short period of time should consider the Interim Binder to save on title insurance premiums. The interim binder is not, in itself, a policy of title insurance. When issued, however, it binds the insurer to issue a policy of title insurance within three years. The fee is a mere 10% of the basic policy fee to the requesting party. When the deed of the final purchaser is recorded, the binder is exercised and a policy of title insurance is issued to the final purchaser. The only additional fee at the time would be an additional liability charge based upon the difference between the original selling price and the selling price to the final buyer. Let’s look at some examples, assuming that the seller is paying for the owner’s insurance in favor of the buyer in both cases:

Example:

Facts:

● Property was last insured 6 years ago ● Mr. A sells property to Mr. B for $200,000

● In 2 years, Mr. B sells to Mr. C for $250,000

Questions:

Q. May I extend my binder for a period longer than 3 years?

A. Yes, if you inform us, prior to the time it expires. Call your Fidelity Title Officer for details; you can extend it for a fourth year for an additional 10%.

Q. Can the binder be used by only by investors?

A. No. Suppose you have a client who may be transferring out of the area within three of four years. The binder could save your client a significant amount of money at the time of sale.

Q. What if I suffer a title claim during the binder period? May claim under the binder?

A. In the unlikely event that there is a claim, the binder would be surrendered and converted to a policy and handled like any other policy claim.

Q. May I use my binder for future issuance of a policy of title insurance to a lender should I decide to refinance rather than sell?

A. There is a method to exercise the binder at the time of refinance which could save you hundreds of dollars. Call your Fidelity Title Officer for an explanation.

Q. May I use the binder on any type of property?

A. Generally speaking, yes. For example, suppose you purchase a piece of vacant land and subsequently develop it. You could purchase a binder at the time of acquisition and exercise it once construction is completed and you sell it.

Q. What if my property resells for the same or less than original price?

A. There would be no additional title insurance cost at the time of sale.

Why Lenders Require Title Insurance When Refinancing Your Home

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Lower interest rates have motivated you to refinance your home loan. The lower rate may save you a tremendous amount of money over the life of the loan, but you should also expect to pay the lender the typical closing costs associated with any new loan, including service fees, points, title insurance protection and other expenses.

Why do I need to purchase a new title insurance policy on a refinanced loan?

To the lender, a refinance loan is no different than any other home loan. So, your lender will want to insure that its new loan is protected by title insurance, just as the original lender required. Therefore, when you refinance you are buying a title policy to protect your lender.

Why does a Lender need title insurance?

Most lenders generate loans and then immediately sell those loans to secondary market investors, such as FannieMae. FannieMae, in order to protect its security interest in the loan, requires title insurance coverage. Even those lenders who keep original loans in their portfolio are wise to get a lender’s policy to protect its investment against title related defects.

When I purchased my home, didn’t I also buy a lender’s policy?

Perhaps. Who pays for the lender’s policy on a purchase loan varies regionally and by the terms of individual contracts. However, even if you did buy a lender’s policy when you purchased your home, the lender’s policy remains in force only during the life of the loan that was insured. If you refinance, the old loan is paid off ( the “life” of the loan expires) and a new loan is issued for with the lender will require a new title insurance policy.

What about my original title insurance policy? When you bought your home, you purchased a homeowner’s title policy. The homeowner’s policy stays in force as long as you or your heirs own the home. When you refinance, your lender will often require that you purchase a new lender’s policy to protect its new security interest in the property. Thus, you are buying a policy to protect your lender, not a new homeowner’s policy.

What could possibly have happened since I purchased my home which warrants a new lender’s policy?

Since the time that the original loan was made, you may have taken out a second trust deed on the house or had mechanic’s liens, child support liens or legal judgments recorded against you – events that could result in serious financial losses to an unprotected lender. Regardless if it has been only 6 months or less since you purchased or refinanced your home, a myriad of title defects could have occurred. While you may not have any title defects, many homeowners do. The only way for a lender to adequately protect itself is to get a new lender’s policy each time you purchase or refinance your home.

Are there any discounts available for title insurance on a refinance transaction?

Yes. Title companies offer a refinance transaction discount or a short term rate. Discounts may also be available if you use the same lender for your refinance loan and your original loan. Be sure to ask your title company how it can save you money.

Why do you need Title Insurance?

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Title Insurance. It’s a term we hear and see frequently — we see reference to it in the Sunday real estate section, in advertisements and in conversations with real estate brokers. If you’ve purchased a home before, you’re probably familiar with the benefits and procedures of title insurance. But if this is your first home, you may wonder, “Why do I need another insurance policy? It’s just one more bill to pay.”

The answer is simple: The purchase of a home is most likely one of the most expensive and important purchases you will ever make. You, and your mortgage lender, want to make sure that the property is indeed yours —lock, stock and barrel —and that no individual or government entity has any right, lien, claim to your property.

Title insurance companies are in business to make sure your rights and interests to the property are clear, that transfer of title takes place efficiently and correctly and that your interests as a homebuyer are protected to the maximum degree.

Title insurance companies provide services to buyers, sellers, real estate developers, builders, mortgage lenders and others who have an interest in a real estate transfer. Title companies routinely issue two types of policies — “owner’s,” which cover you, the homebuyer; and “lender’s,” which covers the bank, savings and loan or other lending institution over the life of the loan. Both are issued at the time of purchase for a modest, one-time premium.

Before issuing a policy, however, the title company performs an extensive search of relevant public records to determine if anyone other than you has an interest in the property. The search may be performed by title company personnel using either public records or more likely, information gathered, reorganized and indexed in the company’s title “plant.”

With such a thorough examination of records, any title problems usually can be found and cleared up prior to your purchase of the property. Once a title policy is issued, if for some reason any claim which is covered under your title policy is ever filed against your property, the title company will pay the legal fee involved in defense of your rights, as well as any covered loss arising from a valid claim. That protection, which is in effect as long as you or your heirs own the property, is yours for a one-time premium paid at the time of purchase.

The fact that title companies work to eliminate risks before they develop makes the title insurance decidedly different from other types of insurance you may have purchased. Most forms of insurance assume risks by providing financial protection through a pooling of risks for losses arising from an unforeseen event, say a fire, theft or accident. The purpose of title insurance, on the other hand, is to eliminate risks and prevent losses caused by defects in title that happened in the past. Risks are examined and mitigated before property changes hands.

This risk elimination has benefits to both you, the homebuyer, and the title company: it minimizes the chances adverse claims might be raised, and by so doing reduces the number of claims that have to be defended or satisfied. This keeps costs down for the title company and your title premiums low.

Buying a home is a big step emotionally and financially. With title insurance you are assured that any valid claim against your property will be borne by the title company, and that the odds of a claim being filed are slim indeed. Isn’t sleeping well at night, knowing your home is yours, reason enough for title insurance?

This article was published by the California Land Title Association.

Understanding Title Insurance?

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What is title insurance? Newspapers refer to it in the weekly real estate sections and you hear about it in conversations with real estate brokers.  If you’ve purchased a home you may be familiar with the benefits of title insurance. However, if this is your first home, you may wonder, “Why do I need yet another insurance policy?”  While a number of issues can be raised by that question, we will start with a general answer. The purchase of a home is one of the most expensive and important purchases you will ever make. You and your mortgage lender will want to make sure the property is indeed yours and that no one else has any lien, claim or encumbrance on your property. The following Q&A answers some questions frequently asked about an often misunderstood line of insurance, title insurance.

What is the difference between title insurance and casualty insurance? Title insurers work to identify and eliminate risk before issuing a title insurance policy.  Casualty insurers assume risks. Casualty insurance companies realize that a certain number of losses will occur each year in a given category (auto, fire, etc.).  The insurers collect premiums monthly or annually from the policy holders to establish reserve funds in order to pay for expected losses. Title companies work in a very different manner. Title insurance will indemnify you against loss under the terms of your policy, but title companies work in advance of issuing your policy to identify and eliminate potential risks and therefore prevent losses caused by title defects that may have been created in the past. Title insurance also differs from casualty insurance in that the greatest part of the title insurance premium dollar goes towards risk elimination. Title companies maintain “title plants” which contain information regarding property transfers and liens reaching back many years.  Maintaining these title plants, along with the searching and examining of title, is where most of your premium dollar goes.

Who needs title insurance? Buyers and lenders in real estate transactions need title insurance. Both want to know that the property they are involved with is insured against certain title defects. Title companies provide this needed insurance coverage subject to the terms of the policy.  The seller, buyer and lender all benefit from the insurance provided by title companies.

What does title insurance insure? Title insurance offers protection against claims resulting from various defects (as set out in the policy) which may exist in the title to a specific parcel of real property, effective on the issue date of the policy.  For example, a person might claim to have a deed or lease giving them ownership or the right to possess your property.  Another person could claim to hold an easement giving them a right of access across your land.  Yet another person may claim that they have a lien on your property securing the repayment of a debt. That property may be an empty lot or it may hold a 50-story office tower. Title companies work with all types of real property.

What types of policies are available? Title companies routinely issue two types of policies: An “owner’s” policy which insures you, the homebuyer for as long as you and your heirs own the home; and a “lender’s” policy which insures the priority of the lender’s security interest over the claims that others may have in the property.

What protection am I obtaining with my title policy? A title insurance policy contains provisions for the payment of the legal fees in defense of a claim against your property which is covered under your policy.  It also contains provisions for indemnification against losses which result from a covered claim.  A premium is paid at the close of a transaction. There are no continuing premiums due, as there are with other types of insurance.

What are my chances of ever using my title policy?

In essence, by acquiring your policy, you derive the important knowledge that recorded matters have been searched and examined so that title insurance covering your property can be issued.  Because we are risk eliminators, the probability of exercising your right to make a claim is very low.  However, claims against your property may not be valid, making the continuous protection of the policy all the more important.  When a title company provides a legal defense against claims covered by your title insurance policy, the savings to you for that legal defense alone will greatly exceed the one-time premium.

What if I am buying property from someone I know?

You may not know the owner as well as you think you do. People undergo changes in their personal lives that may affect title to their property. People get divorced, change their wills, engage in transactions that limit the use of the property and have liens and judgments placed against them personally for various reasons.

There may also be matters affecting the property that are not obvious or known, even by the existing owner, which a title search and examination seeks to uncover as part of the process leading up to the issuance of the title insurance policy.

Just as you wouldn’t make an investment based on a phone call, you shouldn’t buy real property without assurances as to your title.  Title insurance provides these assurances.

The process of risk identification and elimination performed by the title companies, prior to the issuance of a title policy, benefits all parties in the property transaction.  It minimizes the chances that adverse claims might be raised, and by doing so reduces the number of claims that need to be defended or satisfied.  This process keeps costs and expenses down for the title company and maintains the traditional low cost of title insurance.