Title Insurance – What is an ALTA Policy?

Title Insurance – What is an ALTA policy?

In a normal re-sale escrow transaction in Arizona, title insurance is paid for by the seller to protect the new owner, the buyer. If the buyer obtains a loan to assist with the purchase, a second title insurance policy is required. This is called an ALTA Lenders Policy. ALTA is short for American Land Title Association. The association, over 100 years old, is comprised of title insurers nation-wide. Over the years, the term “ALTA Policy” has come to represent the policy issued to provide protection for the lender. The types of items covered include encroachments, unrecorded easements, boundary discrepancies, etc.

In the Arizona Association of Realtors standard purchase contract, the default is for the seller to pay for the Homeowner’s policy (see line 100). The ALTA Lender policy is on line 76 and either buyer or seller is selected. In my experience, the buyer pays for this policy roughly 95% of the time.

I’m often asked why the seller pays more than the buyer when two title policies are involved. The explanation is two-fold. First, title insurance to protect the buyer is in every transaction using the AAR Purchase Contract. In the event of a cash transaction, it is the only policy issued. There is no financing, so there is no ALTA Lender Policy issued. All title insurers have rates filed with the state based on the amount of coverage. For the Homeowners policy, it is based on the sales price. If the buyer is obtaining financing, and a lender requires title insurance, the work is already being done for the Homeowners policy, so a concurrent policy discount is provided on the ALTA Lender policy. Second, the loan amount is almost always less than the sales price, and since the premium is based on the loan amount, this also leads to a lower policy premium for the ALTA Lender policy.

If you have any questions about title or escrow, feel free to leave a comment below. And as always, when I write a post about title and escrow, the disclaimer must be restated. This post has been designed to be introductory and educational only. Because of the constant changes inherent in the title insurance industry, and particularly in regard to state and regional differences, it is not to be construed as a statement of duties, liabilities or coverages.