Endorsement Checklist

 

Yes

No

Lender Checklist

1.

Extended Coverage

     

The commitment and/or policy may include regional exceptions (there are no "standard ALTA" exceptions) for unrecorded mechanic's liens, survey matters, parties in possession, unrecorded easements and other matters. An extended coverage policy deletes most of these exceptions.

 

2.

Mechanic's Lien Coverage

     

If the title insurer issues a policy during construction, it may require a pending disbursement clause or other limit on mechanic's lien coverage. Even if the policy contains no exception in Schedule B, the coverage may be limited by the Exclusions, such as 3(a) or 3(b) and by the Conditions and Stipulations at Section 8(d) of the 1992 ALTA Loan Policy and by the parameters of Insuring Provision 7(b) of the 1992 ALTA Loan Policy.

a. Pending Disbursement
This clause may require down date and may limit to labor or material furnished before stated date.

b. Seafirst
This endorsement may limit the effect of Exclusions 3(a) and 3(b) because of inadequate funding or failure to fully fund.

c. Priority (CLTA 101.3)
This endorsement may expressly insure priority, notwithstanding priority issues.

 

3.

Policy Form

     

Policy forms most commonly used: 1970 ALTA and 1992 ALTA.

The 1970 policy is not available in Michigan, New Mexico, New York, and Texas. The Texas policy is a modified 1992 policy. The arbitration provisions of the 1992 policy are amended in Florida, Kansas, Missouri, New Jersey, and Texas.

 

4.

Creditor's Rights

     

The lender may request coverage as to creditors' rights issues. The title insurer may insist on an exception or exclusion. Issues may include limits as to those persons who may assert rights, bases for assertion and time limits. Factors considered include type of property and entity, solvency, viability, and use of funds. The creditor's rights exclusion may not be deleted from the 1992 policy in Florida, New Mexico, New York, or Texas. The 1970 policy may be issued in Florida without a creditor's rights exception.

 

5.

Survey Matters

     

The deletion of the survey exception will not satisfy all lender concerns. The lender may want insurance that tracts are contiguous, that there are no encroachments outside property lines, that encroaching improvements will not be removed, and that stated improvements are located on the land.

a. Survey Endorsement (CLTA 116.1) insures that land is same as delineated on survey.

b. Contiguity (CLTA 116.4) insures that tracts are contiguous.

c. Address/Location (CLTA 116) insures that land has stated improvements and address and that dimensions are as shown on attached map.

d. Encroachments (CLTA 100, ALTA 9) insures against removal of encroachments.

e. Easements (CLTA 103.1, 103.3) insures against loss by reason of use of easement or against removal of encroachments.

 

6.

Covenants

     

The lender may want insurance against existing violations, that future violations will not affect the validity, priority and enforceability of the mortgage, and that beneficial covenants are binding.

a. Violation (CLTA 100, 100.4 - 100.12) (ALTA 4, 4.1, 5, 5.1, 9) insures against violations, and effect of violations, on lien.

b. Enforceability (CLTA 124.1 - 124.3) insures that certain covenants are enforceable.

 

7.

Easements

     

The lender will want appurtenant easements, and some licenses, insured. The lender may want insurance that easements will not interfere with the use of the land. The lender may want insurance that beneficial easements will not be extinguished by tax deeds on the servient estates for future taxes and assessments.

a. Insurance of easements in Schedule A.

b. Interference (CLTA 103.1, 103.3) insures against loss by reason of use of easement or against removal by reason of encroachments.

c. Encroachment (ALTA 9; CLTA 103.3) insures against removal by reason of encroachment.

d. Tax Deed insures against extinguishment of beneficial easement because of tax deed or mechanic's lien foreclosure on servient estate.

e. Locate Exceptions per survey.

8.

Surface Damage

     

The lender may request insurance against damage to improvements because of use of the surface, if there are outstanding rights such as minerals or water rights.

a. Minerals (ALTA 9) (CLTA 100.29) insures against damage to improvements because of use of the surface for minerals.

b. Water (CLTA 103.5) insures against damage to improvements because of use of the surface for development of excepted water.

c. Patent insures against enforcement of patent reservations.

d. Navigational Servitude insures against denial of right to maintain improvements because of a navigational servitude.

e. Other

 

9.

Access

     

The lender may want insurance as to specific means of access, since the insuring provision as to access will not insure the physical condition or location of access.

a. Insure Easement by description in Schedule A.

b. Specific Access Endorsement (CLTA 103.4, 103.7) insures that easement provides access to a street or that land abuts a physically open street. The insured may want insurance of right to use the street.

 

10.

Taxes

     

The lender will want insurance that taxes and assessments are not due and payable. The lender may require insurance that the land is a separate tax parcel and that taxes will not extinguish an easement.

a. Not yet due and payable. This insurance is generally requested.

b. Tax Parcel insures that the land is not part of a large tax parcel.

c. Tax deed insures that tax lien sales will not extinguish an easement.

d. Assessment (ALTA 1) insures against assessments for street improvements begun.

 

11.

Priority

     

The lender generally wants insurance that liens and leases shown in the policy are subordinate to the mortgage, by reference in Schedule B, Part II. If the mortgage secures future advances the lender needs insurance as to priority and coverage, since the policy contains a post policy exclusion at paragraph 3(d) and limits of liability relating to future debt at Section 8(d) of the Conditions and Stipulations of the 1992 ALTA policy.

a. Schedule B, Part II insures that matters are subordinate.

b. Future Advances

1. Revolving Credit insures priority of advances.

2. Letter of Credit/Guaranty/Bond insures priority of reimbursement obligations.

3. Future Advance (CLTA 108.8, 122) insures lien for subsequent advances.

4. Interest

- Modification insures priority of modification of loan.

- Variable Rate/Negative Amortization (ALTA 6, 6.1, 6.2) insures priority of mortgage for variable interest.

- Swap insures priority of hedge advances.

- Cash Flow/Contingent Interest/Shared Appreciation insures priority of contingent interest.

- Reset insures priority of rate reset agreement.

12.

Liability

     

The lender may want clarification as to

  • the circumstances under which it may suffer a loss, which generally does not occur unless the security is worth less than the debt and does not occur until foreclosure on all collateral available;

  • the amount of loss;

  • the effect of payments of debt on the available insurance such as provided in Section 9(b) of the Conditions and Stipulations of the 1992 ALTA policy, and

  • the amount of insurance available for each tract of land if multiple tracts are involved.

a. Tie-in/Aggregation (ALTA 12)/One Policy/Reverse Tie-in/One-Way Tie-in endorsements will aggregate liability under each policy. Sometimes this is accomplished by issuance of each policy in the aggregate liability with noncumulative liability exceptions. Tie-in endorsements are not available in New Mexico, Pennsylvania, and Texas. In those states, one policy may cover all parcels located in the state. Only an intrastate tie-in endorsement may be issued in Florida. The tie-in endorsement may include the total aggregate liability in states in which the tie-in endorsement is issued.

b. First Loss endorsement is sometimes issued on multisite transactions and provides that the lender is not required to foreclose its lien on other land or accelerate its debt before making a proper claim. Subject to a stated deductible, the loss determination is then similar to the owner's policy.

c. Last Dollar endorsement is sometimes issued if the mortgage covers multiple tracts; it provides that liability is not reduced by Section 9(b) of the Conditions and Stipulations of the 1992 policy until the principal is reduced below the amount of insurance.

d. Extra (125 percent/negative amortization/contingent interest) coverage is sometimes issued on negative amortization loans or where multiple tracts are collateral.

e. Leasehold endorsement is sometimes disliked by lenders because of what they perceive as a limit on damages, although it provides extra damages for moving and other costs.

f. Going Concern takes into consideration the value of the land as a going concern.

13.

Acts and Knowledge

     

Exclusion 3(a), as to acts of the insured, and Exclusion 3(b), as to knowledge of the insured, may significantly affect coverage, unless modified by disclosure and/or endorsement.

a. Nonimputation may by issued to prevent assertion of the knowledge defense if a matter is known by a trustee, agent, another lender, or affiliated mortgagor.

b. Recharacterization insures against recharacterization as a joint venture or ownership.

c. Disclosure (under 3(b) of Exclusions), in writing by the insured, may be used to prevent later denial of liability by the insurer.

14.

Governmental Regulation

     

The lender may wish to modify the police power exclusion, Exclusion 1(a) and 1(b) of the Exclusions From Coverage of the 1992 ALTA policy, and the usury exclusion in Exclusion 5 of the Exclusions From Coverage of the 1992 ALTA policy. Endorsements are frequently issued on commercial land.

a. Truth in Lending insures against invalidity of the mortgage because of right of recision.

b. Usury insures against invalidity of the mortgage because of usury. This endorsement may not be issued in Florida, Kansas, Missouri, Idaho, New Mexico, New York, or Texas.

c. Doing Business insures against invalidity and unenforceability because making the loan violates doing business laws.

d. Environmental Liens provides the insurance of paragraph (a) or (b) of the ALTA 8.1.

e. Zoning insures as to zoning and against removal because of certain violations. May include number and location of parking spaces and loading births. May include improvements to be completed per plan. May not be issued in Florida, New Mexico, New York, or Texas.

f. Subdivision (CLTA 116.7) insures against subdivision map act violations.

15.

Future Insurance

     

In some circumstances, particularly where an unusual coverage is provided, the lender may require agreement to provide the same coverage on future policies.

a. Binder may agree to issue future policy to designee in stated time (e.g., 2 years).

b. Sears agrees to reissue policy in future.

c. Open Commitment agrees to keep commitment open for extended time.

d. Endorsement agrees to provide same endorsements in future.

16.

Insured

     

Generally, the lender will request a clarification of the named insured to include those parties to an agreement, or the successors and assigns of the insured.

a. Successors and Assigns provides, much like policy conditions, that policy continues to assignees.

17.

Insured Closing Letter

     

The commitment will not insure the lender against violation of closing instructions or defalcation of funds. If the closing is not conducted directly by the title insurer, the lender generally will require a closing protection letter where allowed by law, even if the lender directly disburses. This letter may not be issued in New York. It is modified in Vermont and Virginia.

 

18.

Single Risk Limits

     

Lenders often make internal decisions as to the amount of risk retention that they will allow by a title insurer issuing or reinsuring. There are a number of ratings currently available, including Standard and Poors, Demotech, LACE, Moodys, and Duff & Phelps. Facultative Reinsurance Agreements (ALTA 9/24/94) are generally used to obtain necessary reinsurance. The risk may also be shared by coinsurance (see CLTA 114). Some coinsurance clauses provide for limited joint and several liability.

 

19.

GAP

     

The Insured will want insurance as to matters arising in the gap between the Date of Commitment and Date of Recording. The insured may secure coverage by express closing instructions, by requiring that the policy date will be the later of the date of settlement or recording (like Short Form Loan Policy) or by endorsement.

 

20.

Script/Scrivener

     

Because of specific issues relating to the transaction, the lender may request a unique endorsement for the transaction. In a number of states, no form filing is required for title insurance or for unique endorsements. In some states where endorsements are not available, the insurer may provide affirmative insurance in Schedule B.

 

21.

Pre and Post Mortgage

     

If the lender proceeds to foreclose, it may secure a guarantee or policy as to outstanding matters, particularly in the western states. Other matters the lender may want insured include environmental due diligence search, modifications, and assignments.

a. Recorded Document Guarantee provides insurance as to certain recorded matters in a due diligence investigation for CERCLA liability.

b. Assignment (ALTA 10, 10.1) provides some date down coverage in connection with a mortgage assignment.

c. Modification (CLTA 110.5) (ALTA 11) insures in connection with a modification and provides some date down and priority coverage.

 

 



Yes

No

Owner's Coverage Checklist

1.

Extended Coverage

     

The commitment and/or policy may include regional exceptions (there are no "standard ALTA" exceptions) for unrecorded mechanic's liens, survey matters, parties in possession, unrecorded easements and other matters. An extended coverage policy deletes most of these exceptions.

 

2.

Policy Form

     

Policy forms most commonly used: 1970 ALTA and 1992 ALTA. The 1970 policy is not available in Michigan, New Mexico, New York, and Texas. The Texas policy is a modified 1992 policy. The arbitration provisions of the 1992 policy are amended in Florida, Kansas, Missouri, New Jersey, and Texas.

 

3.

Creditor's Rights

     

The owner may request coverage as to creditors' rights issues. This issue is generally not as significant to an owner as it is to a lender. The creditor's rights exclusion may not be deleted from the 1992 policy in Florida, New Mexico, New York, or Texas. The 1970 policy may be issued in Florida without a creditor's rights exception.

 

4.

Survey Matters

     

The deletion of the survey exception will not satisfy all of the Insured's concerns. The owner may want insurance that tracts are contiguous, that there are no encroachments outside property lines, that encroaching improvements will not be removed, and that stated improvements are located on the land.

a. Survey Endorsement (CLTA 116.1) insures that land is same as delineated on survey.

b. Contiguity (CLTA 116.4) insures that tracts are contiguous.

c. Address/Location (CLTA 116) insures that land has stated improvements and address and that dimensions are as shown on map.

d. Encroachments (Owner's Comprehensive) insures against removal of encroachments.

e. Easements (CLTA 103.1, 103.3) insures against loss by reason of use of improvements or against removal of encroachments.

5.

Covenants

     

The owner may want insurance against existing violations and that beneficial covenants are binding.

a. Violation (Owner's Comprehensive; CLTA 100.5 - 100.8; ALTA 4, 4.1, 5, 5.1) insures against violations.

b. Enforceability (CLTA 124.1 - 124.3) insures that certain covenants are enforceable.

6.

Easements

     

The owner will want appurtenant easements, and some licenses, insured. The owner may want insurance that the easements will not interfere with the use of the land. The owner may want insurance that beneficial easements will not be extinguished by tax deeds on the servient estates for future taxes and assessments.

a. Insurance of easements in Schedule A.

b. Interference (CLTA 103.1, 103.3) insures against loss by reason of use of easement or against removal by reason of encroachments.

c. Encroachment (Owner's Comprehensive CLTA 103.3) insures against removal by reason of encroachments.

d. Tax Deed insures against extinguishment of beneficial easement because of tax deed or mechanic's lien foreclosure on servient estate.

7.

Surface Damage

     

The owner may request insurance against damage to improvements because of use of the surface, if there are outstanding rights such as minerals or water rights (e.g., CLTA 100.29, 103.5).

a. Minerals (CLTA 100.29) insures against damage to improvements because of use of the surface for minerals.

b. Water (CLTA 103.5) insures against damage to improvements because of use of surface for development of excepted water.

c. Patent insures against enforcement of patent reservations.

d. Navigational Servitude insures against denial of right to maintain improvements because of a navigational servitude.

e. Other

8.

Access

     

The owner may want insurance as to specific means of access, since the insuring provision as to access will not insure the physical condition or location of access.

a. Insure Easement by description in Schedule A.

b. Specific Access Endorsement (CLTA 103.4, 103.7) insures that easement provides access to a street or that land abuts a physically open street. The insured may want insurance of right to use the street.

9.

Taxes

     

The owner may want insurance that taxes and assessments are not yet due and payable. The owner may require insurance that the land is a separate tax parcel and that taxes will not extinguish an easement.

a. Not yet due and payable insurance is often requested.

b. Tax Parcel insures that the land is not part of a larger tax parcel.

c. Tax deed insures that tax lien sales will not extinguish an easement.

10.

Liability

     

The owner may want clarification as to the amount of insurance or the amount of liability. The owner also may want the insurer to agree to provide future insurance. The 1992 ALTA policy contains a coinsurance provision in Section 7(b) of the Conditions and Stipulations and an apportionment clause in Section 8 of the Conditions and Stipulations.

a. Inflation Endorsement provides increased coverage due to appreciation in value of the land.

b. Future Insurance (Sears) Endorsement agrees to provide future insurance with same coverages on sale or mortgage of the land.

c. Leasehold Endorsement is sometimes disliked by insureds because of what they perceive as a limit on damages, although it provides extra damages for moving and other costs.

d. Going Concern/Measure of Damages Endorsement may recognize that determination of loss will take into consideration the value of the business as a going concern or the cash flow.

e. Tie-in/Apportionment/Reverse Tie-in/One Way Tie-in Endorsement will aggregate liability under each policy. Sometimes this is accomplished by issuance of each policy in the aggregate liability with noncumulative liability exceptions. Tie-in endorsements are not available in Florida, New Mexico, Pennsylvania, and Texas. In those states, one policy may cover all parcels located in the state. The tie-in endorsement may include the total aggregate liability in states in which the tie-in endorsement is issued. An endorsement may delete the apportionment clause which segregates disability for separate sites.

f. Coinsurance (Section 7(b)) Endorsement may be issued with the 1992 Owner's Policy to acknowledge that sufficient insurance has been purchased or that the coinsurance clause is deleted.

11.

Acts and Knowledge

     

Exclusion 3(a), as to acts of the insured, and Exclusion 3(b), as to knowledge of the insured, may significantly affect coverage, unless modified by disclosure and/or endorsement.

a. Nonimputation endorsement may be issued to prevent assertion of the knowledge defense if a matter is known by officers, stockholders, directors, or employees of a purchased corporation, partners of a partnership, or members of an L.L.C.

b. Recharacterization insures against recharacterization of the interest as an equitable mortgage.

12.

Governmental Regulation

     

The owner may wish to modify the police power exclusion, Exclusion 1(a) and 1(b) of the Exclusions From Coverage of the 1992 ALTA policy. Endorsements are frequently issued on commercial land.

a. Environmental Liens provides insurance of paragraph (a) only of the ALTA 8.1

b. Zoning insures as to zoning and against removal because of certain violations. May include removal because of number and location of parking spaces and loading births. May include improvements per plan to be completed. May not be issued in Florida, New Mexico, New York, and Texas.

c. Subdivision Map Act (CLTA 116.7) insures against subdivision map act violations.

13.

Future Insurance

     

In some circumstances, particularly where an unusual coverage is provided, the owner may require agreement to provide the same coverage on future policies.

a. Sears agrees to reissue policy in future.

b. Binder may agree to issue future policy to designee in stated time (e.g., 2 years)

c. Open Commitment agrees to keep commitment open for extended time.

d. Endorsements agrees to provide same endorsement in future.

14.

Insured

     

The Insured may require clarification of the named insured to include related parties and to include successors in the event of dissolution.

a. Fairway acknowledges the policy continues in event of change of ownership of insured. Some changes in ownership of the insured may result in dissolution and a new entity. (see Result of Fairway case under U.P.A.). Under the general L.L.C. and R.U.P.A., the entity may continue if the change of investor ownership is contemplated in the agreement or if a majority of remaining owners agree.

b. Additional Insured acknowledges the continuation of coverage in event of certain transfers.

15.

Insured Closing Letter

     

The commitment will not insure the owner/seller/buyer against violations of closing instructions or defalcation of funds. If the closing is not conducted directly by the title insurer, it may be possible to secure a closing protection letter. This letter may not be issued in New York. It is modified in Vermont and Virginia.

 

16.

Single Risk Limits

     

Owners sometimes make internal decisions as to the amount of risk retention that they will allow by a title insurer issuing or reinsuring. Many states impose single risk limits. There are a number of ratings currently available, including Standard and Poors, Demotech, LACE, Moodys, and Duff & Phelps. Facultative Reinsurance Agreements (ALTA 9/24/94) are generally used to obtain necessary reinsurance. The risk may also be shared by coinsurance (see CLTA 114). Some coinsurance clauses provide for limited joint and several liability.

 

17.

GAP

     

The Insured will want insurance as to matters arising in the gap between the Date of Commitment and Date of Recording. The insured may secure coverage by express closing instructions, by requiring that the policy date will be the later of the date of settlement or recording (like Short Form Loan Policy) or by endorsement.

 

18.

Script/Scrivener

     

Because of specific issues relating to the transaction, the owner may request a unique endorsement for the transaction. In a number of states, no forms filing is require for title insurance or for unique endorsements. In some states where endorsements are not available, the insurer may provide affirmative insurance in Schedule B.

 

19.

Post Policy Matters

     

The Insured may request insurance as to future matters, if the Insured acquires title pursuant to contract for deed or option

a. Options insures the validity and priority of the option.

b. Contracts for Deed insures the validity and priority of the contract.

 

 

 



By James L. Gosdin, Copyright reserved