Title Insurance

When investing in a trust deed, another important element is Title Insurance. Title Insurance willprotect your position on the title to the property.For example, if you as the investor have agreed to fund a loan that will be in 1st mortgage (senior)position, Title Insurance makes sure your trust deed shows up as a 1st mortgage on the property in the property records with the county. To find out what liensare on the title to the property currently, you need what is called a Preliminary Title Report (Prelim), which is provided by the mortgage broker.

Preliminary TitleReport (Prelim)

The Prelim is prepared by the title company and it usually comes from the same company that is handling the escrow (we'll get into escrow's role on the next page). The Prelim is a document that is an offer to insure your potential position on title and while it does not provide conclusive information about the status of title,it does give you the most important information about what is on the title currently. As with most types of insurance there are differing types of coverage. You'll want to ask the mortgage broker or the title company for an explanation of the coverage that you are getting whether its a standard policy or extended. Extended offers thebest coverage and is most commonly used.

The current Prelim should be dated within 30 days and provide the followinginformation regarding the property: (1)the name of the owner; (2)legal description, street address if available, and the assessor's parcel number; (3)assessor's plat map, which illustrates the configuration, dimensions, and general location of the property; (4)existence and priority of current liens and other encumbrances; (5)the name of the owner of the existing liens or trust deeds on the property; (6)if any, notices of default or notices of trustee's sale; (7)notice of any lawsuit or bankruptcy affecting the property.

What to Watch For

When reviewing the Prelim and the information on the list above,below are some items thatyou'll want to watch for. If any of the following issues are encountered, ask the mortgage broker or titlecompany for an explanation:

There are situations where the above occur, and sometimesthey can be taken care of or removed from title fairly easily. Questions on any of these items should be directed to the mortgage broker or title company for further explanation.