Mortgage Title and Escrow Introduction and History

26 Feb

What is a title?

A history of all transactions shown in the public records affecting a particular tract of land.

Definition of Title:

Title, in law, the means by which the owner has just and legal possession of his or her property. It is distinct from the document (e.g., a deed) that is evidence of the title. Title can be lost or acquired only by the methods established by law, that is, by inheritance or by purchase. Several persons may have different titles to the same property. While one holds a legal title (a claim to the land that is recognized by a court), another may hold an equitable title (the right to have the legal title transferred to him if certain conditions are met). This occurs if there is a mortgage on the land. If a person holds land free of all encumbrances he may claim to have perfect title. When property is purchased, a title search is made to make certain that the seller is the legitimate owner of the title he is selling; the resulting document is an abstract of title.

History of Title:

Abstract of title, in law, brief history of the title to a piece of land. An account is given of recorded documents, court proceedings, wills, mortgages, taxes, previous sales, easements, and all other factors that at any time affected the ownership or use of the land. The old rule in England required that an abstract of title should cover the 60 years before the proposed sale. In 1874 this was changed to 40 years. In some U.S. states the title is traced back to the original grant from the government, but in others it is traced only so far back as is necessary to show a present clear title.

What is a title search?
A title search is a detailed examination of the public records concerning a property. These records include deeds, court records, property and name indexes, and many other public documents. The purpose of the search is to verify the seller’s right to transfer ownership, and to discover any claims, defects and other rights or burdens on the property.

What kinds of problems can a title search reveal?
A title search can show a number of title defects and liens, as well as other encumbrances and restrictions. Among these are unpaid taxes, unsatisfied mortgages, judgments against the seller and restrictions limiting the use of the land.

Are there any problems that a title search cannot reveal?
Yes. There are some “hidden hazards” that even the most diligent title search may never reveal. For instance, the previous owner could have incorrectly stated his or her marital status, resulting in a possible claim by a legal spouse. Other “hidden hazards” include fraud and forgery, defective deeds, mental incompetence, confusion due to similar or identical names and clerical errors in the records. These defects can arise after you’ve purchased your home and can jeopardize your right to ownership.

What is title insurance?
Title insurance is your policy of protection against loss if any of these problems – even a “hidden hazard” – results in a claim against your ownership.

How does title insurance protect my investment if a claim should arise?
If a claim is made against your property, title insurance will, in accordance with the terms of your policy, assure you of a legal defense – and pay all court costs and related fees. Also, if the claim proves valid, in accordance with the terms of your policy, you may be reimbursed for your actual loss up to the face amount of the policy.

The owner of the property has a deed. Isn’t that proof of ownership?
Not necessarily. A deed is just a document by which the right of ownership in land is apparently transferred, whatever that right may be. It’s not proof of ownership, and it doesn’t do away with rights others may have in the property. In addition, a deed won’t show you liens or claims that may be outstanding against the title.

Are there different types of title insurance policies?
Yes. Basically there are two different types of policies – a loan policy and an owner’s policy. The loan policy protects the lender‘s interest in the property in the amount of the outstanding balance of the loan. The owners’ policy protects the buyer’s interest in the amount of the purchase price of the property.

How much does title insurance cost?
Probably a lot less than you think. Charges may vary in different counties, but generally the cost of title insurance (including search, examination and related services) amounts to about one percent or less of the cost of the property. And unlike other insurance premiums, which must be paid annually, a title insurance premium is paid one time only, usually at settlement or close of escrow.

How long does my coverage last?
For as long as you or your heirs retain an interest in the property and, in some limited cases, even beyond.

This section of the website has been created to help introduce lenders to the basic facts surrounding title insurance policies and related matters. You will find important information identifying the differences between policies, the most commonly used endorsements, types of deeds, and a glossary of frequently used industry terms.

Title insurance helps to protect lenders and homeowners against major losses. Fidelity National Title wants to make it easy for you to understand the various aspects of coverage involved in most transactions. While title insurance can be a very complex subject, an understanding of the basics can go a long way.

We hope that this website will aid you — but if you have any specific questions, just call your local Fidelity National Title office. Our experts will be glad to answer your questions.

About Title Insurance
Title policies insure owners and lenders against possible losses from claims against real property ownership. The preliminary report or commitment provides advance information on matters which will be excepted from coverage. Lenders and owners are thereby given an opportunity to correct title flaws before purchasing or lending.

Title insurance originated in the 1870’s to stem a series of land ownership problems that developed from inaccurate record searches, forgeries, and related problems. Today, it offers protection from certain items that cannot be determined from public records, such as forgeries of all types, undisclosed heirs, hidden marriages and divorces, clerical errors, and invalid legal procedures and interpretations.

Policies are written on the basis of a search of public records and other records which impart constructive notice. Remember, a deed does not prove that the seller is the owner of the property. Only title insurance can protect your interest in the property from unknown encumbrances, legal conflicts and unforeseen claims.

A policy of title insurance is like a pre-paid legal agreement. Your insurer will provide legal defense against challenges to your insured title (dependent, of course, upon the type of policy coverage ) and will reimburse you financially for losses due to the covered defects in your ownership rights.

It is important to remember that a lender’s title policy does not insure a borrower against title risks. While certain types of policies pertain to both the owner and the lender, it makes good sense to help protect your borrowers by explaining the limitations of their particular coverage.

In the following sections, you will find an explanation of the most common policies and endorsements used today. If you have any questions regarding which would best suit the needs of any particular situation, contact your Fidelity National Title representative.

ALTA (American Land Title Association) Policy
In most jurisdictions, the ALTA Extended Coverage loan policy is the most common policy offering extended coverage for the lender’s interest only. What this means is that the lender is protected from certain additional “off-record” matters such as encroachments, unrecorded easements, possessory interests, discrepancies in boundaries — matters which may generally be determined by a land inspection or a proper survey. It insures the lender that they are receiving a lien which will take priority over various interest and claims to the subject property.

An ALTA Extended Coverage loan policy from the Standard Coverage Policy by offering insurance against matters which cannot be determined by an examination of public records.

REMEMBER: An ALTA Extended loan policy covers the lender only. Its advantage to the lender lies in its ability to include matters that are not generally public record.

ALTA: Coverage Specifics
ALTA Extended Coverage loan policy coverage varies from state to state, as each state places those standard exceptions in Part 1, Schedule B, that would be responsive to the statutes and laws of that particular state. In California, an ALTA loan policy will insure the lender against loss or damage if:

  • The vesting is other than as listed.
  • A defect, lien or encumbrance is not excluded and the underwriter failed to disclose it in the policy
  • There is no right of access to a public street.
  • The title is unmarketable as insured.
  • The insured mortgage is invalid or unenforceable (unless a claim is based on usury or any consumer credit protection or truth-in-lending law.)
  • Mechanic’s liens gain priority over the insured mortgage (unless those liens arise from contractual work started after the policy date and are not financed by the insured loan.)
  • An assignment of the insured mortgage is invalid or unenforceable by reason of an error against in the policy.

ALTA: Conditions and Stipulations
The conditions and stipulations of the ALTA policy contain important provisions of the coverage to both the insurer and the insured. The main points are:

  • That the principal terms used are defined.
  • The circumstances under which the policy will remain in force when the estate or interest in the insured property is acquired by another.
  • How and when the claimant must give notice of claim, and the provision for defense and prosecution of actions.
  • The insurer’s options in paying or settling claims.
  • How losses are determined and the payment of loss.
  • Limitations and reductions of liability; noncumulative liability; subrogation on payment or settlement; policy limit liability.
  • Provisions for arbitration.

ONE MORE TIME: As with all title insurance policies, various endorsements will affect the coverage and limitations of an ALTA loan policy. See the section on Endorsements for further information — or call your Fidelity National Title representative.

ALTA: Lender’s Coverage Exclusions
Coverage under the ALTA policy is excluded for the following matters:

  • Any law, ordinance or governmental regulation or police power relating to building, zoning, occupancy, use or environmental protection except to the extent that a notice of defect has been recorded.
  • Rights of eminent domain.
  • Defects, liens, etc., if:
    • Created by the insured
    • Known to the insured, but not specified in writing to the underwriter by the specified date.
    • No loss or damage is suffered by the insured.
    • Created or attached after the policy date (with the exception of mechanic’s lien insurance offered elsewhere in the policy.
    • If the lien of the insured mortgage is unenforceable because the insured does not comply with “doing business” laws in the state of the insured property.
    • Any claim, which arises out of the transaction creating the interest of the mortgagee insured by reason of the operation of federal bankruptcy, state insolvency, or similar creditors’ rights laws.

Standard Coverage Policy
Although each state has individual policy differences and limitations, many of them use a Standard Coverage policy, which provides less coverage against off-record risks than the ALTA lender or owner extended coverage. This Standard Coverage Policy is the most widely used policy of title insurance. It is sometimes used as a loan policy to insured the validity of a mortgage or deed of trust on an interest or estate in real property.

However, a CLTA Standard Coverage policy is often used as an owner’s policy or in some jurisdictions as a Joint Protection policy (JP) insuring both the owner and lender. The variety of endorsement that are used to modify a Standard Coverage Policy make this one of the most flexible policies available, and therefore the most popular.

NOTE : A Standard Coverage policy is not always referred to as such. Example: In California, it is called a CLTA (California Land Title Association) policy. In Washington, it is called a WLTA (Washington Land Title Association) policy — etc., and, in some states, the owner’s policy is an ALTA Standard Owner’s policy. Your local Fidelity National Title office would be happy to discuss the policy forms in use in your state.

A Standard Coverage policy relies mostly upon matters of public record. However, some off-recorded items are covered under its provisions, including forgery, fraud, etc. The endorsements included, if any, as a part of the policy will affect coverage.

Standard Coverage Policy: Specifics
A CLTA Standard Coverage policy will insure the lender and/or the owner against loss or damage if:

  • The vesting is other than as listed.
  • A defect, lien or encumbrance is not excluded and the underwriter failed to disclose it in the policy.
  • A defect in the execution of the insured instrument, or priority over such instrument of a lien or encumbrance, is not excluded or shown.
  • An assignment of the insured mortgage is invalid, provided it is listed in Schedule B.

Standard Coverage Policy: Conditions and Stipulations
As with an ALTA loan policy, the conditions and stipulations of a Standard Coverage Policy contain important provisions of the coverage to both the insurer and the insured. The main points are:

  • That the principal terms used are defined.
  • The circumstances under which the policy will remain in force when the estate or interest in the insured property is acquired by another.
  • How and when the claimant must give notice of claim, and the provision for defense and prosecution of actions.
  • The insurer’s options in removing adverse interest, paying or settling claims.
  • How losses are determined and the payment of loss.
  • Limitations and reductions of liability; subrogation on payment or settlement; policy limit liability.
  • Provisions for arbitration.

Standard Coverage Exclusions
Coverage under the standard policy is excluded for the following matters:

  • Any law, ordinance, governmental regulation or police power relating to building, zoning, occupancy, use or environmental protection except to the extent that a notice of defect has been recorded.
  • Rights of eminent domain.
  • Defects, liens, etc. if:
    • Created by the insured.
    • Known to the insured, but not specified in writing to the underwriter by the specified date.
    • No loss or damage is suffered by the insured.
    • Created or attached after the policy date.
    • If the lien of the insured mortgage is unenforceable because the insured does not comply with “doing business” laws in the state of the insured property.
    • Any claim, which arises out of the transaction vesting in the insured the estate or interest insured or the transaction creating the interest of the insured lender, by reason of the operation of federal bankruptcy, state insolvency, or similar creditor’s rights laws.

Please remember that endorsements will affect all or some items of coverage; that different states may have varying limitations, exclusions, or coverage; and that your Fidelity National Title representative will answer any specific questions you may have.

TSG (Trustee’s Sale Guarantee)
In some states, a lender is allowed to non-judicially foreclose a Mortgage or Deed of Trust securing an obligation if a trustor defaults in the performance of the obligation. The laws in these states prescribe how the foreclosure is conducted and the notices which must be given of the pendency of such proceeding. The Trustee’s Sale Guarantee is responsive to the needs of a foreclosing trustee or mortgagee for public record information as to individuals and entities who, under state law, must receive notice of the pending foreclosure. The Guarantee supplies the following public record information:

  • The vesting of title to the estate or interest encumbered by the Mortgage or Deed of Trust
  • The encumbrances against the land
  • The names and addresses of individuals and entities who must, under state law, receive notice of the foreclosure proceedings
  • The newspaper qualified to public notice of the foreclosure proceedings
  • The City or Judicial District in which the land is located

Endorsement

As we have mentioned; the types of coverage offered by both ALTA Extended and Standard Coverage polices are greatly affected by the endorsements included. The following is a listing of the most commonly used endorsements.

FORM 100: This endorsement offers an explicit extension of coverage to an ALTA Extended Coverage Loan Policy by adding insurance for certain “off-record” matters. The coverage is extended to Covenants, Conditions and Restrictions; encroachments; and the rights to use the land surface for mineral development. Form 100 also assures a lender that existing Covenants, Conditions and Restrictions do not contain any enforceable reverter, right of re-entry or power of termination. This endorsement is not issued in conjunction with policies covering raw land or construction loans.

FORM 102.4: A Foundation Endorsement which insures the lender that the foundations of the structure under construction are within the boundaries of the insured land; and that the location of these foundations does not violate the Conditions, Covenants and Restrictions (CC&Rs) included in Schedule B.

FORM 102.5: The same as 102.4 with the addition of insurance that the foundations do not — at the date of endorsement — encroach upon any easements referred to in the policy.

FORM 100.12: Also used with ALTA policies, Form 100.12 assures a lender that existing Covenants, Conditions and Restrictions do not contain any enforceable reverter, right of re-entry or power of termination.

FORM 101: A Mechanic’s Lien Endorsement issued only with a Standard Coverage policy insuring a construction loan deed of trust, it insures the lender against loss if a Mechanic’s Lien establishes priority because of the prior commencement of the work on the improvement.

FORM 101.2: A Mechanic’s Lien Endorsement used with either an ALTA Extended or Standard Coverage policy, issued after a Notice of Completion is recorded. Usually requested when a construction loan is exchanged for a permanent loan to the borrower or the loan is designed for sale to another lender.

FORM 103.1: An Encroachment Endorsement used with ALTA or Standard Coverage policies which expands the coverage provided by a Form 100. Issued when items listed in the preliminary report are “blanket” easements which cannot be precisely located.

FORM 108.7 & 108.8: Both are used to insure the priority of additional advances secured by a Deed of Trust or Mortgage. Form 108.7 is used with Standard Coverage policies. Form 108.8 is the ALTA version.

FORM 116: An Address Endorsement used with ALTA policies, designating the street address of the land insured and specifying the type of improvement on said land.

FORM 116.2: An Address Endorsement used with either an ALTA Extended or Standard Coverage policy which insures an interest in a condominium.

Deeds

Title insurance is primarily based on records which include recorded documents, public records, files and the like. One of the most common of these documents is a deed — a written instrument transferring the title or an interest in real property from one party to another. There are a variety of types of deeds currently in use for the conveyance of title. The list that follows briefly describes the most common currently used.

  1. Quitclaim Deed:
  • This deed conveys any possible interest of the grantor in said property at the date of the deed without representations of encumbrances on title arising from liens, easements, etc. It is usually used to release an estate or interest less than “fee” interest.
  • The most commonly used deed in California. It conveys all the title that the grantor has and any title the grantor may acquire in the future. It includes by statue covenants as to prior conveyance and encumbrance.
  • A Deed of Trust is used to convey the “dormant title” to land to another person or company as a “trustee”, in order to secure debts or other obligations. The trustee is given the power of sale of the land encumbered in the event of a default by the borrower.
  1. Grant Deed:
  1. Deed of Trust:

Title insurance protects your property against the past as well as the future. A policyholder is protected against challenges to rightful ownership of real property, challenges that arise from circumstances of past ownerships. Each successive owner brings the possibility of title challenges to the property. When you purchase real property, rely on Fidelity National Title to protect your interests. You’ll be insured by a company backed by more than 150 years of successful title operations.

 

Easement Rejection – You Can’t Get There From Here

Betty G., a real estate broker, purchased an undeveloped lot in a rural county in Northern California. She also purchased a title insurance policy protecting not only her title to the lot but also a road easement benefiting the lot across adjoining property. The lot was the northernmost of a four-lot subdivision. The original sub-divider had attempted to reserve an easement over an existing north-south road that traversed the most westerly boundary of the three southerly lots. However, the document that attempted to serve the easement was defective because it did not contain the language necessary to give record notice that an easement was being created. When the owners of the three southerly lots found out that Betty G. intended to develop her parcel by dividing it into two lots and building homes for sale, they challenged her right to use the easement. Betty G. made a claim under her title policy.

It was determined that a successful reformation action to reform the document to correctly reflect the intention of the sub-divider to create an easement could be successful. It was also determined that Betty G. had the right to an easement by implication, necessity and, arguably, prescription.

Following this analysis, contact was made with each of the owners of the three southerly properties. After an explanation that Betty G. was entitled to the easement on any one of several legal theories, two of the owners readily agreed to execute the documents necessary to grant Betty G. an easement over their property.

The most southerly property holder, however, still contested Betty G’s right to an easement. They adamantly insisted that they would only execute easement documents if Betty G. agreed not to develop her property. Obviously, that was unacceptable. Through a series of correspondence it was made very clear to the most southerly property owners that the alternative to settlement necessarily would involve litigation or other dispute resolution mechanisms. After several weeks of dialogue and correspondence, the most southerly property holders agreed to a cash settlement in exchange for a clear and unambiguous easement grant deed.

This claim was resolved in a matter of weeks. Further, because of the facts Betty G was able to be assured that if she wished to sell her property during the time the claim was pending, title insurance would be available to her new buyer while efforts continued to resolve the easement problem.

Betty G. stated that, as a real estate broker, she had always considered title insurance to be simply a hurdle to delay a closing. However, after having her own claim with such a good result, she realized how important title insurance really is.

Unexpected Tax Lien – Carol B.’s Tax Lien and the Benefits of her Title Policy

A CLTA Standard Policy was issued to Carol B. She is a single mother, barely managing on her waitress’ salary. She was only just able to qualify for a low-interest loan from the United States Department of Agriculture Rural Housing Community Development Service. This loan enabled her to purchase her own home.

The Development Service has very strict criteria for low-income individuals. These criteria include such items as the ratio of an individual’s salary to their loan payments and the amount that they can afford to pay for real property taxes. Carol B. met these criteria, but an increase in either her loan payments or real property taxes would disqualify her from the Loan Program and would result in the loss of her home.

Shortly after her purchase of the property, Carol B. received a new tax bill for real property taxes. The bill disclosed that the taxes were over $2,000.00 per year, which would disqualify her from being able to keep her home. When she contacted the assessor’s office, Carol B. was told that the increased taxes included a $9,000.00 special assessment for a special street tax. This special tax had not been shown as a separate matter in the preliminary report that Carol B. and the Loan Program had received.

Both Carol B. and the Loan Program then contacted the title insurer. Prompt arrangements were made to pay the special taxes, enabling Carol B. to keep her home.

Lack of Access to Property – The Saga of George and Kathy

Mr. and Mrs. George B. purchased a small farm in a rural northern California County for $70,000 in 1975. In connection with this transaction, they obtained an owner’s title insurance policy.

The only means of access to and from the Insureds’ property was an old dirt road that went across a neighboring parcel of land and connected with a state highway. The title search that was conducted when the Insureds purchased their property showed that there were no recorded grants of easement or other documents in the public records that gave them the right to use this road. The road had been used for many many years and most people in the immediate area had always recognized the old dirt road as an access way to the neighboring land. The title insurance policy purchased contained the now-standard provisions insuring against loss caused by the lack of a right of access to and from the property.

In 1990, the neighboring parcel was acquired by Out Of State Investment Corporation, a foreign corporation that began to implement plans to build a 200-to-300-home residential subdivision. When it determined that the dirt road used by the Insureds ran right through the middle of its proposed subdivision, Out of State hired a large law firm from outside the community to bring a lawsuit against the Insureds to prevent them from continuing to use the road.

When the Insureds were served with the lawsuit, they were struggling financially. They were in the process of trying to sell their farm so that they could finalize their pending divorce. They needed to be able to establish a right of access to be able to sell the farm, but could not afford the crushing cost of litigating a high-stakes quiet title action against a wealthy corporation represented by a law firm known for its “scorched earth” litigation tactics. Even if they could have afforded to retain an attorney, the Insureds had no experience or information that would have enabled them to locate an attorney with the highly specialized knowledge needed to effectively litigate the complex title issues presented by the lawsuit.

When the Insureds advised the title insurer of the lawsuit brought by Out of State, the insurer retained an experienced and highly competent real estate attorney to represent them. Drawing on its title expertise and its superior resources, the Company researched the history of the Insureds’ property and the surrounding properties back to the mid-1800’s. Using ancient maps and records, it was able to conclusively prove that the road used by the Insureds had been a heavily-traveled wagon road in the late 1800’s and had been established as a county road under an obscure state law that had been repealed in the 1890’s. Based on this showing, the Insureds were able to obtain a summary judgment that conclusively determined that the road was a county road and, therefore, that the Insureds had a legal right to use it to get to and from their property.

By successfully utilizing the summary judgment procedure, the insurer was able to avoid a lengthy discovery process, eliminate the need for a trial and resolve the lawsuit-which might otherwise have gone on for years-in less than six months after it took over the case. The Insureds were able to sell their farm, finalize their divorce and get on with their lives. Out of State, which had refused to grant the Insureds a private right of way over its property, had to revise its plans to accommodate the public road as a part of its proposed subdivision.

Property Extends Onto Adjoining Land – Harvey’s Garage

Harvey was a happy new homeowner who delighted in his hobby, that is, his Harley Davidson Motorcycle. Harvey would never think to leave his Harley out of the garage and exposed to the elements. That was exactly the threat he had to face not three months after moving into his new home. It seems that some years ago, through inadvertence, a prior owner of the property built the garage two feet over onto their neighbor’s land.

One early morning Harvey’s neighbor woke up to the possibility that the garage was over the property line as he thrilled to the thunderous sound of the Harley being taken out for a spin by Harvey. The next day the neighbor, Jack, contacted his surveyor.

Harvey was in a sorry state until he searched through his closing records and found his title policy. Fortunately, the threat of a forced removal of Harvey’s garage because it extended onto adjoining land was a covered title risk in Harvey’s title policy.

Both Harvey and Jack wanted to be good neighbors, but a solution was necessary. Jack contacted his lawyer who drafted a lawsuit seeking to require Harvey to remove his garage from Jack’s land. The title insurer was notified and the insurer suggested a mediation of the dispute to spare everyone frustration and expense. Fortunately, the mediator structured a reasonable settlement which required a fair amount of sound proofing material in the garage and a cooperative neighborly respect between both Harvey and Jack. The garage was allowed to stand on its original foundation, sound proofing was added at the title insurer’s expense and a lot line adjustment was worked out, also at the insurer’s expense. Harvey and Jack now could live next to one another without controversy, thanks to Harvey’s title insurer.

Mechanic Lien Claim – Loretta’s Title Policy Covered a Mechanic Lien Claim

Loretta loved her new home. She was especially thankful for the fact that the seller replaced the roof so she would not have to spend money for the unexpected surprise of a leaking roof. She had that problem with her prior home. Much to her surprise as it turned out the seller never paid the roofing contractor. Surprise turned to frustration when the roofing contractor insisted he had a mechanic lien (you might call it a construction lien) which he could foreclose against Loretta’s new home.

Imagine the relief when Loretta learned she could tender the problem to her title insurer to take care of the whole problem. She had a comprehensive ALTA Residential Policy that provided coverage for such liens. Her insurer contacted the roofing contractor and after a few months of negotiation the lien claim was settled and resolved. In the end Loretta was safe and secure under her new roof and she never had to fret over the contractor’s mechanics lien claim.

Subordination Nightmare – Scenario of Security Lend Finance Company

The We-Sell Property Company is approached by Trust-Us Developers who offer to buy 6 acres of We-Sell’s prime downtown real estate. Trust-Us explains that they have plans to build “Downtown Center,” a beautiful complex of high-end retail and commercial tenants.

Trust-Us offers We-Sell $3,000,000.00 for the land on the following terms: $500,000.00 cash and seller carry back a Deed of Trust of $2,500,000.00. This Deed of Trust will, of course, have to be subordinated to a construction deed of trust for approximately $20,000,000.00. Trust-Us tells We-Sell the completed project will be worth “a fortune” and, the construction lender will monitor the construction.

We-Sell agrees to these terms on the following conditions: -Construction loan may not exceed $20,000,000.00 -Interest rate may not exceed Prime +2% -All construction loan funds must be used solely for the development of this project and are to be controlled by the construction lender.

A deed of trust in favor of We-Sell is executed by Trust-Us and a rider is attached which sets forth the automatic subordination provision and its conditions.

Shortly thereafter, Trust-Us finds construction financing with Security-Lend Finance Company. The construction loan is negotiated for a first deed of trust of $18,000,000.00 at Prime Rate +2% interest. Security-Lend sends its deed of trust to the title company and requests an ALTA Loan policy showing its lien in first position based on the automatic subordination provision in the We-Sell deed of trust.

The title officer reviews the We-Sell deed of trust and sees that the amount of construction financing and interest rate comply with the conditions set forth in the rider. The title officer however requires that We-Sell execute a standard CLTA form Subordination Agreement. We-Sell agrees and signs the CLTA form but adds language that the subordination is conditioned upon all construction funds being used solely for development of the “Downtown Center” project and that the construction lender will control disbursements.

The title officer rejected the document stating that he will insure only if an unaltered CLTA form Subordination is used. We-Sell complies, the transaction closes and the construction lender funds the entire loan amount to Trust-Us.

After three months, no work has begun on the project and We-Sell tries to contact Trust-Us. Their telephone has been disconnected and it appears that they have disappeared with all of the construction funds.

We-Sell receives a Notice of Default from Security-Lend Finance Company and immediately retains an attorney to file an action to enjoin Security-Lend’s foreclosure. We-Sell claims that the subordination is invalid because all of its conditions that were set out in the rider attached to their deed of trust were not met. We-Sell argues that its conditions to subordination contained on the rider put Security-Lend “on notice” of those conditions, depriving Security-Lend from their first priority position as the title company had insured.

Security-Lend tenders its defense to the title company, who is pleased to see that their title officer required an unaltered CLTA form subordination agreement.

In litigation, with the title insurer defending Security-Lend, it is ultimately determined that the subordination language in the CLTA subordination form clearly provides that it supercedes all prior agreements regarding subordination of the deed of trust. Security-Lend is in first position as it intended and as it was insured.

What is a Quitclaim Deed?

Everyone knows that a written document is needed in order to transfer title in real property from one person to another. What everyone does not know is that the written document used to convey property can be complicated and nuanced, taking multiple forms, each with its own specific implications and particular best uses. There are three types of deeds used to convey property:

1) The general warranty deed,

2) The special warranty deed, and

3) The quitclaim deed.

General and special warranty deeds are used to warrant the good state of the title. These types of deeds will contain covenants that so warrant, protecting the new title-holder from lawful claims of superior title and agreeing to compensate him for any loss incurred by a successful third party challenge of superior title. Additionally, a general warranty deed will contain covenants that promise the new title-holder that he can legally purchase, possess and enjoy the property in question. A special warranty deed will address the issue of defects that arose during the seller’s ownership period.

In sharp contrast to these warranty deeds, a quitclaim deed contains no warranties of title at all. The quitclaim deed only operates to convey to the seller’s interest in the property to the buyer. This means that if a seller owns a building, he can give a quitclaim deed to the buyer and the seller’s entire interest has been transferred.

Of course, the fine points addressed by general and special warranty deeds are not addressed in a quitclaim deed situation, making the quitclaim a precarious and often difficult instrument by which to convey title. Because a quitclaim only operates to convey a legal interest in the property, a quitclaim given out by a person who does not actually own the property named in the deed will not be liable for any damages at law. There are no breached covenants because no covenants were created. The deed is just a valueless piece of paper and nothing is transferred.

That said, a brief glance at the past can undoubtedly remind us of the incredible value and efficiency of a quitclaim during different historical eras. At times when land claims needed to be made as quickly and efficiently as possible, the quitclaim was a great tool by which people took title. The California Gold Rush is probably the best example of a historical period in which the quitclaim was an essential factor in shaping the economy and social hierarchy of the day.

Of course, the quitclaim has importance beyond elementary school history lessons. Today, the quitclaim can be used to remove apparent defects in title without the time and expense of litigation. Once the title is unquestionably established through quitclaim, a general or special warranty deed can be used to further clarify the more subtle covenant issues associated with property ownership and purchase.

ABA Number — Originated by the American Bankers Association, it is the number (usually in the upper right-hand portion of the check) which identifies the bank upon which the check is drawn.

Abstract of Judgment — A summary of the essential provisions of a court judgment, which when recorded in the county recorder’s office, creates a lien upon the property of the defendant in that county, both presently owned or after acquired.

Abutting Owner — One whose land is contiguous to (abuts) a public right of way.

Acceleration Clause — Clause used in an installment note and mortgage (or deed of trust), which gives the lender the right to demand payment in full upon the happening of a certain event, such as failure to pay an installment by a certain date, change of ownership without the lender’s consent, destruction of the property, or other event which endangers the security of the loan.

Access Right — A right to ingress and egress to and from one’s property. May be express or implied.

Accommodation Recording — The recording of documents with the county recorder by a title insurance company, without liability (no insurance) on the part of the company, but merely as a convenience to a customer.

Acknowledgement — A written declaration by a person executing an instrument, given before an officer authorized to give an oath (usually a notary public), stating that the execution is of his own volition.

Action to Quiet Title — A court action to establish ownership to real property. Although technically not an action to remove a cloud on title, the two actions are usually referred to as “Quiet Title” actions.

Adjudication — A judgment or decision by a court.

Adjustable Mortgage Loans (AML\’92S) — Mortgage loans under which the interest rate is periodically adjusted to more closely coincide with current rates. The amounts and times of adjustment are agreed to at the inception of the loan. Also called: Adjustable Rate Loans, Adjustable Rate Mortgages (ARM\’92s), Flexible Rate Loans, and Variable Rate Loans.

Administrator — A person given authority by a proper court to manage and distribute the estate of a deceased person when there is no will.

Adverse Possession — A method of acquiring title by possession under certain conditions. Generally, possession must be actual, under claim of right, open, continuous, notorious, exclusive and hostile (knowingly against the rights of the owner). Exact time (years) of possession and specific requirements (such as payment of property taxes) vary with the statutes of each state.

Affidavit — A written statement or declaration, sworn to before an officer who has authority to administer an oath.

Affirmative Easement — An easement described from the benefited estate (dominant tenement). Also called a parcel 2 easement. The same easement described from the burdened estate (servient tenement) would be a negative easement.

After Acquired Title — Legal doctrine by which property automatically vests in a grantee when the grantor acquires title to the property after the deed has been executed and delivered.

Agency — One who is authorized to act for or represent another (principal), usually in business matters. Authority may be expressed or implied.

Alias — Latin for (otherwise) commonly meaning that a person is known by more than one name. In some states, indicated by the letters AKA (Also Known Aliases).

Alienation Clause — A type of acceleration clause, calling for a debt under a mortgage or deed of trust to be due in its entirety upon transfer of ownership of the secured property. Also called a “due-on-transfer” clause.

A.L.T.A.(American Land Title Association) — An organization, composed of title insurance companies, which has adopted certain insurance policy forms to standardize coverage on a national basis.

Amendment — A change, either to correct an error or to alter a part of an agreement without changing the principal idea or essence.

American Institute of Real Estate Appraisers — A trade organization designed to establish standards of competence in the appraisal industry. The designation MAI (competent by the institute’s standards to appraise all types of real property) and RM (one to four family residences) are prestigious and heavily relied upon by the real estate industry, lenders, governments, and others who utilize appraisers.

Amortization — Payment of debt in regular, periodic installments of principal and interest, as opposed to interest only payments.

Amortization Schedule — A schedule showing each payment of a loan to be amortized and breaking down the payment applied to principal and the amount applied to interest.

Amortize — To reduce debt by regular payments of both principal and interest, as opposed to interest only payments.

Anchor Tenant — The most reliable, and usually the largest, tenant in a shopping center. The strength of the anchor tenant greatly affects the availability of financing for the shopping center. The term may also be used to describe a tenant in an office building, industrial park, etc.

Annexation — Permanently affixing to real property, such as city adding additional land to increase its size.

Appel Loan (Accelerating Payoff Progressive Equity Loan) — A residential property loan which calls for a payment increase over the first six years. Level payments are made for the remaining years and the loan paid off during the 15th year. There is no prepayment penalty and P.M.I. is required.

Appraisal — An opinion of value based upon a factual analysis. Legally, an estimation of value by two disinterested persons of suitable qualifications.

Appraiser — One who is trained and educated in the methods of determining the value of property through analysis of various factors which determine said value.

Appropriation — The private taking and use of public property, such as water from a river or lake. Not to be confused with condemnation or expropriation.

Appurtenance — Something belonging to something else, either attached or not, such as a barn to a house or an easement to land. The appurtenance is part of the property and passes with it upon sale or other transfer.

Arbitray Map — A map drawn by a title company to be used in locating property in areas where legal descriptions are difficult and complex. Areas are arbitrarily subdivided, usually by ownership at a given time, into lots which are numbered. Recorded documents are then posted to these arbitrary lots by the same “arb” number.

Arbitration Clause — A clause in a lease calling for the decision of a third party (arbiter) regarding disputes over future rents based on negotiation. Also used in construction contracts, disputes between brokers, etc.

Articles of Incorporation — Documentation filled with the state which sets forth-general information about a corporation. More specific rules of the corporation would be contained in the by-laws.

“As Is” Condition — Premises accepted by a buyer or tenant in the condition existing at the time of the sale or lease, including all physical defects.

Assessed Value — Value placed upon property for property tax purposes by the tax assessor.

Assessment — (1) The estimating of value of property for tax purposes. (2) A levy against property in addition to general taxes. Usually for improvements such as streets, sewers, etc.

Assessment District — An area, the boundaries of which are set for tax assessment purposes only; these boundaries may cross city boundaries.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: