Differences Between CLTA and ALTA title Policies
Title insurance protects against losses due to defects in title. Before issuing a title insurance policy, title insurance companies search and examine public records and, in certain circumstances, survey the property to identify liens, claims or encumbrances on the property, so they can alert you to possible title defects. The premium cost is a onetime fee payable at the time of escrow closing.
There are basically two types of title insurance. There is the California Land Title Association "Standard Coverage" (CLTA), referred to as the CLTA Owner's Policy and there is the American Land Title Association "Extended Coverage" (ALTA), referred to as the Lender's Policy. The CLTA coverage is the least protective with the ALTA being more protective and more expensive.
The CLTA policy covers matters affecting title, that occurred in the past and that are not specifically excluded from the policy. CLTA policies are obtained by buyers to ensure their interest in the title to the property conveyed to them by the sellers.
The matters generally covered by CLTA policies are:
- Ownership of the property: This assures the buyer that the seller owns and can convey clear title to the buyer. It is particularly important to verify that the name in the purchase agreement reflects the name that is found on the Preliminary Title, Report.
- Access to the property: This protects the buyer from purchasing a property that may be landlocked; it guarantees that there is access to an open, dedicated public street.
- Marketability: This guarantees that the insured has a marketable interest in the real property.
- Liens or Encumbrances: Usually shown as an exclusion from coverage, this protects the buyer in the event that the insurer has not identified all matters of record, such as an easement, lease, option, or deed of trust.
- Various title defects, such as forged documents, fraudulent transfers, or transfers by bankrupt or incapacitated persons.
An ALTA Policy covers what the CLTA Policy covers plus it covers matters that are not "of record", as well as matters that are not shown on an ALTA Survey. Such items could include following:
- Unrecorded liens, encumbrances, taxes and assessments,
- Unrecorded easements, and
- Items disclosed by a survey.
An ALTA policy usually requires a physical inspection of the property. An owner may order an ALTA policy, which is the most comprehensive form of insurance. Under both the CLTA and the ALTA policies, certain matters are generally excluded. Those exclusions typically are:
- Laws, ordinances, regulations, and policy powers;
- Rights of eminent domain;
- Matters controlled by the seller/insured; and
- Creditor's rights claims.
All title companies offer endorsements to correct or modify the exclusions of a title policy or add additional coverage. If your preliminary title policy contains exclusions that you are not comfortable with or do not understand, you should talk to your title officer.