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Insuring Your 1031 Investment Property
with Title Insurance
Buyers of real estate, whether it is a
1031
Tax Exchange or not, should be familiar with title insurance.
There are various different types of coverage available for
various different types of property, and should be considered
carefully when purchasing real estate.
Title to real property can differ for each
parcel, and even for parcels that appear to be identical. This
can mean that the title insurance coverage necessary for each
parcel can be different. It is important to familiarize yourself
with the different policies available and the variables that
distinguish policies from one another.
The California Land Title Association (CLTA)
policy is a standard owners policy that is designed protect the
basic homeowner. Some of the highlights of the policy are as
follows;
The title insurance company insures the
insured homeowner as of the date on the policy against loss or
damage not exceeding the amount of insurance stated in the
policy. Loss or damage includes
1.
Title to the property described in the policy
2.
Any defect to the title of the property or any lien
placed on the title to the property
3.
The unmarketability of the title to the property
Most policies also includes clauses that
protect the lender, such as
1.
Validity of the lenders lien on the property.
2.
Priority of the lenders lien
3.
Validity of any assignment mentioned in the policy
Extended coverage for title insurance
policies can include but are not limited to;
1.
Building permit violations- Covers the homeowner if the
structure requires adjustments due to building code violations
2.
Subdivision map act coverage- Covers the homeowner
against damages that may result from the property being
improperly subdivided
3.
Violations to covenants, conditions and restrictions-
Covers against violations that may have occurred before the
purchase of the property.
4.
Post policy adverse possession- Covers against other
people attempting to claim title by reason of continued use
5.
Enhanced Access- Provides right of access coverage both
for pedestrian and vehicular
6.
Encroachment- Covers against boundary encroachment by
third parties
7.
Prescriptive Rights- Covers the policy holder against
attempts by third parties to claim easement rights
The American Land Title Insurance policy
(ALTA) is extended title insurance for lenders. These policies
are typically more expensive, but protect against various other
risks that aren’t necessarily publicly recorded. Lenders are
concerned with the value of the property that is held as
collateral for their loans. Taking this into consideration, they
are willing to spend more money insuring their interests. ALTA
policies provide extended coverage that can include, but are not
limited to;
1.
Violations of Covenants, Conditions and Restrictions
2.
Encroachments to the improvements of the property
3.
Unrecorded easements on the property
4.
Possessory rights of other third parties
5.
Unrecorded leases to the property
6.
Unrecorded assessments by public works departments
7.
Unrecorded claims against the property or mechanics liens
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