Why We Require 125% ALTA/CLTA Policy for Trust Deeds

No financial investment is guaranteed, regardless of the vehicle you choose to put your money into. 

Alternative assets like trust deeds have a lower correlation with the public market, offering greater stability and consistent returns. This makes them a valuable choice for portfolio diversification. 

Trust deeds are secured by real property and include policies for lender risk mitigation. To understand how your interests are protected as a private real estate lender, let’s explore title insurance requirements and why we set the bar at 125 percent.

The Role of Title Insurance in Private Real Estate Lending

For any real estate transaction, there must be a clear title. Each time a property is sold or refinanced, a title search is conducted to identify potential risks predating the transaction. Title insurance protects lenders and borrowers from unexpected financial loss that may arise from claims against a property title, such as liens, back taxes, or fraud. 

Lender’s Title Insurance vs. Owner’s Title Insurance

• Lender’s title insurance, also known as a loan policy, is commonly required to cover risks that may be missed in the title search. The borrower is responsible for purchasing a title insurance policy to protect the lender’s capital investment, whether the transaction is to refinance or transfer property ownership.
• Owner’s title insurance protects the buyer’s equity from title defects that may impact ownership or property value. These can include errors with public records, undisclosed wills, boundary disputes, and even zoning violations. Title insurance owner policies are recommended (but not required) and commonly purchased by the seller. 

Additional Coverage 

Not every private investment company has the same standards. It’s common for title insurance coverage to stop at 100 percent, limiting the lender’s claim to the principal loan amount.

Any additional expenses incurred—such as foreclosure fees, lost interest, or missed payments from the borrower—would not be covered by the policy. We want to ensure that loan protection extends to the lender's financial loss and that the full payoff can be recovered in the event of a policy claim.

Protecting Private Lenders from Unrecorded Risk

Depending on the property and location, two types of title insurance policies may apply: 

ALTA vs. CLTA Title Insurance Policies

The American Land Title Association (ALTA) and California Land Title Association (CLTA)  offer policies for owner’s and lender’s title insurance. 

• CLTA policies are designed for standard coverage of title risks common in California. They do not require a property survey or inspection and are used most often in residential real estate transactions to insure property owners for concerns that may result from a public records search. 
• ALTA policies are designed for broader, comprehensive coverage against potential unrecorded risks in all states. They extend coverage beyond standard risks and can easily be customized with additional endorsements to meet the needs of the transaction. ALTA policies are the industry standard for lender title insurance and are used most often in commercial real estate transactions.  

Both ALTA and CLTA policies will have exceptions and exclusions. To thoroughly protect the interests of all parties involved, always work with an experienced real estate professional.

125% ALTA/CLTA Policy

At Val-Chris Investments, we require a 125 percent ALTA/CLTA policy on every transaction we close. This protects our private lenders if a title insurance claim is needed, ensuring all lost interest and payments can be recovered.

Invest with Val-Chris

Although any investment has risks, all our investments are secured by real estate with carefully vetted and confirmed collateral. 

Generous title insurance is just one more way we work to deliver quality investments with reduced risk and secure, high-return yields. Contact us to learn more about investing in trust deeds.