Title Insurance and a Missed Solar Filing on a Claremont Home

Buyers hear the phrase title insurance and take from it a comfortable general impression: somebody has checked, and if anything is wrong, somebody else pays.

That impression is close enough to be dangerous, particularly on a solar home, where the thing most likely to be recorded against the parcel is also the thing most likely to be listed in the policy as something the policy does not cover.

What follows is a plain description of the structure, not legal advice and not a summary of any particular policy. Anthony is a real estate licensee, not an attorney, a title officer, an insurer or a tax adviser. Policy forms, coverage and exceptions vary and change; read your own commitment and policy and put your questions to the title company and to counsel.

The distinction that does all the work

A title policy insures against certain defects in title. It does not insure that nothing is recorded against the property.

The mechanism is the schedule of EXCEPTIONS. When a search finds a recorded matter, that matter is generally listed, and matters listed as exceptions are ordinarily outside what the policy covers. The policy is, in effect, saying: here is what we found, we are not insuring you against these, and now you know about them.

So a recorded solar interest that has been correctly identified and listed is not a title problem the policy will solve. It is a disclosed condition of the property, handed to the buyer to deal with before closing.

Which reframes the exception list. It is not fine print. It is the most useful document a buyer gets, and reading it is the point. What tends to appear there on a solar home, and how to tell the different filings apart, is set out in the title report guide.

What a solar filing looks like when it appears

Several different arrangements can leave a mark on the record, and they mean quite different things.

A financed system may leave a filing securing a debt. A third-party-owned system may leave a filing announcing that the equipment on the roof belongs to a provider. A tax-roll financing arrangement sits with the parcel and continues after a sale, which is why it gets its own treatment in the tax-roll financing guide.

Reading an exception and knowing which of these it is, is the difference between a payoff, a subordination, an assumption and an item that simply comes with the house.

The one that is genuinely a title problem

There is a version of this that is different in kind: the filing that should have been released and was not.

A homeowner pays off a solar loan. Nobody records the release. Years later the interest is still on the record, attached to a debt that no longer exists. The property now carries an encumbrance that is factually wrong.

That is a stale record, and clearing it is a process rather than a phone call, described in the unreleased filing guide. Whether a policy responds to any particular situation is a question of that policy's terms and the facts, and it is answered by the title company and by counsel, not by a general rule.

The practical lesson runs the other way in any case: confirm the release when the payoff happens. Recovering later is always more work than checking once at the time.

What to do with the commitment when it arrives

• Read the exceptions rather than skipping to the coverage amount. That list is the substance.
• Identify every item connected to the solar system, and ask the title company what each one is, in plain words.
• Ask which items are expected to be cleared before closing and which will remain after it.
• For anything remaining, establish what it obliges the new owner to do, and confirm that with the provider directly rather than inferring it from the recording.
• Ask the title company whether any of it affects insurability, and put the question in writing.
• Where the arrangement is a lease or a power purchase agreement, get the provider's own written statement of terms, which is the estoppel process in the estoppel letter guide.

The lender is asking the same question differently

A buyer's lender is looking at the same list with its own interest in mind: whether anything sits ahead of the loan it is about to make. That is a priority question, and it may generate a demand for a release or a subordination on its own timetable, independent of what the buyer thinks about the exception. How that gets handled is described in the lender's view guide.

Buyer and lender therefore want the same document read early, for different reasons, and neither of them benefits from reading it in the final week.

The habit worth forming

Treat the title commitment as an inspection report for the paper side of the property. The physical inspection tells you about the roof. This one tells you what is attached to the parcel, who else has an interest in it, and what the policy is declining to stand behind.

On a solar home it will frequently be the document that first reveals what the arrangement actually is, which is a useful thing to learn from a public record rather than from a conversation.

Where to go next

Read the exceptions the day they arrive, ask the title company to explain each solar item, and confirm the substance with the provider. The wider set of transaction issues is collected in the solar homes guide.

Anthony Grynchal has been licensed in California since November 2009.