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California Title Insurance Practice

Be prepared to advise your transactional and litigation clients on issues involving title insurance coverage.

Be prepared to advise your transactional and litigation clients on issues involving title insurance coverage.

  • Coverage provided by owner’s and lender’s policies
  • Chart and explanation of available owner’s and lender’s endorsements
  • The use of guaranties, commitments, and limited coverage policies
  • Procedures for filing and pursuing claims against title insurer
  • Methods of resolving title insurance claims
  • Litigation strategies and procedures
Print RE32620

2d edition, looseleaf, updated June 2023

$ 468.00
  • Overview
  • Table of Contents
  • Selected Developments
  • Authors
  • Filing Instructions
  • Page List
  • OnLAW System Requirements
  • Specifications

Be prepared to advise your transactional and litigation clients on issues involving title insurance coverage.

  • Coverage provided by owner’s and lender’s policies
  • Chart and explanation of available owner’s and lender’s endorsements
  • The use of guaranties, commitments, and limited coverage policies
  • Procedures for filing and pursuing claims against title insurer
  • Methods of resolving title insurance claims
  • Litigation strategies and procedures

1

Organization and Regulation of Title Industry

Oscar H. Beasley

  • I.  INTRODUCTION TO TITLE INSURANCE
    • A.  Brief History of Title Insurance  1.1
    • B.  What Title Insurance Does
      • 1.  Covers Past Events  1.2
      • 2.  Covers Matters Affecting Title  1.3
  • II.  ORGANIZATION, OPERATION, AND REGULATION OF TITLE INDUSTRY
    • A.  Organization and Operation of Industry  1.4
      • 1.  Underwritten Title Company or Title Agent  1.5
      • 2.  Approved Attorney  1.6
      • 3.  Attorney Agents  1.7
    • B.  Regulation of Industry  1.8
      • 1.  Regulation of Title Insurance Companies  1.9
      • 2.  Regulation of Underwritten Title Companies  1.10
      • 3.  Concerns Regarding Closing by Underwritten Title Company  1.11
      • 4.  Regulation of Escrow Companies  1.12
  • III.  PROHIBITION OF REBATES, KICKBACKS, AND COMMISSIONS
    • A.  California Statutes  1.13
    • B.  Federal Statutes; RESPA  1.14
  • IV.  OTHER FORMS OF ASSURANCE IN OTHER PARTS OF UNITED STATES
    • A.  Abstracts  1.15
    • B.  Attorney’s Opinion  1.16

2

Advising Clients About Title Insurance

Alice L. Akawie

  • I.  ADVISING CLIENTS
    • A.  Determining Scope of Representation  2.1
    • B.  Explaining Limitations of Title Insurance
      • 1.  Dispelling Misconceptions  2.2
      • 2.  Informing Clients That Certain Matters May Not Be Disclosed  2.3
  • II.  ROLE OF ATTORNEYS IN SALES TRANSACTIONS
    • A.  Ordering Preliminary Report  2.4
    • B.  Reviewing Preliminary Report
      • 1.  Buyer’s Attorney  2.5
        • a.  Reviewing Exceptions to Coverage  2.6
        • b.  Comparing Underlying Documents With Summary of Exceptions  2.7
        • c.  Confirming Vesting  2.8
      • 2.  Seller’s Attorney  2.9
        • a.  Reconveying Deed of Trust  2.10
        • b.  Transferring Subject to Deed of Trust  2.11
    • C.  Removing Exceptions to Coverage  2.12
    • D.  Arranging for Inspection and Survey of Property  2.13
    • E.  Evaluating Need for Commitment or Binder  2.14
    • F.  Determining Appropriate Coverage
      • 1.  Advising Buyer  2.15
        • a.  Determining Buyer’s Knowledge of Off-Record Matters  2.16
        • b.  Recommending Type of Policy  2.17
          • (1)  Explaining ALTA Land Title Survey Requirement  2.18
          • (2)  Addressing Options With Title Officer to Meet Buyer’s Needs  2.19
        • c.  Recommending Endorsements  2.20
      • 2.  Advising Seller  2.21
    • G.  Negotiating Coverage  2.22
      • 1.  Understanding Nature of Title Insurance  2.23
      • 2.  Resolving Title Issues  2.24
        • a.  Contacting Title Company Underwriter  2.25
        • b.  Appealing to Other Decision-Makers  2.26
        • c.  Contacting Competitors  2.27
        • d.  Possible Solutions  2.27A
    • H.  Budgeting Costs  2.28
    • I.  Establishing Authority to Act  2.29
      • 1.  Entities and Individuals
        • a.  Partnerships  2.30
        • b.  Corporations  2.31
        • c.  Limited Liability Companies  2.32
        • d.  Trusts and Estates  2.33
        • e.  Individuals  2.34
      • 2.  Statutory Presumptions  2.35
    • J.  Reviewing or Drafting Collateral Documents  2.36
    • K.  Preparing Escrow Instructions  2.37
    • L.  Reviewing Title Insurance Policy  2.38
    • M.  Evaluating and Asserting Claims  2.39
  • III.  ROLE OF ATTORNEYS IN LOAN TRANSACTIONS  2.40
    • A.  Reviewing Exceptions to Coverage  2.41
    • B.  Determining Appropriate Coverage
      • 1.  Recommending Appropriate Policy  2.42
      • 2.  Recommending Amount of Coverage  2.43
      • 3.  Recommending Endorsements  2.44
    • C.  Drafting and Reviewing Documents  2.45
    • D.  Confirming Authority to Borrow  2.46
    • E.  Evaluating and Asserting Claims  2.47
  • IV.  ROLE OF ATTORNEYS IN LEASEHOLD AND EASEMENT TRANSACTIONS  2.48

3

Selecting Title Insurer and Initiating Title Process

Alice L. Akawie

Rod Pasion

  • I.  WHO SELECTS THE INSURER  3.1
  • II.  TITLE INSURANCE COMPANIES AND UNDERWRITTEN TITLE COMPANIES
    • A.  Differences Between Title Insurance Companies and Underwritten Title Companies  3.2
      • 1.  Underwriting Agreement  3.3
      • 2.  Distinctions in Liability  3.4
    • B.  Use of Closing Protection Letter if Underwritten Title Company Is Involved in Transaction  3.5
  • III.  FACTORS TO CONSIDER IN SELECTING INSURER  3.6
    • A.  Financial Stability  3.7
      • 1.  Reinsurance
        • a.  Why Reinsurance Is Used  3.8
        • b.  How Reinsurance Works  3.9
        • c.  How Insured Obtains Direct Access to Reinsurer  3.10
      • 2.  Coinsurance
        • a.  Definition of Coinsurance  3.11
        • b.  Forms of Coinsurance
          • (1)  Straight or First-Dollar Coinsurance  3.12
          • (2)  Excess Coinsurance  3.13
          • (3)  Joint and Several Coinsurance  3.14
    • B.  Premiums
      • 1.  Regulation of Pricing Practices  3.15
      • 2.  Factors in Setting Premiums  3.16
      • 3.  Endorsements  3.17
      • 4.  Methods of Reducing Premiums  3.18
        • a.  Short-Term-Rate Premiums  3.19
        • b.  Binders
          • (1)  Definition and Coverage of Binders  3.20
          • (2)  Using Binders in Resale Transactions  3.21
          • (3)  Using Binders in Refinancing Transactions  3.22
        • c.  Special Rates
          • (1)  Planned Project or Special Project Rates  3.23
          • (2)  Revamp Rates  3.24
          • (3)  Reissue and Rewrite Rates  3.25
        • d.  Credits for Existing Insurance  3.26
      • 5.  Quotes  3.27
    • C.  Flexibility in Making Underwriting Decisions  3.28
  • IV.  INITIATING TITLE INSURANCE PROCESS
    • A.  Northern California  3.29
    • B.  Southern California  3.30
    • C.  Multistate Transactions  3.31

4

Title Search and Surveys

Marjorie Floyd Burchett

  • I.  SEARCHING TITLES
    • A.  Public Records Maintained in California  4.1
      • 1.  County Grantor/Grantee Indexes  4.2
      • 2.  State and Federal Judicial Records  4.3
      • 3.  Property Tax Records  4.4
      • 4.  State and Federal Land Office Records  4.5
      • 5.  Environmental Lien Records  4.6
      • 6.  Constructive Notice Imparted by Title Records  4.7
      • 7.  Recorded Documents That Do Not Impart Constructive Notice  4.8
      • 8.  Effect of Actual Notice of Prior Unrecorded or Defectively Recorded Documents  4.9
    • B.  Records Examined by Title Companies—The Title Company Plant  4.10
      • 1.  Types and Scope of Records Maintained  4.11
        • a.  Lot Books  4.12
        • b.  “Arb” Books  4.13
        • c.  General Index  4.14
        • d.  Tax Records  4.15
        • e.  Other Sources of Title Records  4.16
      • 2.  Use of Starter Reports or Policies  4.17
    • C.  Title Company Searching Methods and Document Examination  4.18
      • 1.  Statement of Identity  4.19
      • 2.  Steps in Title Search  4.20
      • 3.  Steps in Title Examination  4.21
      • 4.  Computer Searches  4.22
    • D.  Indexing Errors and Wild Documents
      • 1.  Effect of Wild Documents  4.23
      • 2.  Problems With Misspelled, Common, or Different Names  4.24
      • 3.  Effect of Search Revealing Wild Documents  4.25
  • II.  UNDERWRITING DECISIONS  4.26
    • A.  Limitations on Title Searches  4.27
    • B.  Conflict Between Time Constraints and Thoroughness of Search [Deleted]  4.28
    • C.  Decisions Affecting Specific Transactions  4.29
    • D.  Economic Conditions, Competitive Pressures, and Claims Experience  4.29A
      • 1.  Creditors’ Rights Coverage
        • a.  Historic Coverage  4.29B
        • b.  Withdrawal of Coverage  4.29C
      • 2.  Mechanics Lien Coverage in the Face of a Loss of Priority  4.29D
        • a.  Historic Approach  4.29E
        • b.  Current Approach  4.29F
  • III.  OFF-RECORD DUE DILIGENCE  4.29G
    • A.  Different Types of Land Surveys  4.30
    • B.  Extended Coverage Inspection and Survey Requirements  4.31
    • C.  ALTA Survey  4.32
    • D.  Review of Survey by Title Company  4.33
    • E.  Review of Survey by Insured’s Attorney  4.34
    • F.  Aerial Photographs and Overlay Surveys  4.35
    • G.  Inspection  4.36

5

Preliminary Reports and Commitments

Alice L. Akawie

  • I.  PRELIMINARY REPORTS
    • A.  Purpose  5.1
    • B.  Contents  5.2
      • 1.  Cover Page  5.3
        • a.  Explanation of Purpose and Scope; Disclaimer of Liability  5.4
        • b.  “Plant Date”  5.5
        • c.  The Estate  5.5A
        • d.  Current Vesting  5.6
        • e.  Legal Description  5.7
      • 2.  Exclusions and Preprinted Exceptions  5.8
      • 3.  Typewritten Exceptions  5.9
        • a.  Easements  5.10
        • b.  Encroachments  5.11
        • c.  Covenants, Conditions, and Restrictions  5.12
        • d.  Existing Voluntary Liens  5.13
        • e.  Leasehold Interests  5.14
          • (1)  Subordination and Attornment Clauses  5.15
          • (2)  Rent Concessions [Deleted]  5.16
          • (3)  Ground Leases [Deleted]  5.17
        • f.  Tax Liens  5.18
        • g.  Miscellaneous Exceptions  5.19
      • 4.  Notes  5.20
    • C.  Negotiating Exceptions  5.21
      • 1.  Statutory Limitations on Enforceability of Ancient Instruments  5.22
      • 2.  Ancient Mortgages and Deeds of Trust  5.22A
      • 3.  Termination of Unexercised Options and Powers of Termination  5.23
      • 4.  Unperformed Contracts for Sale of Real Property  5.24
      • 5.  Mineral Rights  5.24A
    • D.  Liability for Reports on Title  5.24B
      • 1.  Liability for Abstracts of Title  5.25
      • 2.  Liability of Preparer of Preliminary Report
        • a.  Pre-1982 Preliminary Title Reports Treated as Abstracts  5.26
        • b.  Post-1981 Preliminary Reports Treated as Offers to Insure  5.27
        • c.  Title Insurer Is Not Insured’s Agent for Purposes of Constructive Notice  5.28
      • 3.  2006 Preliminary Report Form  5.29
    • E.  Issuer’s Duty to Issue Title Policy  5.30
  • II.  COMMITMENTS
    • A.  Purpose  5.31
    • B.  Contents  5.32
      • 1.  Agreement to Issue Policy  5.33
      • 2.  Identifying Information  5.34
      • 3.  Requirements  5.35
      • 4.  Exceptions  5.35A
      • 5.  Conditions  5.36
    • C.  Liability of Issuer of Commitment  5.37
    • D.  Attorney’s Review on Receipt of Policy  5.38
  • III.  HANDLING TITLE DEFECTS  5.39
    • A.  Bonds  5.39A
    • B.  Indemnification of Buyer  5.40
    • C.  Indemnification of Insurer  5.41
    • D.  Secured Indemnities  5.41A
    • E.  Disclosure of the Title Defect  5.41B
    • F.  Holdback Agreement [Deleted]  5.42
    • G.  Endorsements and Extended Coverage [Deleted]  5.43
    • H.  Extension of Time  5.44

6

Structure and Coverage of Title Insurance Policy Forms

Oscar H. Beasley

Marjorie Floyd Burchett

Dena M. Cruz

David V. Westcott

  • I.  OVERVIEW
    • A.  Interpretation of Title Insurance Policies  6.1
    • B.  Scope of Title Insurance Coverage
      • 1.  Types of Policies Insuring Land  6.2
      • 2.  Definition of “Insurance”  6.3
      • 3.  Title Insurance Policy: Contract of Indemnity  6.4
      • 4.  Title Policy Is Not Representative of State of Title  6.5
        • a.  When Transaction Is Fraudulent  6.5A
        • b.  Allegations of Negligence; What Duty Is Owed?  6.5B
      • 5.  Insuring Over Known Risks  6.6
      • 6.  Additional Coverage  6.7
    • C.  CLTA and ALTA Title Insurance Policy Forms  6.8
      • 1.  Standard and Extended Coverage Policies  6.9
      • 2.  Most Commonly Used Policies
        • a.  CLTA Standard Coverage Policy  6.10
          • (1)  Scope of Coverage  6.11
          • (2)  Joint Protection Policy  6.12
        • b.  CLTA Homeowner’s Policy  6.13
          • (1)  Policy Coverage  6.14
          • (2)  Table: CLTA/ALTA Homeowner’s Policy Deductibles and Limits of Liability  6.15
        • c.  ALTA Loan Policy
          • (1)  Extended Coverage Policy  6.16
          • (2)  Controversial Provisions  6.17
        • d.  ALTA Owner’s Policy
          • (1)  Extended Coverage  6.18
          • (2)  Need for Survey  6.19
      • 3.  Other Standard Policies  6.20
        • a.  Decertification of 1987 ALTA Residential Policy  6.21
        • b.  ALTA Withdraws 1992 Leasehold Policies and Issues Endorsements 13 and 13.1  6.22
        • c.  ALTA Short Form Residential Loan Policies  6.23
        • d.  Decertification of 1992 ALTA Construction Loan Policy; Mechanics Lien Endorsements  6.24
        • e.  ALTA Residential Limited Coverage Mortgage Modification Policy  6.24A
      • 4.  International Policies and UCC Policies
        • a.  International Policies  6.25
        • b.  UCC Policies  6.26
  • II.  ANATOMY OF TITLE POLICY  6.27
    • A.  Face Page  6.28
      • 1.  Statement of Indemnification; Covered Risks  6.29
      • 2.  Table: Matters Insured  6.30
        • a.  Vesting of Title  6.31
        • b.  Defects, Liens, and Encumbrances on Title  6.32
        • c.  Unmarketability of Title
          • (1)  Definition of “Unmarketability”  6.33
          • (2)  Factors That Do Not Affect Unmarketability  6.34
          • (3)  Effect of Title Insurance Company’s Unwillingness to Issue Policy  6.35
        • d.  Lack of Right of Access  6.36
        • e.  Validity or Enforceability of Lien  6.37
        • f.  Priority of Lien or Encumbrance  6.38
        • g.  Lack of Priority Over Mechanics Liens  6.39
        • h.  Assessments for Street Improvements  6.40
        • i.  Validity or Enforceability of Assignment  6.41
        • j.  The ALTA Expanded Coverage Residential Loan Policy and the ALTA Homeowner’s Policy: Additional Insuring Provisions  6.42
      • 3.  Statement of Defense Coverage  6.43
    • B.  Exclusions From Coverage  6.44
      • 1.  Government Regulations, Powers, and Rights  6.45
        • a.  Laws, Ordinances, or Government Regulations  6.46
        • b.  Police Power  6.47
        • c.  Judicial Interpretation of Exclusion 1  6.48
      • 2.  Eminent Domain
        • a.  The CLTA Standard Coverage Policy and ALTA Loan and Owner’s Policies  6.49
        • b.  The 2006 and 2021 ALTA Policies, 2021 CLTA/ALTA Homeowner’s Policy, and 2021 ALTA Short Form Expanded Coverage Residential Loan Policies  6.50
      • 3.  Certain Defects, Liens, Encumbrances, and Adverse Claims
        • a.  Matters Controlled by Insured  6.51
          • (1)  Insured Created, Suffered, Assumed, or Agreed to Matter Giving Rise to Loss (Exclusion 3(a))
            • (a)  Matters “Created” by Insured Claimant  6.52
            • (b)  Matters “Suffered” by Insured Claimant  6.53
            • (c)  Matters “Assumed” by Insured Claimant  6.54
            • (d)  Matters “Agreed To” by Insured Claimant  6.55
          • (2)  Insured Knew but Did Not Disclose Matter to Insurer  6.56
        • b.  No Loss or Damage  6.57
        • c.  Postpolicy Claims  6.58
        • d.  Failure to Pay Value  6.59
      • 4.  Liens Unenforceable Because of Failure to Comply With Certain Laws  6.60
      • 5.  Mechanics Liens  6.61
        • a.  Excluded Mechanics Liens  6.62
        • b.  Indemnity Requirement; Prestarts  6.63
      • 6.  Creditors’ Rights Exclusions  6.64
      • 7.  New Exclusions in 2021 ALTA Owner’s and Loan Policies  6.64A
    • C.  Schedule A  6.65
    • D.  Schedule B (Exceptions to Title)  6.66
      • 1.  CLTA Standard Coverage Policy  6.67
      • 2.  ALTA Policies  6.68
        • a.  Standard Coverage Policy  6.69
        • b.  Extended Coverage Policy  6.70
      • 3.  Typewritten Exceptions  6.71
        • a.  Liability for Description of Exception  6.72
        • b.  No Obligation to Show Status of Lien  6.73
        • c.  No Obligation to Show Matters That Do Not Affect Title  6.74
    • E.  Conditions and Stipulations  6.75
      • 1.  Definitions  6.76
        • a.  Definition of “Insured”  6.77
          • (1)  Lender  6.78
          • (2)  Owner  6.79
        • b.  Definition of “Public Records”  6.80
        • c.  Definition of “Land”  6.81
        • d.  Definition of “Amount of Insurance”  6.82
        • e.  Definition of “Indebtedness”  6.83
      • 2.  Continuation of Insurance  6.84
        • a.  Loan Policy  6.85
          • (1)  Loan Policy Does Not Become Owner’s Policy  6.86
          • (2)  Reasons to Obtain Owner’s Policy  6.87
          • (3)  Measure of Damages  6.88
        • b.  Owner  6.89
          • (1)  Partial Interest Retained  6.90
          • (2)  Carryback Financing  6.91
          • (3)  Covenants of Warranty  6.92
          • (4)  Continuation of Coverage Under Expanded Coverage Owner’s Policies  6.92A
      • 3.  Making a Claim  6.93
      • 4.  Paying a Claim  6.94
      • 5.  Liability
        • a.  Determination of Liability
          • (1)  Measure of Damages  6.95
          • (2)  Coinsurance if Property Is Underinsured (Owner’s Policy Only)  6.96
        • b.  Apportionment (Owner’s Policy Only)  6.97
        • c.  Limitation of Liability  6.98
        • d.  Integration Clause  6.98A
        • e.  Increase in Extent of Liability  6.99
        • f.  Reduction of Insurance  6.100
        • g.  Liability Noncumulative  6.101
        • h.  Reduction or Termination of Liability  6.102
          • (1)  Last-Dollar Issues (Loan Policy Only)  6.103
          • (2)  Revolving Credit Loan  6.104
        • i.  Subrogation  6.105
        • j.  Arbitration  6.106
        • k.  Limited to Contract Damages  6.107
      • 6.  Proof of Loss  6.108
      • 7.  Class Actions  6.109

7

Owner’s Policies

James T. Straw

  • I.  REASONS TO OBTAIN OWNER’S TITLE POLICY  7.1
    • A.  Distinguishing Other Title Products  7.2
      • 1.  Preliminary Report  7.3
      • 2.  Loan Policy  7.4
      • 3.  Trustee’s Sale Guaranty  7.5
    • B.  No Duty to Issue Title Policy  7.6
    • C.  Counseling Owners on Policy Matters
      • 1.  Ascertaining Coverage and Reviewing Preliminary Report  7.7
      • 2.  Preparing Instructions on Title Insurance Coverage  7.8
      • 3.  Disclosing Known Title Matters  7.9
        • a.  Insurer’s Election to Rescind  7.9A
        • b.  Unfair Settlement Practices  7.9B
        • c.  Bankruptcy Claims: Equitable Subordination  7.9C
      • 4.  Explaining Date-Down Matters  7.10
  • II.  COMPARING EARLIER AND MORE RECENT OWNER’S POLICIES  7.11
    • A.  CLTA Policy Compared to 1992, 2006, and 2021 ALTA Owner’s Policies
      • 1.  Summary of Basic Coverage  7.12
        • a.  Access  7.13
        • b.  No Express Coverage of Mechanics Liens  7.14
      • 2.  CLTA Joint Protection Policy  7.15
      • 3.  Summary of Exclusions  7.16
        • a.  Environmental Liens  7.17
        • b.  Creditors’ Rights Exclusion  7.18
          • (1)  Avoiding Creditors’ Rights Exclusion by Using Pre-1990 Policy Form  7.19
          • (2)  Withdrawal of Creditors’ Rights Endorsement  7.20
          • (3)  2021 ALTA Owner’s Policy: New Exclusions  7.20A
      • 4.  Preprinted and Regional Exceptions
        • a.  Summary of Preprinted Exceptions  7.21
        • b.  Standard Coverage Policy
          • (1)  Record Title Policy  7.22
          • (2)  Transactional Validity: Fraud, Forgery, or Failure of Delivery  7.23
        • c.  Extended Coverage Policy  7.24
          • (1)  Survey Requirement  7.25
          • (2)  Commercial and Residential Use of Survey Compared  7.26
      • 5.  Typewritten Exceptions (Schedule B Exceptions)  7.27
      • 6.  Conditions and Stipulations  7.28
        • a.  Important Definitions
          • (1)  Insured  7.29
          • (2)  Land  7.30
          • (3)  Public Records  7.31
          • (4)  Unmarketability of Title  7.32
        • b.  Arbitration  7.33
      • 7.  Duty to Defend  7.34
      • 8.  Cost Distinctions [Deleted]  7.35
    • B.  Comparing 1992 ALTA Owner’s Policy, 2006 ALTA Owner’s Policy, and 2021 ALTA Owner’s Policy
      • 1.  Expansion of “Covered Risks”  7.35A
      • 2.  Exclusions  7.35B
      • 3.  Arbitration  7.35C
      • 4.  Proof of Loss  7.35D
      • 5.  Expanded Definition of “Insured”  7.35E
      • 6.  Increase Regarding Extent of Liability  7.35F
      • 7.  Postpolicy or “Gap” Coverage  7.35G
      • 8.  Exclusion Regarding Liens for Real Estate Taxes  7.35H
    • C.  Table: Comparison of Covered Risks in Owner’s Policies  7.35I
    • D.  Table: Comparison of Exclusions in Owner’s Policies  7.35J
  • III.  RESIDENTIAL TITLE INSURANCE POLICIES  7.36
    • A.  Anatomy of CLTA/ALTA Homeowner’s Policy  7.36A
      • 1.  Owner’s Information Sheet; Table of Contents  7.37
      • 2.  Owner’s Coverage Statement  7.38
      • 3.  Covered Title Risks  7.39
      • 4.  Duty to Defend  7.40
      • 5.  Schedules A and B
        • a.  Schedule A  7.41
        • b.  Schedule B
          • (1)  Exceptions  7.42
          • (2)  Regional Exceptions [Deleted]  7.43
      • 6.  Exclusions  7.44
      • 7.  Conditions  7.45
    • B.  Comparing CLTA Standard Policy With CLTA/ALTA Homeowner’s Policy
      • 1.  Advantages of Homeowner’s Policy
        • a.  Expanded Coverage  7.46
        • b.  Cost  7.47
      • 2.  Use of Endorsements  7.48
      • 3.  Limitation on Coverage  7.49
      • 4.  Basic Coverage  7.49A
        • a.  Violation of Subdivision Law  7.49B
        • b.  Building Permit Violations, Subdivision Violations, and Environmental Remediation  7.49C
        • c.  Encroachment  7.49D
        • d.  Access  7.49E
        • e.  Restrictive Covenant Violations  7.49F
        • f.  Automatic Coverage Increases  7.49G
      • 5.  Continuation of Coverage  7.49H
      • 6.  Postpolicy Event Coverage  7.49I
      • 7.  Restrictions on Policy  7.49J
  • IV.  COVERAGE FOR OPTIONEES, VENDEES, TENANTS, AND OTHER OWNERS
    • A.  Insuring Optionee
      • 1.  Insurable Interest  7.50
      • 2.  Desire for Coverage  7.51
      • 3.  Method of Insuring  7.52
      • 4.  Underwriting Criteria  7.53
    • B.  Contract-of-Sale Vendee  7.54
    • C.  Leaseholds  7.55
      • 1.  Underwriting Criteria  7.56
      • 2.  Calculating Amount of Loss  7.57
    • D.  Mineral Rights  7.58
      • 1.  Scope of Coverage  7.59
      • 2.  Exceptions From Coverage  7.60
      • 3.  Calculating Amount of Loss  7.61
    • E.  The 1991 and 2012 ALTA United States Policy
      • 1.  Scope of Coverage  7.62
      • 2.  Exclusions  7.63
  • V.  POSTCLOSING REVIEW  7.64

8

Loan Policies

Marjorie Floyd Burchett

Dena M. Cruz

Rebecca U. Litteneker

Edward S. Rusky

James T. Straw

  • I.  THE LENDING INDUSTRY AND ITS REQUIREMENTS
    • A.  General Considerations
      • 1.  Lender’s Goals  8.1
      • 2.  Borrower’s Goals  8.2
      • 3.  Impact of Third Parties on Lender’s Title Insurance Requirements  8.3
    • B.  FNMA/FHMC Requirements  8.4
    • C.  Loan Pools, Participations, and Securitized Transactions  8.5
      • 1.  Packaging Loans  8.6
      • 2.  Securitizing Loans  8.7
      • 3.  Securitization Litigation—Wrongful Foreclosure  8.7A
        • a.  Yvanova v New Century Mortgage Corp.  8.7B
        • b.  Post-Yvanova Cases  8.7C
        • c.  Lack of Clarity on Elements of Wrongful Foreclosure  8.7D
        • d.  Use of Multiple Suits to Delay or Avoid Foreclosure  8.7E
        • e.  Evolving Market  8.8
        • f.  Establishing Title Insurance Requirements  8.9
          • (1)  Rating Agency  8.10
          • (2)  Underwriter of Bonds  8.11
          • (3)  Issuers of Credit Enhancements  8.12
    • D.  Priority of Deed of Trust
      • 1.  Recordation  8.13
      • 2.  Exceptions to Priority by Recordation
        • a.  Actual Notice  8.14
        • b.  Real Property Taxes and Certain Assessments  8.15
        • c.  Mechanics Liens  8.16
        • d.  Simultaneously Recorded Deeds of Trust  8.16A
        • e.  Subordination Agreement  8.16B
      • 3.  Prior Interests That May Be Advantageous to Lender  8.17
        • a.  Leases
          • (1)  Lender’s Considerations  8.18
          • (2)  Lease Subordination  8.19
          • (3)  Subordination, Nondisturbance, and Attornment Agreement  8.20
          • (4)  Partial Subordination  8.20A
          • (5)  Title Insurance  8.21
        • b.  Covenants, Conditions, and Restrictions (CC&Rs)
          • (1)  Lender’s Considerations and Priorities  8.22
          • (2)  Title Insurance  8.23
        • c.  Reciprocal Easement Agreements (REAs)
          • (1)  Lender’s Considerations and Priorities  8.24
          • (2)  Title Insurance  8.25
  • II.  DIFFERENT FORMS OF LOAN POLICIES
    • A.  Introduction to Loan Policies  8.26
    • B.  CLTA Standard Coverage Policy  8.27
      • 1.  Coverage  8.28
      • 2.  Standard Coverage Exclusions and Exceptions in 1990 CLTA Policy and 2022 CLTA Policy  8.29
    • C.  1992 ALTA Loan Policy
      • 1.  Coverage  8.30
      • 2.  Exclusions  8.31
      • 3.  Comparison of 1970 and 1992 ALTA Loan Policies
        • a.  Creditors’ Rights Exclusion  8.32
          • (1)  Avoiding Creditors’ Rights Exclusion by Using Pre-1990 Policy Form  8.32A
          • (2)  Endorsement Coverage  8.32B
          • (3)  Lender’s Response to Withdrawal of Endorsement  8.32C
        • b.  Arbitration  8.33
      • 4.  Comparison of 1992, 2006, and 2021 ALTA Loan Policies  8.33A
        • a.  Expansion of Covered Risks  8.33B
        • b.  Exclusions  8.33C
        • c.  Arbitration  8.33D
        • d.  Proof of Loss  8.33E
        • e.  Expanded Definition of “Insured”  8.33F
        • f.  Definition of “Indebtedness”  8.33G
        • g.  Increase Regarding Extent of Liability  8.33H
        • h.  Postpolicy (“Gap”) Coverage  8.33I
      • 5.  ALTA Short Form Residential Loan Policies  8.33J
      • 6.  Table: Comparison of Covered Risks in Loan Policies  8.33K
      • 7.  Table: Comparison of Exclusions in Loan Policies  8.33L
      • 8.  The ALTA Expanded Coverage Residential Loan Policy  8.33M
      • 9.  Additional Exclusions to Expanded Coverage Residential Loan Policy  8.33N
      • 10.  2012 Short Form Expanded Coverage Residential Loan Policy  8.33O
    • D.  ALTA Construction Loan Policies  8.33P
      • 1.  1992 ALTA Construction Loan Policy  8.34
        • a.  Form A Endorsement  8.35
        • b.  Form B Endorsement  8.36
        • c.  Exclusions From Endorsements  8.37
        • d.  Form C Endorsement  8.37A
        • e.  Form D Endorsement  8.37B
        • f.  ALTA Form 32–06 and ALTA Form 32 (07-01-21) Endorsements  8.37C
        • g.  ALTA Form 32.1–06 and ALTA Form 32.1 (07-01-21) Endorsements (Construction Loan—Loss of Priority—Direct Payment)  8.37D
        • h.  ALTA Form 32.2–06 and ALTA Form 32.2 (07-01-21) (Construction Loan—Loss of Priority—Insured’s Direct Payment)  8.37E
        • i.  ALTA Form 33–06 (Disbursement)  8.37F
      • 2.  Package Construction Loan Policies  8.38
    • E.  Withdrawal and Replacement of 1992 ALTA Leasehold Loan Policy by Endorsement 13.1–06  8.39
    • F.  Limited Coverage Policies  8.40
  • III.  LENDER’S CONCERNS  8.41
    • A.  Measure and Timing of Loss
      • 1.  Measure of Loss  8.42
      • 2.  Timing of Loss  8.43
        • a.  Analysis of Timing of Loss in Karl v Commonwealth Land Title Ins. Co.  8.44
        • b.  Benefit to Lender of Karl v Commonwealth Land Title Ins. Co.  8.45
    • B.  Reduction of Coverage  8.46
    • C.  Date of Policy  8.47
    • D.  Insuring Lenders on Foreclosure or Deeds in Lieu of Foreclosure
      • 1.  2012 Limited Pre-Foreclosure Policy for Residential Loans  8.47A
      • 2.  Alternatives for Nonresidential Loans—Acquiring Owner’s Policy  8.48
      • 3.  Validity and Enforceability of Notes  8.49

8A

Endorsements

Marjorie Floyd Burchett

Paul E. Flores

Rebecca U. Litteneker

Edward S. Rusky

James T. Straw

  • I.  WHAT IS AN ENDORSEMENT?  8A.1
  • II.  LENDER AND OWNER ENDORSEMENTS
    • A.  CLTA 100 Series Endorsements  8A.2
      • 1.  Terms of Basic Endorsement [Deleted]  8A.3
      • 2.  CLTA 100 Endorsement; ALTA 9 Series and Cousins (CLTA 100.2.6–06; ALTA 9.6–06; CLTA 100.2.9–06; ALTA 9.6–06)  8A.4
      • 3.  Underwriting Criteria  8A.5
        • a.  Covenants, Conditions, and Restrictions (CC&Rs)  8A.6
        • b.  Easements  8A.7
        • c.  Mineral Rights and Surface Entry  8A.8
        • d.  Encroachments  8A.9
      • 4.  Variations of CLTA 100 Endorsement  8A.10
    • B.  CLTA 101 Series Endorsements  8A.11
      • 1.  Scope of Coverage  8A.12
      • 2.  Protection Unavailable to Lessors  8A.13
      • 3.  Underwriting Challenge  8A.14
  • III.  LENDER ENDORSEMENTS  8A.15
    • A.  CLTA 111 Series Endorsements
      • 1.  Partial Reconveyances  8A.16
      • 2.  Subordination  8A.17
    • B.  Truth in Lending CLTA 125 (ALTA Form 2) Endorsement—Decertified  8A.18
  • IV.  OWNER ENDORSEMENTS  8A.19
    • A.  Inflation Protection Endorsement  8A.20
    • B.  Use of Commercial Endorsements for Residential Property  8A.21
  • V.  ALTA ENDORSEMENTS
    • A.  Overview  8A.22
    • B.  Construction Loan and Mechanics Lien Endorsements  8A.23
      • 1.  Scope of Coverage  8A.24
      • 2.  Exceptions and Exclusions  8A.25
  • VI.  TITLE INSURANCE COMPANY ENDORSEMENTS  8A.26
    • A.  Owner Endorsements
      • 1.  Nonimputation Endorsements  8A.27
      • 2.  Fairway Endorsement  8A.28
    • B.  Lender Endorsements
      • 1.  First or Contingent Loss Endorsement  8A.29
      • 2.  Last-Dollar Endorsement  8A.30
      • 3.  Nonimputation Endorsement  8A.31
      • 4.  Revolving Credit Loan, Optional or Obligatory Advance  8A.32
      • 5.  Shared-Appreciation Mortgage  8A.33
      • 6.  Tie-In Endorsement  8A.34
      • 7.  Usury  8A.35
      • 8.  Water  8A.35A
  • VII.  TABLE: CLTA AND ALTA ENDORSEMENTS  8A.36

9

Guaranties and Limited Coverage Policies

David V. Westcott

  • I.  DISTINCTIONS BETWEEN GUARANTIES AND POLICIES  9.1
  • II.  BASIC GUARANTEE STRUCTURE
    • A.  Face Page  9.2
    • B.  Schedule A  9.3
    • C.  Schedule of Exclusions  9.4
    • D.  Conditions  9.5
  • III.  COMMONLY ISSUED GUARANTIES
    • A.  Trustee’s Sale Guarantee
      • 1.  Purpose  9.6
      • 2.  Assurances Given  9.7
      • 3.  Appropriate Issuer  9.7A
      • 4.  Informational Notes  9.7B
      • 5.  Limits on Liability  9.8
    • B.  Litigation Guarantee
      • 1.  Purpose  9.9
      • 2.  Purpose of Litigation Must Be Accurately Described  9.10
      • 3.  Establishing Amount of Liability  9.11
      • 4.  Assurances Given  9.12
    • C.  Lot Book Guarantee
      • 1.  Purpose  9.13
      • 2.  Assurances Given  9.14
      • 3.  Limitations  9.15
    • D.  Recorded Document Guaranty
      • 1.  Purpose  9.16
      • 2.  Scope  9.17
    • E.  Chain of Title Guarantee  9.18
    • F.  Mechanics Lien Guarantee  9.19
    • G.  Condition of Title Guarantee  9.20
    • H.  Other Guaranties  9.21
  • IV.  LIMITED COVERAGE POLICIES
    • A.  Purpose  9.22
    • B.  Scope  9.23

10

Title Instructions and Issuance of Title Insurance Policy

Marjorie Floyd Burchett

  • I.  INTRODUCTION; SCOPE OF CHAPTER  10.1
  • II.  ROLE OF ESCROW AGENT AND TITLE OFFICER  10.2
    • A.  Escrow Closings  10.3
    • B.  New York–Style Closings  10.4
    • C.  Instructions on Coverage  10.5
  • III.  ROLE OF ATTORNEY
    • A.  Advise on Coverage  10.6
    • B.  Advise on Coinsurance, Reinsurance, and Closing Protection Letters  10.7
    • C.  Verify Ability/Commitment to Issue Coverage  10.8
      • 1.  Verification of Instructions  10.9
      • 2.  Commitments  10.10
      • 3.  Pro Formas  10.11
      • 4.  Form: Pro Forma Closing Instruction  10.12
    • D.  Prepare Title Policy Instructions
      • 1.  Purchase and Sale Transaction  10.13
        • a.  Supplemental Title Instructions  10.14
        • b.  Form: Letter of Instructions for Purchase and Sale  10.15
      • 2.  Loan Transactions
        • a.  Issuance of Loan Policy  10.16
        • b.  Form: Letter of Instructions for Loan  10.17
      • 3.  Premium Payments  10.18
    • E.  Certify That Requirements Satisfied  10.19
    • F.  Review Title Insurance Policy Issued
      • 1.  Correct Mistakes in Policy  10.20
      • 2.  Advise Client on Adequacy of Policy Over Time  10.21

11

Theories and Defenses in Title Company Actions

Theodore R. Forrest, Jr.

Timothy R. Sullivan

  • I.  TITLE INSURER LIABILITY: INTRODUCTION
    • A.  Scope of Chapter  11.1
    • B.  Understanding the Basics
      • 1.  Compare Client Policy With Cases  11.2
      • 2.  Distinguish First Party and Third Party Claims  11.3
  • II.  BREACH OF TITLE INSURANCE CONTRACT
    • A.  Summary of Remedies  11.4
    • B.  Liability Under Owner’s Policy  11.5
      • 1.  Cost of Removing Defect or Lien  11.6
      • 2.  Diminution in Value  11.7
      • 3.  Consequential Damages  11.8
      • 4.  Damages for Failure to Defend  11.9
    • C.  Liability Under Loan Policy  11.10
      • 1.  General Measure of Damage or Loss  11.11
      • 2.  Split of Authority on Date for Establishing Loss  11.12
        • a.  On Resale After Foreclosure  11.13
        • b.  On Foreclosure Date  11.14
        • c.  Date of Fixing Damages Under the 2021 ALTA Loan Policy  11.14A
    • D.  Actions for Declaratory Relief  11.15
  • III.  BREACH OF DUTY OF GOOD FAITH AND FAIR DEALING
    • A.  Summary of Theory; Remedies  11.16
    • B.  Applicability to Title Insurers  11.17
    • C.  Examples: Bad Faith Established  11.18
      • 1.  Investigation of Facts or Coverage  11.19
      • 2.  Handling of Claims or Defense  11.20
      • 3.  Settlement of Claims  11.21
    • D.  Examples: Bad Faith Not Found  11.22
      • 1.  Investigation of Facts or Coverage  11.23
      • 2.  Handling of Claims or Defense  11.24
      • 3.  Settlement of Claims  11.25
      • 4.  Miscellaneous Conduct  11.26
    • E.  Bad Faith Handling of Claim During Litigation  11.27
    • F.  Bad Faith Refusal to Quiet Title  11.28
    • G.  Statutory Claims  11.29
    • H.  Damages Recoverable  11.30
      • 1.  Emotional Distress Damages  11.31
      • 2.  Consequential Economic Loss  11.32
      • 3.  Prejudgment Interest  11.33
      • 4.  Attorney Fees and Litigation Expenses  11.34
      • 5.  Punitive Damages  11.35
        • a.  Clear and Convincing Evidence  11.35A
        • b.  Constitutionality of Punitive Damages  11.35B
          • (1)  First Guidepost: Reprehensibility of Defendant’s Conduct  11.35C
          • (2)  Second Guidepost: Disparity Between Harm Suffered by Plaintiff and Punitive Damages Awarded  11.35D
          • (3)  Third Guidepost: Difference Between Punitive Damages Awarded and Penalties Authorized in Comparable Cases  11.35E
          • (4)  Aggregate Disgorgement of Profits Theory Prohibited  11.35F
          • (5)  Evidence of Defendant’s Net Worth Required  11.35G
        • c.  Examples: Punitive Damages Allowed  11.36
        • d.  Examples: Punitive Damages Denied  11.37
  • IV.  OTHER THEORIES OF LIABILITY
    • A.  Negligent Preparation of Abstract  11.38
      • 1.  Preliminary Report Distinguished  11.39
      • 2.  Duty of Due Care  11.40
      • 3.  Damages  11.41
    • B.  Negligent Preparation of Preliminary Report  11.42
      • 1.  Claim on Reports Issued Before January 1, 1982  11.43
      • 2.  No Claim on Reports Issued After January 1, 1982  11.44
    • C.  Unfair Business Practices  11.45
      • 1.  Remedies  11.45A
      • 2.  Bad Faith; Unfair Insurance Practices Act (UIPA)  11.45B
      • 3.  Standing  11.45C
    • D.  Accommodation Recordings  11.46
    • E.  Escrow Liability  11.47
    • F.  Fraud  11.48
    • G.  Slander of Title  11.49
    • H.  Other Tort Claims  11.50
  • V.  THIRD PARTY CLAIMS
    • A.  Introduction  11.51
    • B.  When to Assert Third Party Claims  11.52
    • C.  Threshold Considerations  11.53
    • D.  Insurer’s Duties  11.54
    • E.  Categories of Third Party Claims
      • 1.  Mechanics Liens  11.55
      • 2.  Judgment Liens  11.56
      • 3.  Deeds of Trust  11.57
      • 4.  Other Encumbrances  11.58
  • VI.  TITLE INSURER’S DEFENSES: INTRODUCTION  11.59
  • VII.  POLICY-RELATED DEFENSES
    • A.  Defenses to Coverage or Potential Coverage  11.60
      • 1.  Defenses Based on Insuring Language
        • a.  Title Vested Other Than as Stated in Policy  11.61
        • b.  “Marketable Title” Versus “Market Value”  11.62
        • c.  Lien  11.63
        • d.  Encumbrance  11.64
        • e.  Lack of Access  11.65
        • f.  Property Dimensions  11.65A
        • g.  Covered Risks Under CLTA/ALTA Homeowner’s Policy and Decertified ALTA Residential Policy  11.65B
      • 2.  Lack of Proximate Cause  11.66
    • B.  Exclusions  11.67
      • 1.  Law, Ordinance, or Government Regulation  11.68
      • 2.  Police Power  11.69
      • 3.  Eminent Domain  11.70
      • 4.  Defects, Liens, Encumbrances, Adverse Claims, and Other Matters
        • a.  Matters Created, Suffered, Assumed, or Agreed to by Insured  11.71
        • b.  Matters Neither Known to Insurer Nor Recorded in Public Records, but Known to Insured  11.72
        • c.  Matters Resulting in No Loss or Damage to Insured  11.73
        • d.  Matters Attaching or Created After Date of Policy  11.74
        • e.  Loss That Would Not Have Occurred if Insured Had Paid Value  11.75
      • 5.  Unenforceability of Lien for Failure to Comply With Doing-Business Laws  11.76
      • 6.  Invalid or Unenforceable Lien for Violation of Usury, Consumer Credit, or Truth in Lending Laws  11.77
      • 7.  Claims Arising From Bankruptcy, Insolvency, or Creditors’ Rights Law  11.78
    • C.  Standard (Preprinted) Exceptions  11.79
      • 1.  Taxes or Assessments, Public Agency Proceedings  11.80
      • 2.  Facts, Rights, Interests, or Claims Not Shown by Public Records but Ascertainable by Inspection of Land or Assertion by Persons in Possession  11.81
      • 3.  Easements, Liens, Encumbrances, or Claims Not Shown by Public Records  11.82
      • 4.  Information Not Shown in Public Records That Correct Survey Would Reveal  11.83
      • 5.  Unpatented Mining Claims and Water Rights  11.84
    • D.  Nonstandard (Typewritten) Coverages, Exclusions, and Exceptions  11.85
      • 1.  Forced Removal Coverage  11.86
      • 2.  Exclusion of Government’s Claim of Title to Land in Lake Bed  11.87
    • E.  Tender of Policy Limits  11.88
    • F.  Late or Defective Claim Notice  11.89
    • G.  Inadequate Proof of Loss  11.90
    • H.  Two-Year Statute of Limitations  11.91
      • 1.  Generally Accrues on Date Loss Is Discovered  11.92
        • a.  Equitable Tolling  11.93
        • b.  No Accrual Before Delivery of Policy  11.93A
        • c.  Contractual Tolling  11.94
        • d.  Tolling by Estoppel  11.94A
      • 2.  Exception for Duty to Defend—Accrues on Termination Date of Third Party Suit  11.95
    • I.  Full Credit Bid  11.96
    • J.  Less Than Full Credit Bid  11.96A
    • K.  Rescission—Fraud of Insured  11.97
      • 1.  Concealment  11.98
      • 2.  Misrepresentation  11.99
      • 3.  Warranties  11.100
      • 4.  Consequences of Rescission  11.101
    • L.  Mechanics Liens Defenses  11.102
  • VIII.  DEFENSES TO BAD FAITH AND PUNITIVE DAMAGES
    • A.  Bad Faith Affirmative Defenses
      • 1.  Advice of Counsel  11.103
      • 2.  Genuine Dispute Doctrine  11.103A
      • 3.  Insured’s Breach of Contract  11.104
      • 4.  Comparative Bad Faith Affirmative Defense Abolished  11.105
      • 5.  Comparative Negligence  11.105A
      • 6.  No Reverse Bad Faith Cause of Action  11.105B
      • 7.  Fraud Cross-Complaint  11.105C
      • 8.  Settlement and Release  11.106
    • B.  Defenses to Punitive Damages Claims  11.107
      • 1.  No Advance Knowledge, Conscious Disregard, Authorization, or Ratification  11.108
      • 2.  No Involvement of Officer, Director, or Manager of Corporation  11.109
      • 3.  Lack of “Clear and Convincing” Proof  11.110
      • 4.  Lack of Proof of Insurer’s Financial Condition  11.111
  • IX.  DEFENSES TO OTHER TORT CLAIMS
    • A.  Introduction  11.112
    • B.  Slander of Title
      • 1.  Falsity Required  11.113
      • 2.  Absolute Privilege for Judicial Proceedings  11.114
      • 3.  Conditional Privilege of Rival Claimant  11.115
      • 4.  Statute of Limitations: Equitable Tolling  11.116
      • 5.  Good Faith Reliance on Advice of Counsel  11.117
      • 6.  Lack of Publication by Defendant  11.118
      • 7.  Lack of Actual Damages  11.119
      • 8.  Venue  11.120
    • C.  Escrow Liability
      • 1.  Statute of Limitations  11.121
      • 2.  Interpleader  11.122
  • X.  SUBROGATION
    • A.  Definition; Authority  11.123
    • B.  Applicability to Title Insurance
      • 1.  Contractual Subrogation  11.124
      • 2.  Equitable Subrogation  11.125
      • 3.  No Right to Subrogation Under the California Real Estate Recovery Fund  11.125A
    • C.  Declaratory Relief  11.126

12

Claims Procedures Under Title Insurance Policies

Theodore R. Forrest, Jr.

Timothy R. Sullivan

  • I.  INTRODUCTION  12.1
    • A.  Reciprocal Duty of Good Faith and Fair Dealing  12.2
    • B.  Overview of Claims Process  12.3
  • II.  PROVIDING NOTICE OF CLAIM
    • A.  Contents of Notice  12.4
    • B.  Mandatory Written Notice  12.5
    • C.  Delivery of Notice  12.6
    • D.  Notice Providers  12.7
    • E.  Denial of Claim Based on Inadequate Notice  12.8
      • 1.  Third Party Claims  12.9
      • 2.  First Party Claims  12.10
    • F.  Waiver of Defects in Notice
      • 1.  Insurer’s Denial of Coverage  12.11
      • 2.  Insurer’s Failure to Object  12.12
  • III.  TENDERING THE DEFENSE
    • A.  Definition of “Tender”  12.13
    • B.  Forfeit of Defense and Indemnity Rights Caused by Late Tender  12.14
    • C.  Recoverability of Pre-Tender Fees  12.15
  • IV.  PROVIDING PROOF OF LOSS
    • A.  Definition of “Proof of Loss”  12.16
    • B.  Contents of Proof of Loss  12.17
    • C.  Use of Experts  12.18
    • D.  Responsibilities of Insurer  12.19
    • E.  Responsibilities of Insured
      • 1.  Best Evidence  12.20
      • 2.  Misstatements and Omissions  12.21
    • F.  Waiver or Estoppel  12.22
    • G.  Denial of Claim Based on Late or Inadequate Proof of Loss  12.23
  • V.  INSURER’S DUTY TO INVESTIGATE
    • A.  Source of Insurer’s Duty to Investigate  12.24
    • B.  Scope of Insurer’s Duty to Investigate  12.25
    • C.  Breach of Duty to Investigate  12.26
  • VI.  INSURER’S DUTY TO DEFEND
    • A.  Duty to Defend When Potential for Indemnity Exists  12.27
      • 1.  Comparing Complaint Allegations Against Policy Terms  12.28
      • 2.  Considering Extrinsic Facts  12.29
      • 3.  Considering Effect of Potential Amendment to Complaint  12.30
      • 4.  Analyzing Effect of Meritless, False, or Fraudulent Claims  12.31
    • B.  Duty Limited to Nature and Kinds of Risks Covered by Policy  12.32
    • C.  Duty Extends to Entire Action  12.33
    • D.  Duty Arises Immediately  12.34
  • VII.  INSURER’S TIME LIMITS TO RESPOND TO NOTICE OF CLAIM OR TENDER OF DEFENSE
    • A.  Responding to Notice  12.35
    • B.  Investigating the Claim  12.36
    • C.  Accepting or Denying the Claim  12.37
    • D.  Tendering Payment  12.38
  • VIII.  RIGHTS AND DUTIES PENDING RESOLUTION OF CLAIM OR TENDER OF DEFENSE
    • A.  Insured’s Duty of Good Faith and Fair Dealing  12.39
    • B.  Insured’s Duty of Cooperation  12.40
      • 1.  Duty in Third Party Actions  12.41
      • 2.  Insurer’s Right to Examine Insured Under Oath  12.42
      • 3.  Insurer Must Conduct EUO in Good Faith  12.43
    • C.  Breach of Duty of Cooperation
      • 1.  Grounds for Denial of Coverage or Termination of Policy Benefits  12.44
      • 2.  Insurer Must Show Prejudice
        • a.  Question of Fact or Law  12.45
        • b.  Elements of Proof  12.46
  • IX.  INSURER’S OPTIONS IN RESPONDING TO NOTICE OF CLAIM OR TENDER OF DEFENSE  12.47
    • A.  Defending the Insured  12.48
      • 1.  Defending With Reservation of Rights  12.49
      • 2.  Providing Independent Counsel  12.50
    • B.  Rejecting Tender of Defense  12.51
    • C.  Eliminating the Defect  12.52
    • D.  Prosecuting Action to Establish Title  12.53
    • E.  Paying the Policy Limit  12.54
      • 1.  When Litigation Pending Against Insured  12.55
      • 2.  When Insurer Acting in Dual Capacity  12.56
    • F.  Purchasing the Indebtedness  12.57
    • G.  Paying Loss or Damage  12.58
    • H.  Payment Under Reservation of Rights  12.58A
    • I.  Filing Declaratory Relief Action  12.59

13

Litigation Strategies and Procedures

Charles A. Hansen

  • I.  INTRODUCTION AND SOURCES OF LAW  13.1
  • II.  WHEN TO COMMENCE A TITLE INSURANCE LAWSUIT  13.2
  • III.  COUNSELING THE INSURED
    • A.  Review and Assess Client’s Expectations  13.3
    • B.  Explain Nature and Limitations of Policy  13.4
  • IV.  PARTIES TO ACTIONS ON INSURED CLAIMS
    • A.  Procedural Distinctions Between First and Third Party Claims
      • 1.  No Privity Between Insurer and Third Party  13.5
      • 2.  Statute of Limitations  13.6
      • 3.  Lis Pendens May Be Required  13.7
    • B.  Necessary Versus Related Parties
      • 1.  Interested Parties  13.8
      • 2.  Third Party Suits  13.9
      • 3.  First Party Suits  13.10
    • C.  Permissive Joinder of Claims  13.11
  • V.  JURISDICTION, VENUE, AND FORUM  13.12
  • VI.  DISCOVERY STRATEGIES  13.13
    • A.  Examination Under Oath
      • 1.  Admissibility in Evidence  13.14
      • 2.  Objections to Admissibility  13.15
    • B.  Discovery Methods
      • 1.  Document Requests  13.16
      • 2.  Interrogatories  13.17
      • 3.  Depositions  13.18
    • C.  Discovery Topics and Their Scope
      • 1.  How the Industry Functions  13.19
      • 2.  Insurer’s Relationship to Underwritten Title Company  13.20
      • 3.  Insurer’s Financial Condition  13.21
      • 4.  Insurer’s Claims Files
        • a.  Relating to Insured’s Claim  13.22
        • b.  Relating to Other Insureds’ Claims  13.23
        • c.  Reserves  13.23A
      • 5.  Claims File of Attorney for Insurer  13.24
      • 6.  Other Discovery Areas  13.25
  • VII.  EXPERT CONSULTANTS AND WITNESSES  13.26
    • A.  Protecting Consultant Privilege  13.27
    • B.  Categories of Experts  13.28
      • 1.  Coverage Experts  13.29
      • 2.  Claims Experts  13.30
      • 3.  Damages Experts and Appraisers  13.31
      • 4.  Experts on Collateral Issues  13.32
  • VIII.  SUMMARY JUDGMENT AND SUMMARY DISPOSITION OF ISSUES  13.33
    • A.  Insurer as Moving Party  13.34
    • B.  Insured as Moving Party  13.35
  • IX.  TRIAL OF TITLE INSURANCE DISPUTES
    • A.  Jury Trials
      • 1.  Jury or Court Trial?  13.36
      • 2.  Motions in Limine  13.37
      • 3.  Special Verdicts  13.38
    • B.  Attorney Fees as Damages  13.39

14

Arbitration Procedures

Theodore R. Forrest, Jr.

Timothy R. Sullivan

  • I.  OVERVIEW  14.1
  • II.  ISSUES SUBJECT TO ARBITRATION
    • A.  “Broad Form” Arbitration Clause in Standard Title Policy  14.2
    • B.  Arbitrable Issues Determined by Court Rather Than Arbitrator  14.3
    • C.  Provisional Remedies Not Arbitrable  14.4
  • III.  ENFORCING AND RESISTING ARBITRATION
    • A.  Compelling Arbitration by Petition  14.5
    • B.  Opposing Arbitration  14.6
      • 1.  Unenforceability of Arbitration Clause
        • a.  Lack of Informed Consent  14.7
        • b.  Adhesionary Contract; Unconscionability  14.8
        • c.  Rescission Based on Fraud  14.9
        • d.  Rescission Based on Other Grounds  14.10
      • 2.  Waiver of Agreement to Arbitrate  14.11
      • 3.  Pending Litigation With Third Parties  14.12
  • IV.  PREHEARING ARBITRATION PROCEDURES
    • A.  Applicable Rules  14.13
    • B.  Fees and Expenses  14.14
      • 1.  Waiver of Fees  14.14A
      • 2.  Witness Fees  14.14B
      • 3.  Transcript  14.14C
      • 4.  Arbitrators’ Fees  14.14D
      • 5.  Deposits/Advance Fees  14.14E
      • 6.  Award of Fees and Costs to Prevailing Party; Attorney Fees  14.14F
      • 7.  Other Fees and Expenses  14.14G
    • C.  Initial Pleadings
      • 1.  Commencing Arbitration
        • a.  Demand for Arbitration  14.15
        • b.  Submission by Stipulation  14.16
      • 2.  Response to Demand/Initial Claim  14.17
      • 3.  Counterclaim  14.18
      • 4.  Amendments to Claim  14.19
    • D.  Selecting the Arbitrator
      • 1.  Appointment and Vacancy  14.20
      • 2.  Disclosures; Disqualification  14.21
    • E.  Prohibition on Communication With Arbitrator  14.22
    • F.  Joining Additional Parties  14.23
    • G.  Consolidation of Arbitrations
      • 1.  Grounds  14.24
      • 2.  Mediation  14.25
    • H.  Conferences and Preliminary Hearings  14.26
    • I.  Discovery  14.27
    • J.  Dispositive Motions and Involuntary Dismissal  14.28
  • V.  ARBITRATION HEARING
    • A.  Time and Place  14.29
    • B.  Transcript of Hearing  14.30
    • C.  Subpoenas  14.31
    • D.  Evidence  14.32
    • E.  Order of Proceedings  14.33
    • F.  Close of Hearings; Supplemental Briefs and Evidence  14.34
    • G.  Expedited Procedures  14.35
    • H.  Procedures for Large, Complex Commercial Disputes  14.35A
    • I.  Right of Representation  14.36
  • VI.  ARBITRATION AWARD
    • A.  Time for Award  14.37
    • B.  Content and Scope of Award  14.38
    • C.  Delivery of Award  14.39
    • D.  Enforcement of Award  14.40
    • E.  Challenging the Award  14.41
      • 1.  Grounds to Vacate Award  14.42
      • 2.  Grounds for Correcting Award  14.43
  • VII.  COMPARISON OF ARBITRATION AND LITIGATION  14.44
    • A.  Permissive Joinder of Parties and Claims  14.45
    • B.  Discovery  14.46
    • C.  Appeals
      • 1.  Judicial Review; Optional Appellate Arbitration (OAA) Rules  14.47
      • 2.  Key Provisions of OAA Rules  14.47A
    • D.  Right to Jury Trial  14.48
    • E.  Available Remedies  14.49

15

Additional Title Company Services

Alice L. Akawie

Edward S. Rusky

  • I.  INTRODUCTION  15.1
  • II.  INFORMATION SERVICES
    • A.  Providing Title Data  15.2
      • 1.  The Property Profile  15.3
      • 2.  Customer Service  15.4
      • 3.  Online Resources  15.5
    • B.  Training and Information on Current Topics  15.6
    • C.  Serving as a De Facto Member of the Principals’ Due Diligence Teams  15.7
  • III.  TRANSACTIONAL SERVICES
    • A.  Escrow Services  15.8
    • B.  Escrow Instructions  15.9
    • C.  Illegal Practice of Law  15.10
    • D.  Preparation of Form Documents
      • 1.  Commonly Prepared Documents  15.11
      • 2.  Subordination Agreements  15.12
    • E.  Ethical Problems for Escrow Holders
      • 1.  “Silent” Liens  15.13
      • 2.  Deposits  15.14
      • 3.  Broker’s Commissions  15.15
    • F.  Accommodation Recordings  15.16
    • G.  Acting as Trustee on Deeds of Trust  15.17
      • 1.  Reconveyance of Deed of Trust  15.18
        • a.  Problems Obtaining a Reconveyance  15.19
        • b.  Release of Obligation to Clear Title  15.20
        • c.  Failure to Locate Original Note or Deed of Trust  15.21
        • d.  Return of the Original Documents  15.22
        • e.  Unauthorized Reconveyance  15.23
      • 2.  Foreclosure of Deed of Trust
        • a.  Substituting Trustee  15.24
        • b.  Nonjudicial Foreclosure  15.25
        • c.  Conducting the Sale  15.26
    • H.  Trust Company Services  15.27
    • I.  Qualified Intermediary Exchange Services  15.28
  • IV.  OTHER SERVICES  15.29

Selected Developments

June 2023 Update

Policies, Forms, and Endorsements:

  • GENERAL CAUTION FOR 2023 UPDATE: The American Land Title Association (ALTA) and the California Land Title Association (CLTA) have completed a major overhaul of several policies, forms, and endorsements as of the date of this publication. Practitioners are reminded to check for the most current forms from both ALTA and CLTA. To check availability or obtain forms from ALTA, visit https://www.alta.org/policy-forms/. To check availability or purchase forms from CLTA, visit https://www.clta.org/page/Publications. The updated forms include the following:

    • 2021 ALTA Loan Policy of Title Insurance, effective July 1, 2021 (see App E);

    • 2021 ALTA Owner’s Policy of Title Insurance, effective July 1, 2021 (see App F);

    • 2021 ALTA Commitment for Title Insurance, effective July 1, 2021;

    • ALTA Closing Protection Letter—Single Transaction, effective April 2, 2021;

    • ALTA Closing Protection Letter—Multiple Transactions, effective April 2, 2021;

    • 2021 ALTA Short Form Residential Loan Policy, effective July 1, 2021;

    • 2021 ALTA Short Form Expanded Coverage Residential Loan Policy, effective July 1, 2021;

    • Several specific ALTA endorsements and addendums (see chap 8A);

    • 2021 CLTA/ALTA Homeowner’s Policy of Title Insurance, effective July 1, 2022 (see App G);

    • 2022 CLTA Standard Coverage Owner’s Policy of Title Insurance, effective February 4, 2022;

    • 2022 CLTA Standard Coverage Loan Policy of Title Insurance, effective February 4, 2022; and

    • 2022 CLTA Preliminary Report Form, effective November 4, 2022 (see App C).

  • Several chapters and discussions throughout this update were thoroughly revised to reflect these newly revised forms, and to make clear that older commitment forms are either decertified or no longer in use in practice. See chaps 5, 11, and 14; see also §§2.2, 3.5, 4.1.

  • Extensive changes have been incorporated in chaps 6–8A to describe substantive changes to the new forms listed above, including charts comparing policies under different forms. See, e.g., charts in §§6.30, 7.35I–7.35J, 8.33K–8.33L.

  • Chapters 8 and 8A have been extensively edited throughout to reflect changes in the forms noted above, as well as the complete overhaul of CLTA endorsement forms in early 2022. Almost all of the new endorsement forms that are not clones of ALTA forms have significant changes to the language, if not the coverage. Numerous forms have been archived or decertified, which have been noted (any archived endorsement may still be issued by the insurer, but it is important for counsel to be aware of their archived status). See chart in §8A.36.

Arbitration Rules:

The FORUM (formerly National Arbitration Forum) has updated and renumbered its Code of Procedure (COP) rules, and the American Arbitration Association (AAA) has updated, renumbered, and added new rules to its Commercial Arbitration Rules. See chart in §14.13 and changes throughout chaps 13 and 14.

Legislation:

  • Homeowner Bill of Rights (HBOR). In response to the COVID-19 pandemic, the California Legislature enacted the Tenant, Homeowner, and Small Landlord Relief and Stabilization Act of 2020, which expands foreclosure protections under HBOR to certain first lien mortgages or deeds of trust secured by tenant-occupied residential real property. These protections were adopted permanently on January 1, 2023 (see Stats 2021, ch 360 (AB 1584), amending CC §2924.15), but limited to the following two situations: (1) the borrower was approved in writing for a first lien loan modification (or other foreclosure prevention alternative) before January 1, 2023; or (2) the borrower submitted a completed application for a first lien loan modification before January 1, 2023, and the servicer had not yet made a determination or the appeal period had not yet expired as of January 1, 2023. See §8.18.

  • Residential real property: foreclosure. The effective date of CC §2924f was extended from January 1, 2026, to January 1, 2031. See §9.7.

Case Law:

  • Teng Huang v Mountainfield Props. LLC (In re Yu Hua Long Invs., LLC) (9th Cir, Dec. 6, 2022, No. 22-55476) 2023 US App Lexis 409 (Ninth Circuit memorandum opinion rejecting “incidental benefit” defense to unjust enrichment claim in which loan in question secured operating funds and paid off debts of benefited receiving party). See §6.43.

  • Sheen v Wells Fargo Bank, N.A. (2022) 12 C5th 905 (when borrower requests mortgage loan modification, lender owes no duty sounding in general negligence principles to respond to request nor to review and process borrower’s application). See Note in §8.18.

  • Planet Bingo, LLC v Burlington Ins. Co. (2021) 62 CA5th 44 (subrogation demand letter was clear invitation to negotiate settlement, and industry custom of accepting policy limits raised triable issue of fact as to whether letter was opportunity to settle within policy limits and, therefore, whether insurer acted in bad faith by not settling). See §11.24.

  • Pinto v Farmers Ins. Exch. (2021) 61 CA5th 676 (insurer’s failure to accept reasonable settlement is not per se unreasonable without acting or failing to act without proper cause). See §11.24.

  • Hodges v Comcast Cable Communications, LLC (9th Cir 2021) 21 F4th 535 (upholding/describing “public injunctive relief” rule articulated in McGill v Citibank, N.A. (2017) 2 C5th 945, and holding that it refers to prospective injunctive relief that benefits general public, not just class of similarly situated persons). See §14.11.

Appendixes:

Appendix A: ALTA Closing Protection Letter(s). Practitioners are reminded to check for the most current letter(s), which are typically available online (https://www.alta.org/policy-forms/).

Appendix B: CLTA Interim Binder. Reprinted with permission of the CLTA. The binder has not changed substantively since its last revision in 2016.

Appendix C: CLTA Preliminary Report Form (2022). Reprinted with permission of the CLTA. The preliminary report form—including Exhibit A—has been revised with substantive updates, effective November 4, 2022.

Appendix D: ALTA Commitment Form. This form is available online. Practitioners are reminded to check for the most current ALTA forms at https://www.alta.org/policy-forms/.

Appendix E: ALTA Loan Policy (2021). Reprinted with permission of ALTA. The form has been revised with extensive substantive revisions and updates, effective July 1, 2021.

Appendix F: ALTA Owner’s Policy (2021). Reprinted with permission of ALTA. The form has been revised with extensive substantive revisions and updates, effective July 1, 2021.

Appendix G: CLTA/ALTA Homeowner’s Policy of Title Insurance. Reprinted with permission. The form has been revised with extensive substantive revisions and updates, effective July 1, 2021.

About the Authors

ALICE L. AKAWIE, A.B., 1975, University of California, Berkeley; J.D., 1979, University of California College of the Law, San Francisco. Ms. Akawie is a principal at Marshall Akawie & La Piedra, P.C., Oakland.

OSCAR H. BEASLEY, B.A., 1949, University of Omaha; J.D., 1950, University of Iowa. Mr. Beasley is Senior Vice President and Senior Title Counsel with First American Title Insurance Company, Santa Ana.

MARJORIE FLOYD BURCHETT, B.A., 1981, University of California, San Diego; J.D., 1985, University of California College of the Law, San Francisco. Ms. Burchett is a partner at Luce, Forward, Hamilton & Scripps, San Diego.

DENA M. CRUZ, B.A., 1979, University of California, Santa Barbara; J.D., 1985, Santa Barbara College of Law. Ms. Cruz is senior counsel with Bryan Cave LLP, San Francisco.

PAUL E. FLORES, B.A., University of California, Santa Barbara; J.D., 1978, University of Southern California Gould School of Law. Mr. Flores is vice president and underwriting counsel for the Fidelity National Title Group (FNTG) of title insurers and the Fidelity National Title Insurance, Chicago Title Insurance, and Commonwealth Land Title Insurance companies. He also serves as the National e-Recording Legal Counsel for the Fidelity National family of title insurers. Mr. Flores has served as senior claims counsel and as an underwriter since 1982. He manages Fidelity’s Underwriting Office in Irvine and is an underwriter covering Fidelity’s title operations in Arizona, California, and Nevada. He is Chairperson of the Forms Section of the California Land Title Association (CLTA) Forms and Practices Committee. He has also been featured as a panelist at seminars sponsored by CLTA, CEB, and FNTG.

THEODORE R. FORREST, JR., B.S., 1973, Northeastern State College; J.D., 1977, San Joaquin College of the Law. Mr. Forrest practiced with Forrest & McLaughlin, Fresno.

CHARLES A. HANSEN, B.A., 1973, University of California, Los Angeles; J.D., 1977, University of California, Berkeley, School of Law. Mr. Hansen is a partner with Wendel, Rosen, Black & Dean, Oakland.

REBECCA U. LITTENEKER, B.S., 1979, University of Utah; J.D., 1983, University of California College of the Law, San Francisco. Ms. Litteneker is Special Counsel with Severson & Werson, San Francisco.

ROD PASION, B.A., 1978, San Jose State University; J.D., 1981, Santa Clara University. Mr. Pasion is Vice President and Associate Regional Counsel with Chicago Title Company, San Francisco.

EDWARD S. RUSKY, B.A., 1968, University of California, Los Angeles; J.D., 1971, University of California, Berkeley, School of Law. Mr. Rusky is Vice President and Associate Regional Counsel with Chicago Title Company, San Francisco.

JAMES T. STRAW, B.A., 1973, University of California, Los Angeles; J.D., 1977, Southwestern University. Mr. Straw is a partner with Bardellini, Straw & Cavin, San Ramon.

TIMOTHY R. SULLIVAN, B.A., 1983, and J.D., 1986, University of Missouri, Columbia. Mr. Sullivan is a partner with McLaughlin Sullivan LLP, Fresno.

DAVID V. WESTCOTT, B.S., 1974, Pacific Union College; J.D., 1977, University of California, Berkeley, School of Law. Mr. Westcott is Vice President and Regional Counsel with First American Title Insurance Company, Sacramento.

About the 2023 Update Authors

GERALD W. CHALMERS, update author of chapters 5, 8A, and 9, is Vice-President and Assistant General Counsel with Placer Title Company and Mother Lode Holding Company in Roseville. With a background in title insurance underwriting and escrow, he is a 30-year veteran in the industry.

DENA M. CRUZ, an original author and update author of chapters 6–8, is an associate senior underwriter at Stewart Title Guaranty Company, San Francisco. Ms. Cruz worked for over 15 years in the title insurance industry, and her practice is primarily focused on transactional real estate matters. She is a former partner at Berding Weil LLP, Walnut Creek, a former Chair of the International Law Section of the California State Bar, a former Chair of the Council of State Bar Sections, and a former Vice Chair of the Real Property Section of the State Bar. She is also a former president of Commercial Real Estate Women of San Francisco (CREWSF), and a former Regent of the American College of Mortgage Attorneys, where she was the editor of its biannual journal. Ms. Cruz received her B.A. from the University of California, Santa Barbara, in 1979 and her J.D. from Santa Barbara College of Law in 1985.

STEPHANIE GOLDSTEIN, update co-author of chapters 1–4, is a partner at Schorr Law, APC in Los Angeles. Ms. Goldstein is a seasoned litigator with Schorr Law’s real estate litigation team and also acts as general counsel for a homeowner’s association. She obtained her B.A. in Psychology from the University of Southern California, and her J.D. from Loyola Law School, Los Angeles, where she was a member of the International Law Review.

ZACHARY D. SCHORR, update co-author of chapters 1–4, is the founder and lead trial attorney at Schorr Law, APC in Los Angeles. Mr. Schorr is known as one of the top real estate attorneys the United States, with numerous national publications and speaking engagements to his name. He earned his B.A. in Political Science, cum laude, from the University of California, Los Angeles, and his J.D. from the University of California, Davis, School of Law. Mr. Schorr is frequently called on for his expertise in real estate litigation matters throughout California.

TIMOTHY R. SULLIVAN, an original author and update author of chapters 11–14, is a partner with McCormick, Barstow LLP, Fresno. Mr. Sullivan is a member of the American Board of Trial Advocates (ABOTA), was President of the Fresno County Bar Association (2011), and served on its Board of Directors from 2005 to 2012. He served on the Executive Committee of the State Bar of California’s Real Property Law Section from 2007 to 2010. Mr. Sullivan received the “Spirit of CEB” Award in 2011 and is a co-author of chapters regarding insurance coverage and bad faith litigation for five other CEB publications. He received his B.A. and J.D. from the University of Missouri at Columbia.

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