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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.
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">
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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:
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];
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:
the protection afforded by a title insurance policy is limited;
what their title insurance policy does not cover;
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]. 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 There are three critical phases to the title insurance underwriting process: the loan
documentation phase, the modification or workout phase, and the litigation or policy claim phase. In this instance we are
primarily concerned with the first phase and it is to that which we direct our attention. However, we note that in phase two
the lender would be concerned with whether (i)there was a "pre-negotiation" agreement in existence relating to the avoidance
of policy exclusion 3; (ii)the appropriate modification endorsement obtained;
(iii)the creditors' rights exception can be removed.
In phase three, before tender of claim by the insured to the title insurer, the lender becomes concerned with the "covered"
and "uncovered" causes of action in the Policy. NB the language of the 1970 and 1992 Policies differ.
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]
THE LOAN DOCUMENTATION PHASE
In the loan documentation phase counsel for the lender is principally concerned with the selection of appropriate coverage. This concern includes five issues:
1. Was the proper loan policy selected? NB a comparison of the various loan policies may be found in
Gosdin, Title Insurance, A Comprehensive Overview, at exhibits 4 & 5.
2. Were the proper endorsements requested? See STANDARD ENDORSEMENT REQUESTS below and
Gosdin, supra., at exhibit 6.
3. Were proper arrangements made for coinsurance and reinsurance? See REINSURANCE link.
4. Was there a recognition of risks which are not covered by title insurance? See "What Mortgage Bankers Should Know About Title Insurance" by Albert Rush,
SVP, FATICO, located at www.firstam.com, select the Archives/Reference application and click on the Articles link.
5. Was there a recognition of risks which are covered by title insurance? See the FORMS link on this website;
Gosdin, supra., at exhibit 6 and Hart, Instructions as to the Use of Title Insurance Endorsements. Examples below.
RISKS NOT COVERED BY TITLE INSURANCE
Generally, any claim against title which is adverse to the interest of an insured lender is covered by the lender's policy, unless:
1. it is not covered by the insuring provisions, nor any modification of endorsement of the policy;
2. it is excluded from coverage by the printed Exclusions From Coverage contained in the policy; or
3. it is excepted from coverage by the Exceptions From Coverage contained in Schedule B of the policy.
James M. Pedowitz, former Chief Counsel of Ticor Title Guarantee-New
York, recently prepared an excellent article entitled What Title
Insurance Does Not Cover, for the New York State Bar Association,
Real Property Section- Recommended as required reading, It was reprinted
with permission in Title Management Today, May 2000, Vol. 10
NO.5. In that article he listed a number of matters not insured by the
ALTA policies now in use for commercial transactions. Examples of
such matter for which no insurance is provided under a "Standard
Coverage" policy include:
the value of property;
the manner in which the property can be used, or that the property can be used for any economic purpose at all;
that a building permit can be obtained to build or to alter the property;
that absent an appropriate zoning endorsement (which is not available in some states), that there is no zoning violation, unless notice thereof has been recorded it the "public records";
that even if the property is zoned for an intended use, that there exist no other governmental requirements regarding intended use, such as permits other governmental requirements regarding intended use, such as permits and, if required, have been obtained or kept in force;
that an insured mortgage will be paid of that a mortgage foreclosure will not be delayed, or when finally completed will yield any proceeds to the insured;
that the insured premises are not contaminated with hazardous waste materials, or that no environmental laws have been violated, unless the violation is noted in the "public records" as defined in and limited by the policy;
that even if an undisclosed defect, lien or encumbrance affecting the property exists as a matter of record title, that it will result in a compensable "loss" payable under the policy;
that damage or loss caused by activities on adjacent property, such as flooding, lack of subsurface support, or disturbance of the surface by reason of mineral exploration or removal would be compensable under the policy;
that any well, cesspool or septic system servicing the premises lies within the perimeter lines of the insured premises; or that utility lines servicing the premises will continue to be permitted to do so unimpaired;
that a title problem no excepted in Schedule B of the policy and which causes a loss to the Insured, but which is timely cured by the title insurer, will be compensable to the insured.
Additional
policy matters affecting coverage to be considered include the
following:
A. The Creditors' Rights Exclusion
quare: whether the title insurer accepts the risk for losses resulting from creditors' right issues if the policy
does not contain a creditors' rights exclusion. The 1970 ALTA Loan Policy (rev. 10-17-84) does not contain such an exclusion. Lenders
argue that creditors' rights coverage exists absent a specific policy exception or exclusion and they base their argument on the fact
that the 1987 and 1992 policies were amended to contain such an exclusion. This argument is more particularly addressed in the
Chapter 5 of Collier Real Estate Transactions and the Bankruptcy Code. Contra., see Chicago Title Insurance Company
v. Citizens and Southern National Bank, 821 F. Supp. 1492 (N.D. Ga. 1993). NB in some states this form of coverage is prohibited.
B. The Survey Exception [see Gosdin, supra., page 45]
C. The "Police Power" Exception [see Gosdin, supra., page 17]
D. The "Created, Suffered, Agreed to or assumed" Exclusion [see Gosdin, supra., page 21; Ellis, Title Insurance Law Handbook, pages 309-371;
Palomar, Title Insurance Law, Chapter 6]
E. Loss of Policy Coverage for "Post Policy Matters" [see Mark Twain Kansas City Bank, et al. v Lawyers Title Insurance Corporation, 807 F. Supp. 85 (1992)]
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
Address Endorsement [CLTA Form 116];
Assignment Endorsement [CLTA Endorsement 104.1],sometimes referred to as the Assignment of Beneficial Interest or Assignment of
Mortgage Endorsement;
Comprehensive Endorsement [CLTA Endorsement 100];
Contiguous Land Endorsement [CLTA Form 116.4];
Easements [CLTA Form 103.1 and 103.3];
Encroachment or Development [CLTA Endorsement 102 series];
onal 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 counsel for the insured.
As you can see endorsements may be available for practically each of the policy's elements. For a further discussion of the differences between "standard" and "extended" coverage see that chapter set forth in
The Title Insurance Underwriting Process, and Beasley, Highlights of Residential and Commercial Coverage, part I C, Extended v. Standard Policies.
Some endorsements have been created for use with the ALTA policy forms and may be found in the ALTA Policy Forms Handbook. Some states, through various state land title organizations in conjunction with the approval of various state regulatory agencies, have created endorsements for use with ALTA policy forms and these may be found in the various state Rate Manuals. Other states have created endorsements for use with specified policies approved for use within the particular state, such as the California, Oregon and Texas. These may be found in the CLTA Policy and Indorsement Forms Manual, the Oregon Land Title Association Manual and the Basic Manual of Rules, Rates and Forms for the writing of Title Insurance in the State of Texas.
The most prolific market for both drawing and using endorsements is California, where somewhere in excess of 126 endorsement forms exist. The CLTA endorsement forms list may be found below and on the Title Law Annotated website located at http://www.
titlelawannotated®. com . They are grouped into categories and provide insurance for various situations within each category. These endorsements are promulgated for use by the
CLTA. These endorsements are filed by the CLTA with the California Department of Insurance, and each of the member companies may, if they so desire, use any of the filed endorsements. This promulgated structure is followed for the most part in all "filed form-filed rate" states, including Florida, New Jersey, New York and Pennsylvania. Take note however, that, just to make things interesting, no state uses the same numerical sequence for its forms. Many of the major California styled endorsements have become popular with developers, lenders and their counsel and are now requested nationally. Whether they may be used in a particular state depends upon the law and the insurance regulations of the particular state. In those cases where they are not a permitted "filed form" the coverage language as been tracked and tailored into a form of special endorsement for reproduction on a blank endorsement form. In some states where the coverage is not specifically prohibited by a particular rate rule, it is required that these forms of coverage, when used, must be filed with the 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
Address Endorsement [CLTA Form 116];
Assignment Endorsement [CLTA Endorsement 104.1],sometimes referred to as the Assignment of Beneficial Interest or Assignment of
Mortgage Endorsement;
Comprehensive Endorsement [CLTA Endorsement 100];
Contiguous Land Endorsement [CLTA Form 116.4];
Easements [CLTA Form 103.1 and 103.3];
Encroachment or Development [CLTA Endorsement 102 series];
Foundation Endorsement [CLTA Endorsement 102 series]
Mandatory Advance [CLTA Form 122 series];
Mechanics Lien Endorsement [CLTA Endorsement 101 series];
Mortgage Modification Endorsement [CLTA Form 110.5];
Optional Advance Endorsement [CLTA Endorsement 108.8];
Policy Modification Endorsements [CLTA 107 Form series; CTI website];
Public Street Access [CLTA Form 103.7];
Reverters, right of re-entry or powers of termination arising in covenants[CLTA Endorsement 100.12];
Revolving Lines of Credit;
Seattle Endorsement: amending Loan Policy Ex cl. 3(a) and underfunded construction concerns [see Real Estate Law Journal vol 16:291, 1988]
Subdivision Map Endorsement [CLTA Form 116.7];
Survey Endorsement [CLTA Form 116.1];
Variable Interest Rate [CLTA Forms 111.5, 111.8, 111.10 & 111.11]
NB For a good overview of these endorsements forms see paper presented in 1994 by Oscar H. Beasley,
SVP, First American entitled Highlights of Residential and Commercial Coverage part II.
In
addition to the Standard Endorsement Requests set forth above The Practicing Law
Institute [PLI] has listed the additional Title
Insurance Endorsements For Commercial Transactions in Chapter 2 of
their text Title Insurance, 2001, Pub NO-0087-2001. An explanation of and
underwriting guidelines may be found beginning on page 59 of that text or
by referring to First American Underwriting Library web site located at www.firstam.com
or the Steward Title Virtual Underwriter web site located at www.stewart.com
.
The
Title Insurance Endorsements for
Commercial Transactions have been separated into the standard First
American categories. The Are As follows:
Use Endorsements
Separate Tax Parcel
Zoning [ALTA 3 & 3.1 and CTI Zoning Endorsements 3 & 3.1 as modified
Restrictions, Encroachments and Minerals [ALTA 9, CLTA 100.12, TIRBOP 1030 SERIES]
Location
[various CTI location Endorsement forms 1-8a inclusive. See 1996 CTI
Endorsement Manual on their web site www.ctt.com
Land Abuts Street [CLTA Form 103.7]
Contiguity [CLTA Form 116.4]
Survey [CLTA Form 116.1]
Lender Endorsements
First Loss Payable [TIRBOP 1110]
Last Dollar [TIRBOP 1120]
Revolving
Credit [CLTA Forms 108.10, 111.10 and 111.11; TIRBOP PA 1010]
Anti-Taint
Usury
[see also CTI Policy
Modification Endorsement 2B]
Doing
Business
Assignment
of Beneficial Interest [ABI End]
Environmental
Protection Lien [ALTA Form 8.1, TIRBOP PA 900]
Construction
Loan Pending Disbursement [see also CTI
Interim Mechanics Lien Endorsements]
Construction
Loan Disbursement
Construction
Loan – Reinstatement of Paragraph 7
Tax
Foreclosure subordinate to Easement
Assignment
of Leases and Rents
Entity-endorsements
Non-Imputation
[TIRBOP 1055; see also The Law of
Titles In Pennsylvania, Chapter 29A and Title Insurance Underwriting,
Principals and Exception Language]
Fairway
[TIRBOP 1040 & 1041]
Successor
Insured [see also CTI Policy
Modification Endorsements 6, 7, 7A & 16]
Additional
[CLTA Forms 107.9 & 107.10]
Measure of Damage Endorsements
Immovable
Fixtures
Going
Concern
Tie-In/Aggregation
{ALTA Form 12]
Special Risk Endorsements
Deletion
of Creditors Rights Exclusion
Recharacterization
Contingent
Interest and Shared Appreciation
Convertible
Mortgage/Mezzanine Financing
Anti-Clogging
Affidavit
Sale-Leaseback
Synthetic
Leasing
Practice
Note and Suggestion:
The underwriting requirements for these endorsement forms and related forms
may be found in Hart, Instructions as to the Use of Title Insurance
Endorsement; Gosdin, Title Insurance, A Comprehensive Overview and on the
Stewart Title Virtual Underwriter located at www.stewart.com
A
Word of Caution by the Editor: All the foregoing endorsements require Home
Office Approval and may also require approval of all facultative reinsurers.
An additional risk premium may be imposed if provided for by the Rate Rules or
they may be imposed by the reinsurer before it will agree to accept the risk.
Exercise caution.
Another important consideration in the selection of coverage is selection of the appropriate loan policy. A comparison of the various loan policies may be found in the chapter entitled Policy Comparison in
Title Insurance Underwriting Principals and Exception Language. That chapter highlights the policy form changes in the insuring provisions, definition of public records, exclusions from coverage and inclusion of the creditors' rights exclusion. See also
Gosdin,
Title Insurance, A Comprehensive Overview, exhibits 4 and 5.
Once you have decided what title insurance coverage provisions are appropriate for a particular transaction you must determine what forms of coverage are available from the title insurer and under what conditions. Not all insurers are alike. You must also determine whether the requested coverage is permissible in a given jurisdiction or prohibited by the state insurance regulatory agency. This may require grouping certain multi-site transactions into "clusters". You must also consider the potential for the imposition of an additional risk premium because of the additional "off-record" work required or the risk involved. If the amount of insurance requested for the proposed transaction exceeds the self imposed or statutory single risk limit of the primary insurer you may have to contend with the possibility that a reinsurer may view the endorsement risk differently and impose further requirements before agreeing to the requested coverage.
ENDORSEMENTS VIEWED FROM THE UNDERWRITER'S PERSPECTIVE
An endorsement is attached to a title policy when it is the company's intention to alter or modify the provisions of the policy so that the insured receives a greater coverage, and
the company has incurred a greater liability, than existed under the unendorsed title policy. Do not use an endorsement to limit the liability under a title policy without the prior approval of Home Office Counsel.
Additional coverage is generally furnished by an endorsement to the policy. All endorsements are to be on printed company forms. In some jurisdictions another method of extending the coverage of a policy is through the use of affirmative language in Schedule B following the inclusion of a particular special exception. While this practice was common in many states, it has fallen into disfavor in most jurisdictions.
Printed endorsement forms are provided for many purposes when the frequency of use appears to justify it. Do not change the printed provisions of these endorsements without permission of Divisional Counsel or Region Counsel.
Blank endorsement forms are to be used when a printed form is not applicable or available. Certain endorsements, such as Variable Rate Mortgage Endorsements, Condominium Endorsements, Environmental Protection Lien Endorsements etc., are routinely requested by lenders for loans which fit into those categories, and are, in fact, required by certain government agencies including FNMA. They are considered "standard" endorsements by those agencies. However, these "standard" endorsements should not be issued without an independent determination by the examining agent that such Endorsement is appropriate. For example, the agent must examine the note and mortgage being insured and determine that the instruments conform to local requirements for enforceability of variable rate mortgages before giving a Variable Rate Endorsement. Guidelines for the use of each endorsement must be followed.
Endorsements required for matters of survey, easements, encroachments and access to a public road require careful examination of a current survey, preferably one prepared in accordance with minimum
ALTA/ACSM standards. If the survey reveals any matters to which exception should be taken, such exception should be set forth on Schedule B, even if affirmative assurance is later given by an Endorsement. Any encroachment which is more than "de
minimus" must be approved by the Regional or Home Office before any affirmative assurance against loss is given.
EXTRA HAZARDOUS RISKS
Coverage over unfiled Mechanic's Liens, Restrictive Covenant violations, Navigational Servitude, Tidelands, Sovereignty Rights, Subsurface rights, Subsidence, Prior Liens and Encumbrances, Bankruptcy, Insolvency, Creditor's Rights, Survey Boundaries, Major Encroachments, Usury, Zoning, Non-Imputation of Knowledge, Indian Land Claims, Lis
Pendens, Litigation, Environmental Protection Superliens, Truth in Lending and Leveraged Buyouts, are all considered extra hazardous risks and no affirmative insurance should be given, either by omission or by issuance of affirmative endorsement, without first having received prior approval from the appropriate supervisory underwriting office. Some of these risks also require payment of an additional premium. Consult with the Regional Office or Home Office Underwriting Department if you have atext, title insurance policies were [and still are] designed primarily for use in simple types of real property transaction involving a lease, sale or mortgage or real estate and, the premium rate structure and charges are thereby determined. Today however, a great many transactions do not fall within the general or simple category. If a transfer or loan transaction does not fit into this category, then policy coverage needs to be added by endorsement to tailor the coverage to meet the customer's needs. In view of the increasing need for underwriting of a creative nature, the use of endorsements has and will continue to increase. From the insured's position each special problem needs to be addressed early on and brought to the attention of the title company personnel so that the best coverage possible may be obtained. From the title company's position all transactions should be reviewed with the customer by title personnel so that the best possible coverage can be made available. Unless a special situation is brought to the attention of the customer by the company, or visa versa, for which special coverage may be needed, that need may not be readily apparent. This may lead to costly future litigation. The more complicated the transaction, the more closely it must be scrutinized, and the greater the need for the proper drafting of the endorsement covera jurisdictions.
Printed endorsement forms are provided for many purposes when the frequency of use appears to justify it. Do not change the printed provisions of these endorsements without permission of Divisional Counsel or Region Counsel.
Blank endorsement forms are to be used when a printed form is not applicable or available. Certain endorsements, such as Variable Rate Mortgage Endorsements, Condominium Endorsements, Environmental Protection Lien Endorsements etc., are routinely requested by lenders for loans which fit into those categories, and are, in fact, required by certain government agencies including FNMA. They are considered "standard" endorsements by those agencies. However, these "standard" endorsements should not be issued without an independent determination by the examining agent that such Endorsement is appropriate. For example, the agent must examine the note and mortgage being insured and determine that the instruments conform to local requirements for enforceability of variable rate mortgages before giving a Variable Rate Endorsement. Guidelines for the use of each endorsement must be followed.
Endorsements required for matters of survey, easements, encroachments and access to a public road require careful examination of a current survey, preferably one prepared in accordance with minimum
ALTA/ACSM standards. If the survey reveals any matters to which exception should be taken, such exception should be set forth on Schedule B, even if affirmative assurance is later given by an Endorsement. Any encroachment which is more than "de
minimus" must be approved by the Regional or Home Office before any affirmative assurance against loss is given.
EXTRA HAZARDOUS RISKS
Coverage over unfiled Mechanic's Liens, Restrictive Covenant violations, Navigational Servitude, Tidelands, Sovereignty Rights, Subsurface rights, Subsidence, Prior Liens and Encumbrances, Bankruptcy, Insolvency, Creditor's Rights, Survey Boundaries, Major Encroachments, Usury, Zoning, Non-Imputation of Knowledge, Indian Land Claims, Lis
Pendens, Litigation, Environmental Protection Superliens, Truth in Lending and Leveraged Buyouts, are all considered extra hazardous risks and no affirmative insurance should be given, either by omission or by issuance of affirmative endorsement, without first having received prior approval from the appropriate supervisory underwriting office. Some of these risks also require payment of an additional premium. Consult with the Regional Office or Home Office Underwriting Department if you have any question with regard to these matters.
You should determine that the issuance of any of the foregoing coverage is permitted by the insurance laws and regulation of the state where the land is located and that the endorsement form being used has also been approved if the state insurance laws and regulations require prior approval. If a rate filing is required in that jurisdiction then a charge in accordance with such rate filing must also be made. Please contact your manager, agency representative or Home Office Underwriter for a determination of such charges.
Any and all requests for endorsements or affirmative coverage over matters recognized as unusual or extra-hazardous must be referred to the underwriters Home Office for consideration and approval prior to their inclusion with the policy.
PRACTICE SUGGESTIONS REGARDING SPECIAL ENDORSEMENT REQUESTS
The continued increasing complexity of real estate transactions requires the need for creative underwriting through the use of special endorsements. This use will increase rapidly, and as an aid to the underwriter, a description of some of the more generally used endorsements are included.
As previously noted in "Standard v. Extended Coverage" chapter of the Underwriting Process text, title insurance policies were [and still are] designed primarily for use in simple types of real property transaction involving a lease, sale or mortgage or real estate and, the premium rate structure and charges are thereby determined. Today however, a great many transactions do not fall within the general or simple category. If a transfer or loan transaction does not fit into this category, then policy coverage needs to be added by endorsement to tailor the coverage to meet the customer's needs. In view of the increasing need for underwriting of a creative nature, the use of endorsements has and will continue to increase. From the insured's position each special problem needs to be addressed early on and brought to the attention of the title company personnel so that the best coverage possible may be obtained. From the title company's position all transactions should be reviewed with the customer by title personnel so that the best possible coverage can be made available. Unless a special situation is brought to the attention of the customer by the company, or visa versa, for which special coverage may be needed, that need may not be readily apparent. This may lead to costly future litigation. The more complicated the transaction, the more closely it must be scrutinized, and the greater the need for the proper drafting of the endorsement coverage. Lenders must be encouraged to disclose all of the facets of the loan transaction, so that any unusual problems can be addressed before the time for closing the transaction, recording the documents and issuing the policy.
CONCLUSION
The endorsements discussed herein will assist the agent and title attorney in tailoring the policy to fit specific situations. Remember however, that as the transactions become increasingly complicated, "non-standard" or special endorsements are required. The endorsements named here are only a few of the many endorsements that fit into this category. The names and terms of the endorsements will vary from company to company, region to region or state to state. Some of these endorsements will not be available in all states because of the varying regulatory requirements. Before issuing any special endorsement, determination must be made with regard to whether the specific underwriter will agree to issue the endorsement and whether an additional premium will be charged, either by the underwriter or any
reinsurer.
The special commercial title insurance endorsement coverage forms below set forth may, subject to regulatory requirements, be available in various states. To determine availability you need to contact your title insurance underwriter or your state land title association offices. In accordance with the foregoing, the remainder of this text shall be devoted to the presentation of underwriting guidelines and issues to be considered when undertaking to provide special endorsement coverage. At this time please proceed to the FORMS
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