Title Law Associates™
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Endorsements

INTRODUCTION

The decision as to whether an endorsement should be attached to a policy and, if so, the manner in which it should be phrased is very much a part of the underwriting process inasmuch as it may have the effect of modifying the insuring clauses, the exclusions from coverage or the conditions and stipulations. 

AN ENDORSEMENT IS ATTACHED TO A TITLE POLICY WHEN IT IS THE INSURERS INTENTION TO ALTER OR MODIFY THE PROVISIONS OF THE POLICY SO THAT THE INSURED RECEIVES GREATER COVERAGE, AND INSURER HAS INCURRED A GREATER LIABILITY, THAN EXISTED UNDER THE UNENDORSED POLICY.

In large commercial transactions such as Apartment Houses, Condominium projects, Office buildings and Shopping Centers, the title insurer is frequently called upon to provide "affirmative Coverage" that goes beyond the policy coverage afforded under either a "Standard Coverage" or "Extended Coverage" policy. Any statement which changes the terms of the policy should be made in the form of an endorsement, printed on company forms and appended to the policy.

Endorsements vary the terms of the policy and, therefore, should not be prepared and appended to the policy without careful consideration of the facts and the risks assumed. The Underwriting Departments of the 7 major national underwriters have to varying degrees prepared guidelines which they encourage their policy issuing offices and agents to followed whenever special endorsement coverage is requested. Prior to providing any form of special endorsement policy coverage we suggest the following procedures be undertaken:

(I) the branch office or examining agent should make an independent determination that such coverage is appropriate;
(ii) the branch office or examining agent should report the coverage request to its supervisory underwriting office [usually the regional office] and follow the company guidelines for reporting such requests;
(iii) all the documents in question relating to such coverage should be forwarded to the supervisory underwriting office for review and consideration;
(iv) special permission should be obtained from the Home Office Underwriting Department where necessary; and
(v) a special risk premium should be collected commensurate with the risk if permitted by statute

Closers may generally assume that the title examiner realizes that certain "Standard form loan endorsements" will be requested by the lender and that, as part of the title examination, the examiner has taken into consideration the underwriting guidelines for issuing such an endorsement and passed upon them as part of his or her examination of title. Using a Pennsylvania condominium title as an example, when asked to insure title to a condominium unit, the title examiner should anticipate that the following endorsements will be requested: Pa l00 (Restrictions), Pa 300 (Survey) and Pa 8l0 (ALTA 4.1 Condominium Endorsement). Therefore, the examiner, as part of the examination process, should review any and all restrictive covenants for reverter language and review all of the condominium documentation so as to determine that all the affirmative statements made in the Pa 8l0 (ALTA 4.1) endorsement can be given. That is the examiners responsibility, not the closers.  However, the closer must understand that the title examiner almost never sees the lenders loan commitment and title instructions. Consequently, any special title coverage requested by the lender in the loan commitment which are of an unusual nature will have to be referred back to either the examination department or the legal department for further consideration and determination that the coverage is appropriate and can be given. Such determination may require the review of additional information, material or surveys ordinlpadding="3">

     
American Land Title Association (ALTA) Standard Form Endorsements
California Land Title Associates (CLTA) Standard Form Endorsements
Florida Land Title Association (FLTA) Standard Form Endorsements
Pennsylvania Land Title Association Endorsements (PLTA) Standard Form Endorsements
Title Insurance Rating Bureau of PA (TIBOP) Standard Form Endorsements
New Jersey Rating Bureau (NJRB) NJLTA Endorsement Forms
Title Insurance Rate Service Association (TIRSA) NYLTA Endorsement Forms
Special Commercial Title Insurance Endorsements   See Forms Link or Gosdin text below


With the recent changes in Federal and State banking regulations we have begun to see lenders making real estate loans across the country, bringing along with them the coverage requests with which they are familiar [e.g. West Coast lenders are familiar with the CLTA endorsement forms and will customarily request that coverage]. In some states these requests may be appropriate while in others they may not because of statutory or regulatory prohibition. The companies that will survive through the turn of the century will be the ones who are flexible and able to adapt to change. That means title company personnel are going to have to become familiar with an ever increasing amount of endorsement forms. Institutional lenders and mortgage brokers are in many cases the proposed insured. They are not interested in how things in a particular geographical area were done in the past. Mortgage brokers are interested in being able to package the loan for resale on the secondary market. Where the endorsement requests are determined to be inappropriate, company personnel will have be able to advise what forms approved for use in a particular state come closest to providing the coverage requested. Thus, unless the form of coverage requested is specifically prohibited by the state insurance laws and statutes (such as Florida, Pennsylvania and Texas), title insurers will have to at least consider their customers request in order to remain competitive in the marketplace. They will also have to determine whether, in granting such coverage, they are assuming unwarranted risk exposure or merely making statements of fact which may be determined from a review of the record documents. In some cases the title insurer will only be able to provide the requested coverage upon receipt and review of an ALTA/ACSM Class A survey, the receipt of which may not be the local custom.

Times change. Whereas before, an agent or branch office could say "that form of coverage is not provided here"; today that answer won't work. If a title company wants to be competitive it must familiarize itself with the forms of endorsement coverage available throughout the country which, for an additional premium and with extra work, may be given.

TITLE UNDERWRITING CONSIDERATIONS AND PROCEDURES

There are six things to bear in mind when undertaking to provided extended coverage:

  1. If the coverage requested is not a filed form the coverage may still be given on the companies blank endorsement forms except where prohibited. [e.g. in Florida see Rule 4-21; in Pennsylvania see rate rule 6.23 and 2.7];

  2. Any such coverage fall within anti-rebate rules.


The available ALTA, CLTA, Florida, New Jersey, New York TIRSA and PLTA TIRBOP Endorsement Forms in addition to the named Special Commercial Transaction Endorsement Forms are listed on this website on the link entitled FORMS. Instructions for their use is set forth in the text entitled Instructions as to the use of Title Insurance Endorsements©1992. Those endorsements are available on CD-ROM from the TLA© Underwriting Library. They may also be available by contacting the various named state land title associations or the Home Office of the national underwriter with whom you do business. The instructions prerequisite to their use are available upon request by contacting our offices, or that of our national underwriter whose website address is set forth at the end of page.


NB As an underwriter, agent, approved attorney or bank counsel you must realize that, except for the standardized ALTA, CLTA and some Commercial Endorsements, you cannot assume the endorsement language will remain consistent from one state to another or from one commercial underwriter to another. The manner and language by which affirmative coverage is provided may differ from underwriter to underwriter. State regulatory agencies exercise varying degrees of control upon title companies as to what coverage is permissible and what may be provided. Coverage permitted on one state may be prohibited in another. For example, the ALTA Form 9 and Florida Form 9 cover the same risk but the language of the endorsement is slightly different. Those differences may become readily apparent in the event of future claims. As a practice suggestion we recommend you obtain sample copies of proposed endorsements for review during title insurance coverage negotiations prior to closing in order to avoid problems at the table.

The endorsements set forth on the Forms link should be available from most national underwriters. If they are not, please choose which endorsement you would like to review and contact us by e-mail. We will fax that endorsement along with the prerequisite underwriting guidelines to your attention. Please give us a fax number and a billing address in your e-mail. This section is now continued on the Forms link.


 MANAGING RISK THROUGH THE USE OF ENDORSEMENTS

Title insurance is essential in every commercial real estate transaction, whether it be a purchase, mortgage or substantial leasehold.  However, It is important that the insured, particularly the attorneys, the owner(s) and lenders, be conversant with both the benefits and limitations of title Insurance coverage.  The must understand:

Therefore, a brief overview of title insurance fo expanded by ALTA on October 17, 1998 when, at the end of the Annual Convention in New York City, the ALTA Forms and Practices Committee approved adoption of the Homeowner's Policy of Title Insurance for a One-to-Four Family Residence. This policy was initially approved in "draft" form by the committee at a joint meeting of the Forms and Title Counsel Committees in Denver, May 17-19, 1998. The residential policy form change is a result of competing underwriters forms, most notably the "Eagle Policy" introduced earlier by First American. Prior to the ALTA meeting the "second generation" Eagle Owner's Policy was previously approved by the California Land Title Association [CLTA] at its annual summer meeting].

The practice of obtaining additional coverage was a response to the inclusion of the preprinted exclusions and general exceptions contained in the policy form. In that manner the title insurer undertakes to limit, restrict or eliminate coverage otherwise afforded by the insuring clauses of the policy by the inclusion of exclusionary clauses and exceptions to coverage. In order to understand the concept of "extended" coverage it is essential that you have a clear understanding of policy content including by way of illustration what is excluded and excepted in the "standard coverage" ALTA title policy.


POLICY FORMAT

The title insurance policy is issued in a standard format promulgated by the American Land Title Association. The Policy is divided into several parts. The Policy consists of a foldover cover with the exclusions, stipulation and conditions set forth on the inside of the jacket. Within the jacket are inserted the various schedules and endorsements. The statement of coverage provided by the insurer is set forth on the face page of the policy .


POLICY COVERAGE

Matters covered to the extent they are not excepted in Schedule B or excluded by the Exclusions from coverage are set forth in the face page insuring clauses and the insuring clause preamble. More particularly, the face page of the policy describes the coverage afforded by the policy, subject to the exclusions, exceptions, conditions and stipulations, all of which are set forth in detail on the inside of the jacket.


Six Elements of a Title Insurance Policy.

(a) Insuring Clauses: Contain the contractual provisions which obligate the Company for damage sustained by the insured which arise from matters listed in these clauses.
[Practice aid: Ellis, Title Insurance Law Handbook, pp. 211-250 & 611-646; Gosdin, Title Insurance, A Comprehensive Overview § 3A]
(b) Exclusions: List matters which may be included within the broad language of the insuring clauses but for which the Company does not assume liability.  [Practice aid: Ellis, pp. 309-371& 625-650; Burke, Law of Title Insurance, chap. 4; Gosdin, § 3B; Nielsen, Title & Escrow Claims Guide, chap. 11; Palomar, Title Insurance Law, chap. 6]
(c) Conditions & Stipulations: List matters which are interpretive of the other Policy provisions; states how a claim should be made under the Policy and define the extent of the Company's obligation in connection with the claim.
[Practice aid: Ellis, Policy Tables; Burke, chap 5; Gosdin, § 3E; Palomar, chap. 8]
(d) Schedule A: Identifies the following:

(i) the insured

(ii) the estate or interest in the land being insured

(iii) the owner

(iv) the land

(v) the amount of insurance

(vi) effective date of the Policy

(vii) the mortgage being insured (Loan Policies)

[Practice Aid: Gosdin, § 3C; Nielsen, chap. 7; Palomar, chap. 4]
(e) Schedule B: List matters which are within the insuring clauses, but for which the Company does NOT assume liability and which are not listed in the exclusions from coverage. This is where the "special exceptions" appear for which endorsements may be obtained. Special exceptions may be defined as matters known or knowable from an examination of the public record.
[Practice aid: Gosdin, §3D]
(f) Endorsement: is attached to the Policy which extends or alters its coverage or interprets its provisions.
[Practice aid: Gosdin, Exhibit 6]

NB For a further and more detailed discussion of The Basics of Title Insurance forms please refer to Title Insurance:  The Lawyer's Expanding Role, published by the Real Property, Probate and Trust Law Section of the American Bar Association, reprinted in the lawyers supplement to The Guarantor, January/February 1986 and March/April 1986 editions, published by Chicago Title Insurance Company or refer to the PLI seminar program materials listed in/on the Bibliography link.

THREE CRITICAL STAGES OF TITLE INSURANCE

F.  Definition of insured: Conditions and Stipulations C~S 1:

G.  Definition of "Knowledge or Known": C~S 1(c);

H. Definition of "Public Records": C~S 1(f);i 

I.  "Continuation of Coverage": C~S 2

NB This material was covered in much greater detail in two previous seminars. See Maximizing the Benefits of Title Insurance, presented to the Title Insurance Litigation Committee, Tort and Insurance Practice Section, American Bar Association, Spring 1996 title Insurance Claims Seminar, Cleveland, Ohio, May 31, 1996; and at the ALTA Second Annual Legal Symposium, Omni Hotel, New Orleans, Louisiana, May 20, 1997 by John L. Hosack and John C. Murray. See also: Title Insurance - The Commercial Lender's Perspective, located on the First American website.

Although endorsements may be available in many jurisdictions to modify or remove a foregoing concerns, counsel for the insured must first understand and appreciate: 

  • What the "standard coverage" title insurance coverage covers and what it does not;

  • The distinction between "standard" and "extended" coverage policies 

COVERED RISKS INCLUDING EXAMPLES OF MATTERS OF AN EXCLUSIONARY NATURE FOR WHICH ENDORSEMENTS MAY BE OBTAINED

Environmental laws are specifically excluded from coverage. Counsel for the purchaser/developer or lender may not wish to be exposed to the "superlien" statutes, resulting in the request for the ALTA Endorsement Form 8.1.

Another exclusion from coverage involves matters known to the insured but not disclosed to the insurer. This would include "imputed knowledge" which may become an issue where a title insurer is asked to insure the interest of in incoming partner or shareholder. Counsel for the insured may require a Non-imputation Endorsement. Another issue which may arise in the same insurance scenario is the possibility of partnership dissolution resulting from partnership changes. Counsel for the insured may require issuance of Fairway or Partnership Endorsements.

Commercial transactions frequently involve zoning matters. Zoning is specifically excluded from coverage in the ALTA policies. Counsel for the developer or lender may not want to assume the risk that the property cannot be used for its intended purpose. In that case a Zoning Endorsement may be requested. The same exclusion may apply to condominium development. Counsel may additionally want assurance that the condominium has been properly created under the relevant statute(s), in which case a Condominium Endorsement may be requested.

Depending upon the nature of the transaction a lender may be particularly concerned with exclusions dealing with doing business laws, consumer protection and truth in lending laws, or usury law. Consequently, counsel may insist upon obtaining Doing Business, Truth-in-lending [ALTA Endorsement form 2] or Usury Endorsements.

EXAMPLES OF GENERAL EXCEPTION ENDORSEMENTS

Schedule B-2 of the ALTA Commitment to Insure contains 5 preprinted exceptions to title, commonly referred to as "general exceptions". When these exceptions are carried over and appear as exceptions in Schedule B-I of the title insurance policy you have what is referred to as "standard coverage" within the industry. This, by the way, is the standard by which the premium rate structure and charges are determined. When the preprinted general exceptions appearing in the title commitment are removed and do not appear in the title policy as issued you have the beginnings of an "extended coverage" policy. Competitive pressures have forced title companies in most jurisdictions to remove the "general exceptions" provided an acceptable survey and affidavits are furnished. Where the policy is issued with the "general exceptions" they may be removed by issuance with the policy of the Deletion of General Exceptions Endorsement.

The survey as presented may cover more than one parcel of land. Counsel may request a perimeter description and assurance that there are no gaps or gores between the parcels. This may be satisfied by issuance of a Contiguity Endorsement. In the event that a survey discloses a building encroachment resulting in a special exception, the title insurer may be willing to insure over the encroachment providing it is relatively minor in nature and has been in existence for an extended period of time. This may be done by issuing an Encroachment Endorsement. This endorsement does not guaranty the right to rebuild in the same location in the event of casualty loss.

EXAMPLES OF SPECIAL EXCEPTION ENDORSEMENTS

In addition to addressing matters relating the general exceptions and policy exclusions, another important function of endorsements is to address coverage issues not otherwise contemplated by the policy resulting from specific factual situations resulting in the inclusion of "special exceptions" in Schedule B of the Policy. This may include issues of access, easements or easements appurtenant which may be essential to the use of the property. Counsel may require an Access or CLTA 103.7 Endorsement; Easement Endorsement; Easement Encroachment Endorsement or a Tax Deed extinguishing easement endorsement.

In the event examination of title discloses restrictive covenants of record imposing restrictions on the use or development of the property resulting in a special title exception counsel for the insured may require assurance that same will not result in a forfeiture or reversion of title or affect the validity, priority or enforceability of the lien of the insured mortgage. This may be accomplished issuing a Restrictions Endorsement. Lenders counsel also frequently require special loan policy endorsements where special exceptions to title appear. These relate to insuring against the impairment of the insured mortgage and include requests for Comprehensive Endorsement(s) and the ALTA Endorsement Form 9 [REM Endorsement].

EXAMPLES OF SPECIAL LOAN POLICY ENDORSEMENTS

Other special Loan Policy Endorsements address various creative financing techniques including Equity Participation. With regard to equity participation concerns counsel for the lender may require Shared Appreciation [SAM], Non Merger and Recharacterization Endorsements. Depending upon the nature of the proposed loan transaction other endorsements frequently required by lenders and their counsel may include one of the following: ALTA Endorsement Form 6, Balloon Mortgage Endorsement, Convertible Mortgage Endorsement, Letter of Credit Endorsement, Reverse Annuity Mortgage Endorsement, or Revolving Credit Endorsement.

COVERAGE LIMITATIONS IMPOSED BY CONDITIONS AND STIPULATIONS

The standard ALTA title insurance policy is further limited by the preprinted section entitled "Conditions and Stipulations". Some Lawyers feel that the definition of "insured" is too limited in the case of a corporate title holder; if the insured is a partnership and the partners of the partnership change or in the case of title Insurance on Transfers to Living Trusts. This issue has been an occasional topic of conversation on the DIRT list serve and the subject of numerous law articles, the most noteworthy of which may be: Commercial Transactions: Who Does the Title Insurance Cover? by Marc Weinreich, Probate and Property, March/April 1992; Title Insurance, Avoiding Surprises Over Coverage, by Oscar H. Beasley, 1994; Who is Insured Under a Title Insurance Policy, by Mathew J. Keller, Jr., Regional Counsel, CTIC, Lawyers Supplement to the Guarantor, May/June 1996 vol. 5 no. 3; Limited Liability Company's, Corporations, General Partnerships, Limited Partnerships, Joint Venturers and Trusts, Who Does the Title Insurance Cover? by Joyce D. Palomar, RPP&TJ, vol. 31 No. 4, Winter 1997; Title Insurance For Estate Planning Transfers by Jonathan Rivin and Thomas J. Stikker, Probate and Property, May/June 1998 and, most recently: What Every Title Person Needs to Know About Title Insurance in Mergers and Acquisitions by Steven H. Winkler, The Connecticut Law Tribune; reprinted with permission in Title Management Today, June 1999, Vol. 9, No. 6.; Palomar, Title Insurance Law, section 8.08.

There are a number of printed transaction endorsements that attempt to address the issues and problems of a business reorganization and whether the post transaction owner is deemed an insured. These are variously referred to as an Assignment of Policy Endorsement, Successors and Assigns Endorsement, Partnership Change Endorsement, Additional Insured Endorsement, Change of Insured Endorsement, Change of Insured with Assignment Endorsement. Depending upon the nature of the transaction any one of these may be requested by cou endorsement fore state department of insurance in a monthly filing of special charges and forms. The most frequently requested California Endorsement forms to be used in conjunction with ALTA policies include the following:

STANDARD ENDORSEMENT REQUESTS