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Insuring
provision number 4 insures against the lack of a right of access to and
from the land. However,
this basic coverage assures only some type of access and issues
still exist as to the quality, character and location of the access. An access endorsement can vary based on the particular circumstances. If the insured in not concerned that access needs to be located at a specific location or if the property is unimproved then an endorsement insuring that the land abuts a dedicated street may be issued. If the property is improved or there are some type of restrictions on where access is available to a street more specific coverage may be available. In these situations based on the survey the policy may be endorsed to affirmatively insure access to a street where curb cuts already exist. If the land does not abut a dedicated public street, the land described in Schedule A should include easements to reach a public street. In this situation the insured may consider obtaining affirmative coverage against the failure of the person holding the interest described in Schedule A to have access from one or more parcels described in Schedule A to a dedicated street.
Aggregation "Tie-In" and First Loss Payable Endorsements The
Aggregation Endorsement is also referred to as a “Cluster” or
“Tie-In” Endorsement. This
endorsement is typically issued in multi-state transactions when the
contemplated indebtedness is secured by multiple mortgages which are
insured by multiple policies. Frequently the mortgage filed in each
state or county reflects the full amount of the loan, which may exceed
the value of the land described in the individual policy. In essence,
the Aggregation Endorsement allows the cumulative liabilities of the
various policies tied together to be available to any one or more
properties for any given loss. This permits the insured to receive the
benefit of an increase in value of an affected parcel should there be a
loss, thereby allowing the insured to recover its loss based on the
increased value of the particular property where the loss occurs. Any
payment by the Company on any of the policies listed in the
Tie-In-Endorsement will result in a reduction in the aggregate liability
of the Company under all of said policies. This Endorsement is not
available in some states. The multi-state Aggregation Endorsement may
not be issued in Florida. In Florida, only intrastate tie-in
endorsements may be issued. In Texas, Pennsylvania, and New Mexico, no
tie-in or aggregation endorsement may be issued. In those states, one
policy may be issued covering all tracts located in the state. When several parcels of property are used as security for the same mortgage, and are insured in the same policy, a specific situation can arise when a title defect occurs on one parcel (or less than all parcels) only. Simply stated, the ALTA loan policy is designed to provide a lender with loss coverage when a title defect lowers the value of the security so that the value is less than the amount due under the terms of the mortgage. The lender may believe it has a compensable claim under its policy; however, as long as the lender can foreclose on its security and recover from a sale the full amount of the loan including interest and costs, the lender has no loss, and therefore is not entitled to recovery under its title policy. The First Loss Payable Endorsement provides that the title insurer will be liable for a defect, lien, encumbrance or other matter which creates a loss to the insured without requiring the insured to foreclose and sell the properties not affected by the title defect, lien, encumbrance or other matter, or pursue remedies against any other collateral which also stands as security for the obligation secured by the insured mortgage.
These endorsements are often issued when a mortgage has been assigned by a separate document. These endorsements will only be issued when the notes secured by the insured mortgage have been properly endorsed and delivered to the insured at Date of Endorsement. The Assignment Endorsement (ALTA 10) insures against the failure of the assignment to vest title to the insured mortgage in the named insured. It also insures, that unless shown in prior endorsements or the endorsement being issued, that there are no prior modifications or partial releases of the insured mortgage. This endorsement does not change the effective date of the policy. Unlike the ALTA 10 endorsement, the ALTA 10.1, Assignment and Date Down Endorsement, down dates coverage as to taxes and assessments, priority, and notices of federal tax liens or bankruptcies.
The comprehensive endorsement (ALTA 9 Restrictions, Encroachments, Minerals Endorsement) is one of the most commonly requested endorsements to a loan policy and provides protection against loss or damage sustained by reason of any inaccuracies in the assurances that: a. there are no covenants, conditions, or restrictions under which the lien of the mortgage could be divested, subordinated or extinguished, or its validity, priority or enforceability impaired; and b.
that unless specifically excepted in Schedule B: i.
there are no violations of any enforceable covenants, conditions, restrictions
or setback lines shown in the public record; ii.
any instrument shown in Schedule B as containing covenants, conditions
or restrictions does not also (A) establish an easement, (B) provide for
a lien for liquidated damages, (C) provide for a private charge or
assessments, or (D) provide for an option to purchase, right of first
refusal or prior approval of a future purchaser or occupant; and iii.
there are not any encroachments of existing improvements onto adjoining
land, nor any encroachment from adjoining land onto the land described
in Schedule A. The
comprehensive endorsement also covers loss or damage resulting from: a.
any future violation of covenants, conditions or restrictions
occurring prior to the acquisition of title by the insured provided the
violation results in:
i. impairment
or loss of the lien of the insured mortgage; or
ii. loss of title if the insured shall
acquire title in satisfaction of the indebtedness secured by the insured
mortgage; b.
damage to existing improvements, including lawns, shrubbery or
trees:
i. which
are located on or encroach upon an
easement resulting from the exercise of the rights to maintain the
easement for the purpose for which it was granted; or
ii. resulting
from the future exercise of any right to use the surface of the land to
extract minerals excepted from the description of the land; c.
a final court order requiring the removal of any existing
improvements because of any encroachment thereof onto adjoining land;
and a final court order denying the right to maintain existing
improvements because of a violation of covenants, conditions,
restrictions or setback lines shown in the public records. Contiguity and Survey Endorsements Coverage insuring the insured that two or more parcels are contiguous may be requested when the land to be insured consists or might consist of an assemblage of two or more parcels. Although contiguity endorsements are often requested, a better solution for this situation is a request for a new perimeter description of the assembled properties. The policy will insure title to all of the land inside the new perimeter description. Since the goal is to insure title to all of the property within the perimeter without any gaps or gores, the direct approach may be best. The Survey Endorsement assures the policyholder that the property description in the policy describes the same land as the survey does. It simplifies the policyholder's job of reviewing the policy property description.
The
fourth exclusion in the loan policy denies coverage based on the
unenforceability of the lien of the insured mortgage because of the
inability or failure of the insured mortgagee to comply with applicable
doing business laws for the state in which the land is located. Although a lender may not be required to qualify to do business
in a state simply on the basis of making a single mortgage loan in that
state (at least until it seeks to take title to the property), at some
point making multiple loans may require it to so qualify. The Doing Business Endorsement insures against loss or damage that may result from a final judicial decree holding that the insured mortgage is unenforceable as a result of the insured’s failure to qualify to do business within the state.
Environmental Protection Lien Endorsements The environmental area, once largely ignored, is now one of the major concerns for lenders. The 1987 and 1992 ALTA Loan Policies contain an exclusion for the effect of laws relating to environmental protection, except to the extent that a notice of the enforcement of such laws or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation of such laws affecting the land has been recorded in the public records. The 1970 ALTA Loan Policy does not contain this exclusion. A
problem arises when the property described in the policy already is
contaminated when the insured mortgage is placed on the property but the
contamination is not discovered until after the policy is issued. Title insurance companies take the position that the existence of
hazardous wastes or contamination on or under the land relates to the
physical conditions of, rather than title to, the property. They also take this position under 1970 policies which do not
contain a specific environmental law exclusion on the theory that
subsequent liens for environmental matters fall within the exclusion
relating to governmental police powers. The ALTA Form 8.1 endorsement is issued only with respect to loan policies relating to residential properties. The endorsement insures the priority of the insured mortgage lien against existing or subsequently recorded federal or state environmental protection liens against the property. A non-residential environmental protection lien endorsement also is available which is substantially similar to ALTA Form 8.1 but can be issued only in connection with loan policies relating to non-residential properties.
Mortgage Modification Endorsement It is becoming more common for lenders to
modify existing loans. The extent of the modifications made to a previously recorded
mortgage depend on the particular circumstances. The changes vary from merely to extending the term of the
loan to changing numerous terms contained in the mortgage. Certain
changes may not effect the priority of the lien. However, other changes may seriously impair the priority of
the lien. Lender’s often
make the modification of their loan contingent upon a title company
being willing to insure that the modifications will not effect the
priority established by the existing mortgage.
In this situation the lender will require a Mortgage Modification
Endorsement. The Mortgage Modification Endorsement insures against the invalidity or unenforceability of the lien of the insured mortgage on the date of the endorsement as a result of the modification. It also insures, that unless shown in the policy, prior endorsements or the endorsement being issued, that the priority of the lien is not effected by the modification. This endorsement contains a creditor rights exclusion with respect to the transaction creating the modification. However, this exclusion is consistent with the creditor’s rights exclusion contained in the policy, which applies only to the transaction creating the interest of the insured mortgagee.
The third exclusion from coverage relates to matters known to the insured but not disclosed to the title company. This issue can arise in connection with an owner’s policy or a loan policy. I connection with an owner’s policy an individual may hold a position in both the buying and selling entity whereby the law will impute his or her personal knowledge to the buyer. For example, an individual may be a general partner in a limited partnership in which selling property to another limited partnership in which the individual is also a general partner. In this situation any title defects which the individual has as a consequence of his being a general partner in the seller will be imputed to the insured buyer. In a loan situation, when a lender is making a loan to a joint venture or partnership in which the lender or subsidiary of the lender will be one of the joint venturers or partners a lender should require a non-imputation endorsement. This endorsement provides that the title company will not deny liability on the ground that the insured had imputed knowledge of a title defect solely by operation of law through the insured’s partners. Non imputation endorsements vary based on the type of entity involved in a transaction. However, regardless of which variation of a non imputation is issued underwriters will normally require the person whose knowledge will not be imputed to execute an indemnification or affidavit.
Pro Rata and Last Dollar Endorsements A lender occasionally will make a loan secured by assets comprising both real property and other assets. In such a case, the borrower may execute a mortgage in favor of the lender for $2,000,000 but the lender may request a loan policy only for $1,000,000 based upon the value of the real estate component of the security. Paragraphs 6 and 8 of the conditions and stipulations in the 1970 Loan Policy provide that the liability under the policy shall be the lesser amount of the actual loss, the amount of the indebtedness at the time of the loss, and that the payment in full of the debt shall terminate all liability under the policy. The effect of these provisions in the foregoing example is to put the title company in the position of extending its risk not only to the first $1,000,000 paid, since the amount of coverage does not begin to decrease until borrower begins to pay the loan down below $1,000,000. In this case the title company may require a “pro rata” endorsement. This endorsement reduces the amount of insurance coverage on pro rate basis as payments are made on the loan. Paragraphs 7 and 9 of the Conditions and Stipulations in the 1987, 1990 and 1992 loan policies provide that the partial payment of the principal of the indebtedness will reduce the amount of insurance to the full extent of the payment. Under these more recent policies it becomes incumbent upon the lender to request an endorsement to protect itself for the term of the loan. A
lender may request the title company to issue a Last Dollar Endorsement.
This endorsement provides that the amount of the insurance will not be
reduced, under paragraph 9(b) of the Conditions and Stipulations of the
1992 loan policy, until the amount of the indebtedness secured by the
insured mortgage is paid down to an amount equal to the amount of
insurance shown in Schedule A. This endorsement is commonly used when a lender holding a mortgage on property subsequently makes a second loan secured by the same property. The new mortgage often reflects the aggregate amount of the indebtedness as being the amount secured. However, since the lender already has loan policy coverage on the first mortgage the lender generally will request that the new loan policy be issued only for the amount of the second loan.
The sections of the terms and conditions may also present problems when the mortgage is fully secured by the real estate but contains a revolving credit feature. Under the 1970 Loan Policy, coverage terminates if the balance of the loan ever reaches zero. Therefore, future advances made to the borrower thereafter secured by the same mortgage will not revive coverage under the policy. Additionally, paragraph 8(b) of the conditions and stipulations provides that the liability of the title company will not be increased by any additional principal indebtedness created subsequent to the date of the policy. Consequently, any subsequent advances made under the revolving credit provisions of the loan will not cause the coverage to increase once it has been reduced. Under the 1987, 1990, and 1992 loan policies any payments made on the loan result in a pro tanto reduction in the amount of coverage under the policy. In a revolving credit situation the operation of this provision could result in the lender having no title coverage despite the fact that debt under the loan is still outstanding. To avoid the harsh effects of these provisions of the various loan policies of the lender under a loan with a revolving credit feature should obtain one of the various types of revolving credit endorsements. These endorsements vary depending upon whether the advances to be made subsequently are optional, obligatory or strictly obligatory in nature, provide that the future advances will not constitute additional principal indebtedness or indebtedness created subsequent to the date of the policy and provide insurance against the loss of priority for the future advances.
Subdivision and Tax Parcel Endorsements In addition to zoning matters the first exclusion to coverage also excludes loss or damage sustained by reason of governmental regulations restricting, prohibiting or relating to a separation in ownership or a change in the dimensions or area of the land or any parcel of which the land is or was a part. A lender must be sure that the property that is encumbered by the mortgage can be foreclosed upon and conveyed without having to obtain lot split or subdivision approval, which approval generally requires the involvement of the borrower (which probably will not be very cooperative at that point) and/or approval by governmental agencies (which can be costly and time consuming). Similarly, an owner may want to be assured that when he decides to convey or encumber the property that he can do so without having to absorb the costs and delays involved with subdividing or splitting the land. Despite its name, a Subdivision Endorsement often is issued on property which is not included within a platted subdivision. This endorsement insures that the property described in the policy complies with all subdivision and platting laws and can be conveyed without further approval of any governmental entity. Like the Subdivision Endorsement, the Tax Parcel Endorsement is designed to provide some assurance that the property described n the title policy can be conveyed without having to obtain additional approvals. This endorsement insures that the property described constitutes an entire tax parcel(s) not containing any other land.
The fifth exclusion from coverage in a loan policy also denies coverage for losses sustained by reason of any violation of truth in lending laws. ALTA Form 2 insures against loss or damage sustained by reason of a final judicial determination that either the lien of the insured mortgage has been terminated or the title of the insured to the property acquired through a foreclosure or other process which discharges the lien of the insured mortgage has been defeated by a valid exercise of the right of rescission under the Federal Truth in Lending Act and that the right of rescission existed because of the lack of an exemption or exception under Regulation Z.
The fifth exclusion from coverage in a loan policy relates in part to the effect of violations of usury laws on the lien of the insured mortgage. The usury portion of the exclusion can be deleted by the issuance of a usury endorsement. This endorsement insures against any adverse final court order determining that the mortgage is invalid or unenforceable on the grounds that the loan is usurious under state law.
When the loan contains a variable interest rate feature the lender should request Whichever types of variable rate endorsement best fits the deal. The basic endorsement (ALTA Form 6.0) and all of its variations insure against loss or damage due to: (1) the invalidity or unenforceability of the lien of the insured mortgage resulting from loan provisions providing for changes in the rate of interest and (2) loss of priority of the mortgage lien as security for the unpaid principal balance and interest as charged in accordance with the loan terms caused by changes in the rate of interest. All of these endorsements define “changes in the rate of interest” to include only those changes calculated pursuant to the formula provided for in the insured mortgage as of the closing date and exclude violations of usury, consumer protection and truth in lending laws. ALTA Form 6.1 is used where it is necessary for the lender to comply with particular rate statutes and regulations and specifically excludes loss or damage resulting from any failure to comply with such requirements. ALTA Form 6.2 should be used with respect to loans which feature negative amortization since it provides coverage for any loss of priority caused by interest on interest and increases in the unpaid principal balance of the loan resulting from the additions of unpaid interest.
Matters arising from any law, ordinance or governmental, regulation (specifically including zoning matters) are excluded from the coverage of the policy. Owners and lenders can obtain a certain degree of comfort with respect to zoning matters in a number of different ways. A letter directed to them from the appropriate official of the applicable zoning authority addressing the zoning of the property and various matters relating to whether the property and the uses thereof comply with zoning requirements. However, the scope of the letters which zoning officials are willing to provide varies widely. These range from extremely detailed letters which often can be obtained from officials of small suburban municipalities to letters from officials of large cities which only identify the zoning classification of the property. The insured will usually be without recourse if the letter is incorrect. Others rely solely upon their own review of the survey and the applicable zoning code or upon a zoning opinion if there is an attorney involved in the transaction who is in a position to issue such an opinion. However, an owner or lender may be unable to achieve sufficient comfort on zoning matters from such other sources. In those situations, there are two types of zoning endorsements to loan policies which are available to provide some title insurance as to zoning matters. Alta Form 3.0 is a zoning endorsement issued with respect to unimproved property. This endorsement insures against loss or damage suffered by the insured by reason of the property being zoned other than as shown on the endorsement. It also provides insurance as to the use or uses which are allowed under the zoning classifications shown on the endorsement, subject to compliance with any conditions, restrictions, or requirements contained in the zoning ordinances, including the securing of necessary consents or authorization as a prerequisite to such use or uses. The endorsement also insures against the invalidity of the zoning ordinances and amendments thereto, but based only on a final judicial decree which in effect prohibits the use set forth in the endorsement. The
ALTA 3.1 endorsement is issued with respect to property which is
improved. This endorsement
provides the same coverage as the ALTA 3.0 endorsement but also covers
loss or damage arising from a final judicial decree which: a.
prohibits the use of the land, with any structure presently
located thereon, for a permitted use shown in the endorsement; or b.
requires the removal or alteration of the structure on the basis
of a violation with respect to; i) area, width or depth of the land as a building site for the structure; ii)
floor space area of the structure iii)
setback of the structure from the property lines of the land; or iv)
height of the structure v)
parking
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Surety Title Agency, Inc. | 1010 Leader Building |
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526 Superior Avenue East | Cleveland, OH 44114-1401 |
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Phone 216.589.8399 | Toll-Free 800.442.8399 |
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Fax 216.589.4826 | E-Mail info@suretytitle.com |
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Copyright ©2001 Surety Title Agency, Inc. All rights reserved. |
