Imagine this: Bob and Betty Buyer happily purchase a home in the neighborhood where they have long wanted to live. Not long after escrow, on the advice of their attorney, they transfer ownership of the property from their names as husband and wife into their newly-created family trust.

Some months later, a title issue arises regarding an alleged encroachment. The Buyers submit a claim to the title company from whom they received insurance in their purchase escrow. But the title company declines coverage. Why? Because the property is now owned by a new entity (the trust), not the named insured (the Buyers).

Could this happen? You bet. Might someone suggest that the Buyers' real estate agent could have/should have told them about this possibility? Bet on that one too.

Fortunately, there are many situations where this sort of problem can be avoided. In California, the standard purchase agreement produced by CAR (California Association of REALTORS^®) contains a pre-printed stipulation that the purchaser will be issued a CLTA/ALTA "Homeowners Policy of Title Insurance," if applicable to the property and the buyer(s). If it is not available, escrow is to notify the buyer.

The ALTA (America Land Title Association) Homeowner's Policy contains a variety of extra coverage conditions not found in more standard policies. Among them is a provision that coverage would be extended to the trust in circumstances such as our opening example.

Of course, not every purchase agreement contains such a pre-printed requirement. Moreover, not every buyer or property will qualify for a Homeowner's Policy. The ALTA Homeowner's Policy was designed for residential property from 1 - 4 units. It would not be available for a purchaser who is buying land or a commercial property.

In most cases, it is possible to purchase an endorsement that will add the continuing coverage to a policy that would not normally have it. Such an endorsement is not terribly expensive -- in some cases about $150 -- and is certainly worthwhile if a future trust transfer is anticipated.

I don't know if it's a Law of the Universe or anything, but it seems to me that the less consumers know about coverage options, the more likely they are to shop for insurance on the basis of price alone. Most consumers understand what is involved when purchasing auto insurance or home protection (fire, flood, etc.). They know what they want covered and they will pay for that.

But, just as it is with brokers buying Errors and Omissions insurance, home buyers are liable not to understand much about title insurance and are likely to focus more on cost than coverage. This is where an agent can help them.

Bob Hunt is a director of the California Association of Realtors®. He is the author of Real Estate the Ethical Way.