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April 15, 2015

Best Practices: Title Insurance: Keeping Up with Endorsements

by Starfield & Smith

When obtaining a lender’s title insurance policy, it is common for a lender to ask for ALTA Endorsements 6 (Variable Rate Mortgage), 8.1 (Environmental Protection Lien) and 9 (Restrictions, Encroachments, Minerals) without giving too much thought to those forms. However, title insurance is not constant; the insuring forms are revised over time. Failing to give the substance of the endorsements due consideration may result in a failure to obtain the desired coverage.

One endorsement that requires particular consideration is the ALTA 9 endorsement. After an adverse judgment resulted from a court’s broad reading of the ALTA 9 endorsement — providing insureds with greater coverage than the title industry intended — the ALTA 9 endorsement was revised, and new variations of the ALTA 9 created. Now, lenders must consider the coverage that is needed and request it specifically. Requesting an “ALTA 9” may no longer be enough.

An excellent example of the reallocation of coverage among several ALTA 9 endorsements is the creation of the ALTA 9.6 endorsement, which includes the following coverage:

“The Company insures against loss or damage sustained by the Insured under this Loan Policy if enforcement of a Private Right in a Covenant affecting the Title at Date of Policy (a) results in the invalidity, unenforceability or lack of priority of the lien of the Insured Mortgage, or (b) causes a loss of the Insured’s Title acquired in satisfaction or partial satisfaction of the Indebtedness.”

The endorsement defines “Private Right” as “(i) a private charge or assessment; (ii) an option to purchase; (iii) a right of first refusal; or (iv) a right of prior approval of a future purchaser or occupant;” a “Covenant” is “a covenant, condition, limitation or restriction in a document or instrument recorded in the Public Records at Date of Policy.” An earlier version of this coverage was previously included in the ALTA 9 endorsement, but if you examine the version of the ALTA 9 endorsement in use today, you will find it is no longer there. Thus, to obtain this coverage, an ALTA 9.6 endorsement must be specifically requested.

What should a lender do to make sure it obtains appropriate coverage? When reviewing a title commitment, look at both the exceptions that have been raised and copies of the recorded documents referenced in the commitment. Identify those matters that create risk and determine whether coverage is available for those specific items. Many of the major title underwriters make endorsements forms available on their websites; these endorsements can be reviewed to identify available coverage for specific issues. In addition, the closing title company or agent can advise if coverage is available for particular issues.

As is always the case with title insurance, keep in mind that endorsement forms and numbers may vary from state to state, so sometimes understanding the substantive variations of the endorsement forms is the best way to make sure that you get the best coverage for a particular transaction.

For more information on endorsements and other title insurance related matters, please contact Amy at abrownstein@starfieldsmith.com or at 267-470-1187.