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Jackets and Policies 2008

Articles from The Massachusetts Focus

Newsletter of Stewart Title Guaranty Company, Massachusetts Offices
Spring 2008, Volume 7, Number 2

Jackets and Policies 2008
by Melanie Kido, Underwriting Counsel

With all of the changes in the policy jackets in the past year, we thought it would be helpful to review the current policy jackets and their uses. As you read this article, you may want to refer to the chart on pages 4 and 5 (in the PDF version or printed-and-mailed version of the newsletter).

The Benefits of the Enhanced Homeowner Policy

The Enhanced Homeowner Policy affords greater coverages which extend beyond the scope of traditional title insurance coverages offered by the Standard Policy. The Enhanced Homeowner Policy offers 32 coverages as opposed to the 10 coverages afforded by the Standard Policy. This article will touch upon several of the additional coverages provided by the Enhanced Homeowner Policy.

The evolution of the Enhanced Homeowner Policy has taken on a variety of names, including but not limited to: the “Homeowner’s Policy,” “the Enhanced Policy,” the “Extended Coverage Policy,” the “Gold Policy.” Any variations of this name all refer to the same Policy. For purposes of this article, the policy shall be referred to as the “Enhanced Homeowner Policy.” When issuing the Enhanced Homeowner Policy, the corresponding Policy number prefixes for paper jackets are O-9476 (1/1/08) and electronic jackets (STEPs) are O-9376 (1/1/08).

The Enhanced Homeowner Policy may only be issued for one-to-four family owner occupied residential properties (including condominiums). The Enhanced Homeowner Policy may not be issued to insure title to unimproved, raw land, construction loans or commercial properties. (See the discussion below for Standard Policy issuance for these types of properties).

One of the greatest benefits of the Enhanced Homeowner Policy is that it is written in plain English so that the consumer can actually understand the terms and provisions of the Policy. Furthermore, the Enhanced Homeowner Policy does not contain the Standard preprinted exceptions on Schedule B of the Policy (i.e., Mechanics Lien, Parties in Possession and Survey).

An additional benefit of the Enhanced Homeowner Policy is its continuation of coverage even after the insured has sold the property.

Not only does the Enhanced Homeowner Policy provide greater coverage to the insured homeowner, but issuing the Enhanced Homeowner Policy also provides greater coverage to our agents. We strongly urge our issuing agents to issue the Enhanced Homeowner Policy whenever possible due to the greater coverages afforded. Regardless of the discussion of the benefits and the acknowledgment by the homeowner of the disclosure of the benefits of Owner’s Title Insurance, owners would not want to find themselves in a position where a matter which is not covered under the Standard Policy would have been covered under the Enhanced Homeowner Policy and as a result, the insured homeowners make a claim that “had they been aware of” the increased coverages, they “would have” purchased the Enhanced Homeowner Policy.

Some of the additional coverages afforded by the Enhanced Homeowner Policy are discussed below:

Post-policy Forgery (Identity Theft)

The Enhanced Homeowner Policy provides protection against post-policy forgeries (for example, identity theft) which may cloud the insured homeowner’s title. An example of post-policy forgery (identity theft) would be that the closing Attorney conducts a title rundown for a refinance which reveals an outstanding forged second Mortgage. The Enhanced Homeowner Policy would cover this matter whereas the Standard Policy would not [see Covered Risks Nos. 3 and 7].

Enhanced Access (Actual and Legal)

While the Standard Policy merely provides coverage for legal access to the insured premises, the Enhanced Homeowner Policy provides coverage for both actual and vehicular and pedestrian access to and from the land, based upon a legal right [see Covered Risk No. 11]. For example, in the event that the insured premises has a deeded right of way to the main street and if at the time of the creation of that deeded right of way, the right of way was for a horse drawn buggy, under the Standard Policy, no coverage would be provided should the owner in fee of the right of way attempt to preclude the insured from using the right of way for vehicular access. The Enhanced Homeowner Policy, on the other hand, would provide defense coverage for this matter.

Mechanic’s Lien Coverage

The Enhanced Homeowner Policy provides protection for liens for labor and materials furnished before the Policy Date whether or not the lien occurs before or after the Policy Date (unless the insured agreed to pay for the labor or materials) [see Covered Risk No. 8(e)]. For example, if the seller of the property had the house painted before the sale and never paid for the labor and materials and the company that painted the house places a mechanic’s lien on the property after the sale, the Enhanced Homeowner Policy would provide coverage for the lien that was created by the seller prior to the Policy Date but not perfected until after the Policy Date.

Encroachment Coverage

The Enhanced Homeowner Policy also provides coverage to the Insured for the enforced removal of an existing structure if the encroaching structure encroaches onto adjoining land or onto any easement or over a building set-back line, even if the easement or building set-back line is excepted in Schedule B [see Covered Risk Nos. 21 and 23] (if the encroachment is a boundary wall or fence, coverage is limited to actual loss in excess of the deductible amount (1% of Policy Amount or $2,500.00, whichever is less) up to $5,000.00).

The Enhanced Homeowner Policy further provides coverage if, after the Policy Date, an abutting neighbor builds a structure (excluding boundary walls and fences) which encroaches onto the insured’s property [see Covered Risk No. 28]. For example, if, after the insured’s purchase of the property, a neighbor constructs a cabana for his pool which encroaches onto the insured property, the Enhanced Homeowner Policy would provide coverage to remediate the situation, whereas the Standard Policy would not. The Enhanced Homeowner Policy will also provide coverage if someone refuses to purchase, lease or make a mortgage on the property as a result of the neighbor’s existing structures encroaching onto the property [see Covered Risk No. 22].

Building Permit Violation

The Enhanced Homeowner Policy provides coverage if the homeowner is forced to remove or remedy an existing structure (excluding boundary walls and fences) because it was built by a previous owner who did not obtain a building permit from the appropriate government office or agency. (Coverage is limited to actual loss in excess of the deductible amount (1% of Policy Amount or $5,000.00, whichever is less) up to $25,000.00) [see Covered Risks Nos. 14 and 18]. For example, if the previous owner never obtained a proper building permit for an addition to the property and the current insured homeowner is being forced to remove or remedy the existing addition as a result of the lack of the building permit, the Enhanced Homeowner Policy would provide coverage. The Standard Policy limits its coverage to the extent of a violation or enforcement of those portions of any law or government regulation concerning building or improvements on the land if there is a recorded notice of violation of enforcement and only to the extent of the violation or enforcement stated in the recorded notice.

Restrictive Covenant Violations

The Enhanced Homeowner Policy affords coverage for violation of restrictions that occurred before the homeowner bought the property. For example, the Enhanced Homeowner Policy provides coverage for forced correction or removal of the existing structures as a result of a violation of a restrictive covenant, even if the restrictive covenant is excepted in the policy [see Covered Risk No. 12] or loss of title as a result of a violation [see Covered Risk No. 13]. For example, if a Homeowners Association enforces a restriction of the prior owner’s addition of a deck in violation of the Conditions and Restrictions recorded by the Homeowners Association, the Enhanced Homeowner Policy would provide coverage for this matter. 

Subdivision Coverage

The Enhanced Homeowner Policy further provides coverage if, as a result of an existing violation of a subdivision law or regulation affecting the land, the insured homeowner is unable to obtain a building permit [see Covered Risk No. 16(a)]; the insured homeowner is required to correct or remove the violation [see Covered Risk No. 16(b)], or someone has a legal right to, and does, refuse to perform a contract to purchase the land, lease it or make a mortgage loan to it [see Covered Risk No. 16(c)]. (Coverage is limited to actual loss in excess of the deductible amount (1% of Policy Amount of $2,500.00, whichever is less) up to $10,000.00)

Tax Assessments for Tax Periods Prior to Ownership (New Construction)

The Enhanced Homeowner Policy further provides coverage if a taxing authority assesses supplemental real estate taxes not previously assessed against the land for any period before the Policy Date because of construction or a change of ownership or use that occurred before the Policy Date [see Covered Risk No. 27]. For example, if the insured homeowner purchases a newly constructed home and the reassessment of taxes taking into account the new improvement does not occur until after the Policy Date and as a result, subsequent to the Policy Date, supplemental taxes are assessed for the time period prior to the Policy Date for which the improvement was constructed on the premises, the Enhanced Homeowner Policy would provide coverage whereas under the Standard Policy, coverage would be denied as a post-policy matter.

Undischarged/Improperly Discharged Purchase Money Mortgage

The Enhanced Homeowner Policy further provides coverage for the insured homeowner’s undischarged or improperly discharged purchase money mortgage if the mortgage remained outstanding as a result of not being discharged or properly discharged during the course of a subsequent refinance [see Covered Risk Nos. 1, 7 and 29]. For example, if the insured homeowner is trying to refinance his or her property and the closing attorney’s title examination reveals that the insured homeowner’s purchase money mortgage remains outstanding on the record, which purchase money mortgage should have been discharged by the last closing attorney who conducted a refinance of the property, the insured homeowner would be afforded coverage for the outstanding purchase money mortgage under the Enhanced Homeowner Policy. On the other hand, under the Standard Policy, coverage would be denied as a post-policy matter.

The Enhanced “Gold” Loan Policy

For purposes of this article, the policy shall be referred to as the “Enhanced Gold Loan Policy.” The Enhanced Gold Loan Policy may only be issued for one-to-four family owner occupied residential properties (including condominiums). The Enhanced Gold Loan Policy may not be issued on unimproved, raw land, construction loans or commercial properties. (See the discussion below for Standard Policy issuance for these types of properties.)

When issuing an Enhanced Gold Loan Policy, the current corresponding Policy Number prefixes for paper jackets are M-9478 (1/1/08) and for electronic jackets (STEPs) are M-9378 (1/1/08).

It is not necessary to issue the Gold Loan Policy when issuing the Enhanced Homeowner Policy. The majority of agents maintain a practice of issuing the Standard Loan Policy simultaneously with the Enhanced Homeowner Policy.

Enhanced “Gold” Short Form Loan Policy

For purposes of this article, the policy shall be referred to as the “Enhanced Gold Short Form Loan Policy.” The Enhanced Gold Short Form Loan Policy may only be issued for one-to-four family owner occupied residential properties (including condominiums). The Enhanced Gold Short Form Loan Policy may not be issued on unimproved, raw land, construction loans or commercial properties. (See the discussion below for Standard Policy issuance for these types of properties).

When issuing an Enhanced Gold Short Form Loan Policy, the current corresponding Policy Number prefixes for paper jackets are U-9479 (1/1/08) and electronic jackets (STEPs) are U-9379 (1/1/08).

The Standard Owner Policy

If you are issuing an Owner’s Policy for title to unimproved, raw land, construction loans or commercial properties, you should issue the Standard Owner Policy. When issuing a Standard Owner Policy, the current corresponding Policy number prefixes for paper jackets are O-9401 (6/17/06) and electronic jackets (STEPs) are
O-9301 (6/17/06).

The Standard Loan Policy

The majority of issuing agents default to the issuance of the Standard Loan Policy for all residential transactions. If you are issuing a loan policy for unimproved, raw land, construction loans or commercial properties, you should issue the Standard Loan Policy.

When issuing a Standard Loan Policy, the current corresponding Policy Number prefixes for paper jackets are M-9402 (6/17/06) and for electronic jackets (STEPs) are
M-9302 (6/17/06).

Some of the added benefits of the 2006 Standard Loan Policy include:

  • The Liability Noncumulative section has been deleted in its entirety.
  • ALTA 1 Street Assessment Endorsement coverage is now included in policy [see Covered Risk No. 11(b)].
  • Last Dollar Endorsement coverage is now included in policy [see Condition No. 10].
  • ALTA 9 Comprehensive Endorsement coverage is now included in Schedule A (check the box) [see Schedule A, Paragraph 6].
  • ALTA 13 Leasehold Endorsement coverage is now included in Schedule A (check the box) [see Schedule A, Paragraph 6].
  • ALTA 14 Future Advance Endorsement coverage is now included in Schedule A (check the box) [see Schedule A, Paragraph 6].
  • ALTA 22 Address Location Endorsement coverage is now included in Schedule A (check the box) [see Schedule A, Paragraph 6].
  • Expands coverage to provide 10% increase in the Amount of Insurance in the event the insurer pursues its rights to defend or prosecute and is unsuccessful in establishing the title or the lien of the insured mortgage as insured; allows the insured claimant the choice of determining the loss or damage either as of the date the claim was made or the date it is settled or paid [see Condition No. 8].
  • Expands coverage due to the broad definition of “Indebtedness” which includes amounts disbursed subsequent to Date of Policy [see Condition No. 9].
  • Clarifies that any endorsement to the policy is made a part of the policy and is subject to its terms even if the Endorsement fails to contain this explicit language [see Condition No. 14].

Standard Short Form Loan Policy

If you are issuing a Short Form Loan Policy for unimproved, raw land, construction loans or commercial properties, you should issue the Standard Short Form Loan Policy (6/17/06).

When issuing a Standard Short Form Loan Policy, the current corresponding policy number prefixes for paper jackets are U-9412 (6/17/06) and electronic jackets (STEPs) are U-9768 (6/17/06).