TITLE INSURANCE S Alaska Bar Association Real Estate Section January 26, 2006 Bryan S. Merrell, Regional Counsel Crystal Peltola, Chief Title Officer First American Title of Alaska, Anchorage Endorsements are used to modify or delete exceptions, exclusions or conditions and stipulations in title coverage, or add additional coverage not provided in standard policy provisions. In order to understand the impact and importance of endorsements, you have to have a fair grasp of the common terms and conditions of title insurance policies. Without knowing what the policies do cover, you cannot know what to ask to be modified or added. There are literally hundreds of form endorsements available from title insurers in Alaska. The forms of endorsements are produced not only by the American Land Title Association ( ALTA ), but also the California Land Title Association ( CLTA ) and by the various underwriters. First American, for example, designates its own form endorsements as FA. Thus you may see or hear references to ALTA 8.1 endorsements, or CLTA 100 endorsements, or FA 31 endorsements. To make matters a bit more confusing, some endorsement forms are identical or nearly so to other forms; for example, the CLTA 111.5 is identical to the ALTA 6 endorsement (both relate to coverage for variable interest rate loans). In Alaska, title insurance forms must be filed by title insurance underwriters and approved by the State Division of Insurance. Thus you may find that not all forms of coverage are available in Alaska, or even from all underwriters. In the area of residential loan transactions, there are three very common endorsements issued: the CLTA 100, the CLTA 116, and the ALTA 8.1. Most secondary market loan holders require that these three endorsements be issued with the extended loan coverage policy before they will buy the loan from the originator. The CLTA 100 endorsement (sometimes called a comprehensive ) assures the lender/insured against certain losses relating to enforcement of the covenants, conditions and restrictions recorded against the property, encroachments, and damage to improvements due to mineral extraction or easement use. A slightly different version of this endorsement type, the ALTA 9, is also available, and it offers somewhat more coverage in relation to CC&Rs and mineral rights. The CLTA 116 endorsement affirmatively provides coverage that the property has a certain street address and that the property is improved with a 1 to 4 family residence. The ALTA 8.1 endorsement insures against environmental protection liens, which could take priority over the insured mortgage under state or federal law. All of these endorsements are offered for no charge.
Some other commonly requested or important endorsements: FA 45 While this endorsement may be used to delete any exclusion from coverage, it is generally used to delete the creditor s rights exclusion, thus affording indemnity for claims relating to fraudulent conveyances/transfers and preferences under state and federal law. There will generally be a charge commensurate with the potential risk for this endorsement. CLTA 110.5 or 110.6 Most endorsements are issued at the same time as the policy; these endorsements are an exception. These endorsements insure a lender that a subsequent modification of a mortgage instrument maintains priority over matters, which may have recorded after the original lien. The 110.5 is for extended coverage policies, the 110.6 is for standard coverage. Initially, the title agent will issue a pro forma endorsement, which is to the final endorsement what a preliminary commitment is to the initial policy: a statement of the current status of title. The insured then knows what, if any, intervening interests must be released or subordinated before the modification is recorded. If an additional advance is being made, a CLTA 108.7 or 108.8 endorsements is used (depending on whether the original policy was standard or extended coverage). The charges for these endorsements are either based on the principal balance of the loan (for the modification endorsements) or on the amount of the advance. In addition, if the original loan policy was issued by another insurer, another title company can generally issue a new policy insuring the modification at the modification/advance rate. CLTA 104 Insures the validity of an assignment of a mortgage instrument. It s free if you get it at the same time the original policy is issued, or $100 if issued later (because then a search must be done to assure that there haven t been intervening assignments). There are multiple variations of this endorsement, including one for collateral assignments. CLTA 107.9 Adds an insured to a policy. This endorsement has become popular for transfers to trusts situations, to name the transferee trust as an additional insured. It does not, however, update the effective date of the policy, so its utility is somewhat limited. It is not to be used in situations where a new owner or coowner acquires an interest in the insured property. It can be used for both owner s and lender s policies. CLTA 123.1 or 123.2 Insures that the property is in a within a certain zoning boundary and that it meets the requirements for that zoning. There are different versions for improved vs. unimproved land. Generally, the title company is going to require that it be provided some report of the zoning from an outside source, either the local government itself or an engineering firm (the typical ALTA/ACSM survey will generally include such information.
CLTA 103.4 and 103.7 This enhanced access coverage, as these endorsements insure that not only is there legal access to the insured parcel (as all ALTA form policies provide), but there is a physically open easement (103.4) or street (103.7) over which access can be had. Title insurers will not generally gratuitously issue endorsements; you have to ask for what you get, sometimes pay extra for them, and provide additional information as well. The problem then becomes knowing what you want and what is available, and whether it is cost-effective to get the coverage you request. There are at least two ways to approach this problem. The most common approach I have seen is the shotgun. This is where the proposed insured simply asks for every endorsement they have ever gotten or heard of getting. It usually takes the form of an extensive list in a letter or memo of all the endorsements (sometimes by number, which is good, or sometimes by name, which is not, because names vary from state to state) addressed to the insurer requesting price and availability. This will cause title officers and underwriters a good deal of stress, and is probably a waste of everyone s time, for several reasons. Not all endorsements are available in all areas. Not all endorsements can be issued with all properties. Sometimes it simply would make no sense to issue an endorsement in the circumstances (for example, to ask for protection from the exercise of easement rights when there is no easement). Also, endorsements may not be needed at all with the advent of certain forms of policies with built-in coverage previously provided only be endorsement. A more thoughtful approach is to determine what coverage concerns the typical form of coverage issued by the insurer raises, and what modifications are needed to protect the insured. For example, let s say your client/customer is a partnership acquiring a property and is to be issued a standard ALTA form owner s policy. You notice that the standard policy indicates that "insured" is defined as the insured named in Schedule A, and, subject to any rights or defenses the Company would have had against the named insured, those who succeed to the interest of the named insured by operation of law as distinguished from purchase including, but not limited to, heirs, distributees, devisees, survivors, personal representatives, next of kin, or corporate or fiduciary successors. So, what happens if one of the partners sells his interest in the partnership? Under most states partnership laws, the partnership is terminated. Does this mean coverage lapses? To avoid any question, an endorsement (for First American, the FA 55, generally known as a Fairway endorsement, after an Ohio lawsuit in which this issue was raised specifies that coverage does not terminate in such circumstances. Once you have some idea of what the concerns are, you should research what endorsements may be available to alleviate these concerns. First American has its underwriting manual available on the Internet, at www.firstam.com under Reference. Note that not all of the endorsements listed may be available in every state, or every area within a state. You should also study what underwriting requirements the insurer may make before they issue the endorsement. These requirements for First American are described in the underwriting manual. In some cases, the underwriter may require additional survey
work, opinions of counsel, or indemnification. The cost of the endorsement must also be considered. In complex or large dollar commercial transactions, contact with the underwriter for the agent being used in many cases going to be a necessity. The underwriter will have a better grasp of the endorsements available and in many cases may have to make a determination of the risks and the cost of issuing the endorsement. Ask the title agent for the name and contact information for their underwriter.
CLTA Form 100 Restrictions, Encroachments & Minerals The Company hereby insures the owner of the indebtedness secured by the insured mortgage against loss or damage which the insured shall sustain by reason of any of the following matters: 1. The existence of any of the following: (a) Covenants, conditions or restrictions under which the lien of the mortgage referred to in Schedule A can be cut off, subordinated, or otherwise impaired; (b) Present violations on the land of any enforceable covenants, conditions or restrictions; (c) Except as shown in Schedule B, there are no encroachments of buildings, structures or improvements located on the land onto adjoining lands, or any encroachments onto the land of buildings, structures or improvements located on adjoining lands. 2. (a) Any future violations on the land of any covenants, conditions or restrictions occurring prior to acquisition of title to the estate or interest referred to in Schedule A by the insured, provided such violations result in impairment or loss of the lien of the mortgage referred to in Schedule A, or result in impairment or loss of the title to the estate or interest referred to in Schedule A if the insured shall acquire such title in satisfaction of the indebtedness secured by the insured mortgage; (b) Unmarketability of the title to the estate or interest referred to in Schedule A by reason of any violations on the land, occurring prior to acquisition of title to the estate or interest referred to in Schedule A by the insured, of any covenants, conditions or restrictions. 3. Damage to existing improvements, including lawns, shrubbery or trees (a) Which are located or encroach upon that portion of the land subject to any easement shown in Schedule B, which damage results from the exercise of the right to use or maintain such easement for the purposes for which the same was granted or reserved;
(b) Resulting from the exercise of any right to use the surface of the land for the extraction or development of the minerals excepted from the description of the land or shown as a reservation in Schedule B. 4. Any final court order or judgment requiring removal from any land adjoining the land of any encroachment shown in Schedule B. Wherever in this endorsement any or all the words "covenants, conditions or restrictions" appear, they shall not be deemed to refer to or include the terms, covenants, conditions or restrictions contained in any lease. For purposes of this endorsement, the words "covenants," "conditions" or "restrictions" shall not be deemed to refer to or include any covenants, conditions or restrictions relating to environmental protection, except to the extent that a notice of a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy and is not excepted in Schedule B. This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly Date: CLTA Form 100 (Revised 6-14-96) ALTA Lender
ALTA Form 9 Restrictions, Encroachments & Minerals The Company insures the owner of the indebtedness secured by the insured mortgage against loss or damage sustained by reason of: 1. Any incorrectness in the assurance that, at Date of Policy: (a) There are no covenants, conditions or restrictions under which the lien of the mortgage referred to in Schedule A can be divested, subordinated or extinguished, or its validity, priority or enforceability impaired. (b) Unless expressly excepted in Schedule B: (1) There are no present violations on the land of any enforceable covenants, conditions or restrictions, nor do any existing improvements on the land violate any building setback lines shown on a plat of subdivision recorded or filed in the public records. (2) Any instrument referred to in Schedule B as containing covenants, conditions or restrictions on the land does not, in addition, (i) establish an easement on the land; (ii) provide a lien for liquidated damages; (iii) provide for a private charge or assessment; (iv) provide for an option to purchase, a right of first refusal or the prior approval of a future purchaser or occupant. (3) There is no encroachment of existing improvements located on the land onto adjoining land, nor any encroachment onto the land of existing improvements located on adjoining land. (4) There is no encroachment of existing improvements located on the land onto that portion of the land subject to any easement excepted in Schedule B. (5) There are no notices of violation of covenants, conditions and restrictions relating to environmental protection recorded or filed in the public records. 2. Any future violation on the land of any existing covenants, conditions or restrictions occurring prior to the acquisition of title to the estate or interest in the land by the Insured, provided the violation results in:
(a) or Invalidity, loss of priority, or unenforceability of the lien of the insured mortgage; (b) loss of title to the estate or interest in the land if the Insured shall acquire title in satisfaction of the indebtedness secured by the insured mortgage. 3. Damage to existing improvements, including lawns, shrubbery or trees: (a) which are located on or encroach upon that portion of the land subject to any easement excepted in Schedule B, which damage results from the exercise of the right to maintain the easement for the purpose for which it was granted or reserved; (b) resulting from the future exercise of any right to use the surface of the land for the extraction or development of minerals excepted from the description of the land or excepted in Schedule B. 4. Any final court order or judgment requiring the removal from any land adjoining the land of any encroachment excepted in Schedule B. 5. Any final court order or judgment denying the right to maintain any existing improvements on the land because of any violation of covenants, conditions or restrictions or building setback lines shown on a plat of subdivision recorded or filed in the public records. Wherever in this endorsement the words "covenants, conditions or restrictions" appear, they shall not be deemed to refer to or include the terms, covenants, conditions or limitations contained in an instrument creating a lease. As used in paragraphs 1(b)(1) and 5, the words "covenants, conditions or restrictions" shall not be deemed to refer to or include any covenants, conditions or restrictions relating to environmental protection. This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and any prior endorsements thereto. Except to the extent expressly
Date: F.A. Form 42 CLTA Form 100.2 (Rev. 3/27/92) ALTA Form 9 (Restrictions, Encroachments, Minerals)
CLTA Form 116 Designation of Improvements, Address The Company hereby insures the owner of the indebtedness secured by the insured mortgage against loss or damage which the insured shall sustain by reason of the failure of (i) a (description of improvement e.g. "a single residence") known as (street address), to be located on the land at Date of Policy, or (ii) the map attached to this policy to correctly show the location and dimensions of the land according to the public records. This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly Date: CLTA Form 116 (Rev. 6-14-96) ALTA Lender
ALTA Form 8.1 Environmental Liens The insurance afforded by this endorsement is only effective if the land is used or is to be used primarily for residential purposes. The Company insures the insured against loss or damage sustained by reason of lack of priority of the lien of the insured mortgage over: (a) Any environmental protection lien which, at Date of Policy, is recorded in those records established under state statutes at Date of Policy for the purpose of imparting constructive notice of matter relating to real property to purchasers for value and without knowledge, or filed in the records of the clerk of the United States district court for the district in which the land is located, except as set forth in Schedule B; or (b) any environmental protection lien provided for by any state statute in effect at Date of Policy, except environmental protection liens provided for by the following state statutes: This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly Date: F.A. Form 35 CLTA Form 110.9 ALTA Form 8.1 (Environmental Protection Lien)
F.A. Form 45 Exclusion from Coverage - Deletion The Policy is hereby amended by deleting paragraph no. from the Exclusions From Coverage. This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly Date: F.A. Form 45 (4/90)
CLTA Form 110.5 Modification of Mortgage The Company hereby insures the owner of the indebtedness secured by the insured mortgage against loss or damage which the insured shall sustain by reason of: 1. The failure of that certain agreement executed by and recorded to modify the insured mortgage or the obligation secured thereby; 2. The priority of any lien or encumbrance over the lien of the insured mortgage as modified by the above mentioned agreement, except for those matters shown in Schedule B as prior to the insured mortgage, and the following matters: This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly Date: CLTA Form 110.5 (Rev. 6-14-96) ALTA Lender
CLTA Form 104 Assignment of Mortgage The Company hereby insures against loss or damage which such insured shall sustain by reason of any of the following: (a) The failure of the beneficial interest under the mortgage referred to in paragraph of Schedule to have been transferred to such insured by a valid assignment or assignments; (b) The existence of any subsisting tax or assessment lien which is prior to the insured mortgage except: (c) The existence of other matters affecting the validity or priority of the lien of the insured mortgage, other than those shown in the policy, except: (d) The existence of any federal tax lien or bankruptcy proceeding affecting the title to the estate or interest referred to in Schedule A shown by the public records, other than those shown in the policy, except: This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly Date: CLTA Form 104 (Rev. 6-14-96) ALTA Lender
CLTA Form 107.9 Additional Insured The policy is hereby amended by adding as a named insured therein. This endorsement does not extend the coverage of the policy to any later date than Date of Policy, nor does it impose any liability on the Company for loss or damage resulting from (1) failure of such added insured to acquire an insurable estate or interest in the land, or (2) any defect, lien or encumbrance attaching by reason of the acquisition of an estate or interest in the land by such added insured. This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly Date: CLTA Form 107.9 (Rev. 9-10-93) ALTA or CLTA - Owner or Lender
ALTA Form 3.1 Zoning - Improved Land 1. The Company insures the Insured against loss or damage sustained by reason of any incorrectness in the assurance that, at Date of Policy: (a) According to applicable zoning ordinances and amendments thereto, the land is classified Zone. (b) The following use or uses are allowed under that classification subject to compliance with any conditions, restrictions, or requirements contained in the zoning ordinances and amendments thereto, including but not limited to the securing of necessary consents or authorizations as a prerequisite to the use or uses: 2. The Company further insures against loss or damage arising from a final decree of a court of competent jurisdiction (a) prohibiting the use of the land, with any structure presently located thereon, as specified in paragraph 1(b); or (b) requiring the removal or alteration of the structure on the basis that, at Date of Policy, the ordinances and amendments thereto have been violated with respect to any of the following matters: (i) (ii) (iii) (iv) Area, width or depth of the land as a building site for the structure; Floor space area of the structure; Setback of the structure from the property lines of the land; or Height of the structure. There shall be no liability under this endorsement based on the invalidity of the ordinances and amendments thereto until after a final decree of a court of competent jurisdiction adjudicating the invalidity, the effect of which is to prohibit the use or uses. Loss or damage as to the matters insured against by this endorsement shall not include loss or damage sustained or incurred by reason of the refusal of any person to purchase, lease or lend money on the estate or interest covered by this policy.
This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly Date: CLTA Form 123.2 ALTA Form 3.1 (Zoning-completed structure)
CLTA Form 103.7 Land Abuts Street The Company hereby insures the insured against loss or damage which the insured shall sustain by reason of the failure of the land to abut upon a physically open street known as (insert name of street) This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly Date: CLTA Form 103.7 (Rev. 6-14-96) ALTA or CLTA - Owner or Lender