ALTA Endorsements You Should Know and Love 2013 CLE Seminar Getting It Done, Doing it Right Policy Endorsements Endorsements to a policy amend the coverage provided by the policy Usually add coverage Sometimes remove coverage 2
ALTA 3.2 Zoning ALTA 9.7 Encroachments Minerals & Subsurface Rights ALTA 9.8 CCR s (owner) ALTA 35.3 Minerals & Subsurface Substances Land Under Development ALTA 36.4, 36.5 Energy projects Based on detailed review of specified Plans & Specs & attorney s certification! 3 ALTA Policy EXCLUSION FROM COVERAGE: Governmental Regulation Any law, ordinance, permit, or governmental regulation (including those relating to building and zoning) restricting, regulating, prohibiting, or relating to: (i) the occupancy, use, or enjoyment of the Land; (ii) the character, dimensions, or location of any improvement erected on the Land; (iii) the subdivision of land; or (iv) environmental protection; or the effect of any violation of these laws, ordinances, or governmental regulations. Any governmental police power. Zoning & Subdivision 4
ALTA Endorsement Forms 3, 3.1 & 3.2 (Zoning) ALTA 3 Zoning Classification at least 2 months & Specific Permitted Uses (cited from ordinance) ALTA 3.1 (Improved Land) Same as ALTA 3 plus Physical Characteristics (i) land area (ii) floor space area (iii) setback (iv) height (v) parking spaces ALTA 3.2 (Land Under Development) Same as ALTA 3.1 PLUS identified Plans 5 Requirements for Zoning Endorsements How is Zoning Information Certified Approved Attorney Zoning Letter from County Zoning Office Engineering/Surveying Firms Combination of Zoning Regulation and Survey 6
Zoning Permitted Uses 7 Parking and Setbacks 8
ALTA 9 Series & Nationwide v. Commonwealth 2004 Nationwide Life Ins. Co. sued Commonwealth Land Title Ins. Co. alleging loss under Section 1(b)(2)(iv) of ALTA 9 Cause of Action Nationwide alleged there was a right of prior approval in the covenants of a shopping center that contained the land acquired by foreclosure 9 Nationwide v. Commonwealth ALTA 9 Section 1(b)(2)(iv) Company insures against loss or damage sustained by reason of 1. The existence at Date of Policy of any of the following: (b) Unless expressly excepted in Schedule B (2)Any instrument contained in Schedule B as containing covenants, conditions or restrictions on the land which, in addition (iv) provide for an option to purchase, a right of first refusal or the prior approval of a future purchaser or occupant 10
Nationwide v. Commonwealth Master Declaration/Declaration of Restrictions Buyer shall not change use of property from variety or general merchandise without prior written consent of seller Policy Exceptions for Master Declaration and Declaration of Restrictions (general not for specific matters) 11 Nationwide v. Commonwealth Oct. 19, 2005 US District Court finds for Commonwealth Exception in Sch. B for instrument containing covenants, conditions, and restrictions. Aug. 31, 2009 US Court of Appeals, Third Circuit reverses/remands Commonwealth bore burden of detecting restrictions stated in declaration and had to list those restrictions explicitly. 12
Nationwide v. Commonwealth Feb. 3, 2011 ALTA adopts new revisions to 9 series Feb 17, 2011 District Court (on remand) ALTA 9 provides insurance coverage for any loss arising from any instrument referenced in Schedule B that contains covenants, conditions and restrictions, as well as, among other items, an option to purchase, right of first refusal, a prior approval of a future purchaser or occupant. The endorsement does not restrict its coverage to specific provisions within the instrument. 13 Nationwide v. Commonwealth April 2, 2012 New revisions adopted Define Covenants, Improvements and Private Rights (9.6 06 only) Spreads out coverages thru the 9 series CC&R Coverage (b) A violation on the Land at Date of Policy of an enforceable Covenant, unless an exception in Schedule B of the policy identifies the violation 14
Nationwide v. Commonwealth Private Rights Coverage Means (i) a private charge or assessment, (ii) option to purchase, (iii) a right of first refusal; or (iv) a right of prior approval of a future purchaser or occupant. Coverage enforcement of private right results in the invalidity, unenforceability or lack of priority of the lien of the Insured Mortgage, or causes a loss of the Insured s Title acquired in satisfaction or partial satisfaction of the indebtedness ALTA 9.6 06 Loan only 15 ALTA Endorsement Form 9, 28 and 35 SERIES NOTE: The ALTA 9 series of endorsements were restructured substantially and renamed as applicable, effective 4/2/12, segregating the 4 primary components of the earlier ALTA 9 series forms: Coverage Lender Owner Covenants, Conditions & Restrictions Private rights (assessments, options, rights of first refusal & rights of prior approval of purchasers or occupants) 9 06 9.3 06 9.7 06 9.6 06 9.1 06 (Unimproved) 9.2 06 (Improved) 9.8 06 (Land Under Development) n/a Encroachments over boundaries or onto easements Mineral & subsurface rights 9 06 9.7 06 (Land Under Development) ALTA 28 series 9 06 9.7 06 (Land Under Development) ALTA 35 series ALTA 28 series 28: Easement 28.1 Encroachments ALTA 35 series 35: Buildings 35.1: Improvements 35.2: Described Improvements 35.3: Land Under Development 16
ALTA 9 06 It is possible to get the 9 06 without a survey. However, it requires an additional certification convincing the title insurance company that the risk is minimal Receipt of satisfactory verification that there are no violations of any covenants, conditions or restrictions, no violations of any building setback lines, and no encroachments onto the Land or easements of improvements appurtenant to adjoining lands 17 ALTA Endorsement Forms 10 06 & 10.1 06: Assignments Provides assurances to new identified noteholder, not just successors and assigns Information needed: (1) Recorded assignment of note/obligation and deed of trust (2) Delivery of original note/obligation to Assignee through continuous chain of: assignment endorsements on the original note /obligation(s) or allonge(s) attached thereto (3) Attorney s certification of current ownership of the Indebtedness(es) (4) Attorney s certification of Title to the Land through assignment (if datedown) (5) Status of the loan payment current or non performing (6) If either: Mortgage > 1 year old and Land is not 1 4 family residential, OR Assignor is non institutional lender, OR Loan is non performing or delinquent REQUIRES written sworn statement by record owner of the Land that lien of the mortgages(s) is (are) still good and valid, free from defenses, in law and in equity, 18
ALTA Endorsement Forms 11 06 & 11.1 06: Modifications Provides assurances to new identified noteholder, not just successors and assigns (1) Recorded modification of note/obligation and deed of trust, signed/acknowledged by: Record owner(s) of land and spouses Obligors on indebtedness (2) Attorney s certification of current ownership of the Indebtedness(es) (3) Attorney s certification of Title to the Land through Modification (if datedown) (4) Other updated underwriting matters depending on modifications involved and intervening interests, such as mechanics liens, endorsement requirements, recent improvements since survey, subordinate liens & amendments, modifications to the deed of trust or note/obligation itself 19 Loan Workouts Novations NC case law is fairly vague. Novation is a substitution of a new contract or obligation for an old one which is thereby extinguished novation implies the extinguishment of one obligation by the substitution of another. Tomberlin v. Long New Money?? Minor extension or reduction of interest rate?? Anthony Marano Co. 20
Endorsements with Datedowns Date of Policy a defined term in current ALTA policy forms. ALTA Endorsements reference Date of Policy. The Company insures against loss or damage sustained by the Insured in the event that, at Date of Policy... Exclusion for post policy matters Date Down Endorsement: Extends Date of Policy Requires update of title Requires information/certifications/documentation to extend endorsement coverages Includes any additional exceptions/subordinate matter for items not removed to satisfaction of company 21 Editorial Page Who won the race to the courthouse? Did agreement reserve right to modify? Is anyone being prejudiced? 22
ALTA Endorsement Form 14 Future Advance Future Advance Mortgage Requires compliance with N.C.G.S. 45 68 or N.C.G.S. 45 81 Re advances 23 ALTA Endorsement 30.1 06 (Commercial Participation Interest) Approved with minor technical changes Sept. 1, 2012 Commercial version of Shared Appreciation for which ALTA 30 06 is available for Residential 24
Endorsement ALTA Endorsement Forms 32 s & 33 Construction Loan Endorsements Inadequate subordinations or waivers Disbursements to claimant 32 06 Loss of Priority By Lender per itemized list in loan docs 32.1 06 Loss of Priority Direct Payment By Company (or Lender with Company approval) per itemized list in loan docs 32.2 06 Loss of Priority Insured s Direct Payment By Lender 33 06 Disbursements (1) And new waivers OR (2) 32, 32.1 or 32.2 above 25 BEST NEW ENDORSEMENT: ALTA 34 IDENTIFIED RISK COVERAGE All purpose basic format for affirmative coverage, conforming to Alliance case Requirement draft: For issuance of ALTA Endorsement Form 34 06 Identified Risk Coverage (Adopted 8/1/11): Verification of the particular "Identified Risk" for which affirmative coverage is requested, and determination of appropriate coverage based on applicable Company underwriting procedures, including but not limited to review and approval by Company counsel. 26
ALTA 17.2 06: Utility Access Provides coverage if Land does not have access to specified utilities, may include: water service, electrical power service, telephone service, storm water drainage or other service Requires verification : Utility available to service Land by public rights of way or upon easements May need survey and information from utility companies 27 Insuring Access: ALTA 17 (Direct) ALTA 17.1 (Indirect)
Direct vs. Indirect Access Direct Access Property abuts a physically open and public street Nothing prohibits access either legally or physically Indirect Access AKA via an easement Over the lands of another Easement provides access to a physically open and public street 29 The concept: Tract A Direct or Indirect Access? Tract B Direct or Indirect Access? We ll come back to this example in a bit!! 30
Quality of Access Title insurance doesn t cover the quality of access Reasonable vs. Legal vs. Any Pedestrian Access? Access by public waterway? Example 1 Owner buys a four year old house on property that abuts a public right of way and appears to have a driveway winding through trees and across a ditch to get there It turns out that the driveway is on neighboring property He has access just not the access he wants/needs Example 2 Part of Blackacre was condemned for an Interstate Highway. In the condemnation, the State also condemned all rights of abutters to access. While Owner of Blackacre can drive from his property onto the interstate in several locations, he has no LEGAL RIGHT of ACCESS. Example 3 Whiteacre sits on the banks of the Lower Neuse River and does not abut a road or have an appurtenant access easement. Whiteacre does have a legal means of access via the river!!! Claim under the policy for access to a road will be denied. 31 Access Endorsement Requirements ALTA 17 06 Direct Access Abuts a physically open and public street No physical or legal prohibition on access ALTA 17.1 06 Indirect Access Easement abuts a physically open and public street No physical or legal prohibition on access Title matters for tract that the easement crosses Might include deed of trust, marital interest or docketed judgment of record prior to the grant of easement Might also include the super priority lien of ad valorem taxes which (at least theoretically) could wipe out the easement ALTA 17.2 06 Utility Facility (utility access) Land abuts the public right of way in which the utility lines are located; or Land abuts private easements providing utility services Title matters for the tract that the easement crosses 32
On the Preliminary Opinion Access to Public ROW? Direct or Private? Search of Property under Easement? Title Exceptions Endorsement Available? (upon request) Yes Direct.. None ALTA 17 Yes Private Easement No Title exception to lands under easement No Yes Private Easement Yes Exception to listed title exceptions, if any ALTA 17.1 No.... Access Exception No 33 So what type of Access does A have? Direct? Indirect? Yes Possibly Can A get any endorsements? ALTA 17? No ALTA 17.1? Possibly If A acquires an easement over the shared driveway from B 34
ALTA 28 06: Easement Damage or Enforced Removal Provides coverage for damage or enforced removal of existing building located on the Land if caused by exercise of the right of use or maintenance of a specified easement Requires review of easement, survey and other relevant facts 35 Easements Most surveys delineate easement locations, especially on commercial deals Surveyor often addresses a title commitment s exceptions specifically by location on the survey BEWARE underground utilities and other matters undiscoverable on the surface 36
Blanket Easements Easements Included on ALTA 28? Can they be located Provide a service to the property? Provide service to other property? 37 ALTA 28.1 06: Encroachments Boundaries & Easements Provides coverage for itemized encroachments onto or from adjoining land or onto easements Requires review of easements, surveys and other relevant facts 38
Latest Additions ALTA 37 06 Assignment of Rents or Leases Lenders want loan policy to include Assignment of Rents or Leases (Separate recorded interest additional security for the loan secured by Insured Deed of Trust) Endorsement insures: Assignment of Rents or Leases is properly executed Public Records do not disclose any prior assignments of the same rents or leases 39 Latest Additions ALTA 38 06 Mortgage Tax Coverage to lender if there is a deficiency in recordation tax paid at time of recording that is subsequently paid. If deficiency later paid, coverage against: Invalidity or unenforceability of Insured Mortgage, and Lack of priority, but only Resulting from failure to pay tax at time of recording Does not provide coverage if lender fails to pay deficiency No Mortgage Tax in NC Endorsement not applicable 40