What is the difference between a CLTA & a ALTA title policy?

Post date: Feb 22, 2012 3:4:5 AM

Title insurance protects against losses due to defects in title. Before issuing a title insurance policy, title companies search and examine public records and, in certain circumstances, survey the property to identify liens, claims or encumbrances on the property, and alert you to possible title defects. The premium cost is a one-time fee payable at the time of escrow closing.

When talking about title insurance policies for commercial real estate transactions, there are basically two types of title insurance, there is the California Land Title Association “Standard Coverage” (CLTA), also referred to as the CLTA Owner’s Policy and there is the American Land Title Association “Extended Coverage” (ALTA), also referred to as the Lender’s Policy. The CLTA coverage is the least protective with the ALTA being more encompassing. As a general rule the seller of commercial real property purchases the CLTA Standard Owner’s Coverage policy with the buyer paying the difference between the CLTA and the ALTA Extended Coverage Policy.

What is the difference, aside from the price – quite a bit. The CLTA policy covers matters affecting title, that occurred in the past and that are not specifically excluded from the policy terms. CLTA policies are obtained by Buyers to insure their interest in the title to the property conveyed to them by the Sellers.

The matters generally covered by a CLTA policy are:  

• Ownership of the property: This assures the Buyer that the selling entity owns and can convey clear title to the Buyer. It is particularly important to verify that the name in the purchase agreement mirrors the name that is found on the Preliminary Title Report.

• Access to the property: This protects the Buyer from purchasing 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.

The CLTA policy may also be ordered by lenders, normally on second deeds of trust by individuals and non-banking or savings and loan lenders.

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.

• Encroachments.

• Unrecorded easements.

• 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 broadest form of insurance.

Under both the CLTA and the ALTA policy certain matters are typically excluded. Those exclusions are typically:

• Laws, ordinances, regulations, and policy powers.

• Rights of eminent domain.

• Matters controlled by the seller/insured.

• 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, feel free to talk to your title officer as many title companies offer different types of endorsements.