The New Homeowners Policy of Title Insurance

Adoption by ALTA. The Homeowner's Policy of Title Insurance for a One-to-Four family Residence was adopted by the American Land Title Association on October 17, 1998. The policy is designed for issuance to natural persons on improved one-to-four family residences (although title companies may issue in other transactions if they choose).



This policy contains the same terms as the California Land Title Association (CLTA) Homeowner's Policy of Title Insurance, which was adopted in June 1998. The last insuring provision, or "Covered Risk," of the CLTA Policy is "29. The map, if any, attached to this Policy does not show the correct location of the Land according to the public records." That Covered Risk is based on a CLTA endorsement (CLTA Endorsement 116) and is optional in the ALTA Homeowner's Policy of Title Insurance. Given that this coverage is more commonly given in some western states, many companies will print ALTA Homeowner's Policies without Covered Risk 29.



Purpose of the Homeowner's Policy of Title Insurance.The ALTA Homeowner's Policy of Title Insurance is based in part on the coverages contained in another policy, the Eagle Protection Owner's Policy (offered by First American Title Insurance Company), or competing products offered by other title insurers pursuant to a new title insurance policy or endorsement to the ALTA Residential Title Insurance Policy. However, this ALTA Homeowner's Policy contains coverages and additional benefits that are not included in any other policy, including the Eagle Policy.



This policy was designed to provide the homeowner with optimum title insurance. It includes coverages that are currently available in some markets by endorsements: for example, it includes a portion of the coverage of the CLTA Endorsement 116 (street address, type of improvement, attached map); CLTA Endorsement 116.7 (subdivision map act); comprehensive type coverage available in the ALTA Endorsement 4 (condominiums), 5 (planned unit development), and 9 (restrictions, encroachments and minerals) series; zoning (in the ALTA Endorsement 3 series and the Residential Title Insurance Policy, with some expansion); and inflation increase (available by some special endorsements and in the 1979 ALTA Residential Policy). It incorporates some of the coverages first provided in the Eagle Policy, such as building permit, post-policy forgery (with an expanded wrinkle), and post-policy encroachment insurance. The policy expands the continuation of coverage to address common events such as divorce and transfers to family trusts.



As the real estate market, particularly attorneys and realtors, becomes aware of this new policy and the additional protection it affords, they will be increasingly likely to recommend it, because it shifts some of the risk of the transaction to the title insurer and because their responsibilities will compel disclosure.



Effect on Other Owner's Policies. This policy does not replace the ALTA Residential Title Insurance Policy (6-1-87), or the ALTA Owner's Policy (10-17-92). Both of those policies will remain available.



The new "Covered Risks." The Homeowner's Policy of Title Insurance contains a number of novel Covered Risks (insuring provisions):

  1. Post-Policy Coverage. Covered Risk 7 insures against loss because of "Any of Covered Risks 1 through 6 occurring after the Policy Date." Those matters include adverse ownership, leases, contracts, options, rights affecting title arising out of forgery or impersonation, easements, defects in title, and rights to limit use of the land. For example, this Covered Risk 7 could cover post-policy forgery, adverse possession and prescription claims. It would not insure against post-policy eminent domain (because of the condemnation exclusion) or post-policy conveyances or contracts by the insured (because of the "acts of the insured" exclusion). It would not insure against post-policy liens, because Covered Risk 8, which insures against liens on the title, is not a subject of post-policy coverage.

  2. Liens. This coverage is not changed substantively. Unless you add a Schedule B exception, the policy insures against mechanics' liens, homeowners' association assessments, taxes and special assessments and other liens attaching prior to Policy Date.

  3. Access. Covered Risk 11 insures against loss if "You do not have both actual vehicular and pedestrian access to and from the land, based upon a legal right." This insures that (1) the insured has actual (not just legal) pedestrian and vehicular access to the land, (2) the access is both vehicular and pedestrian, and (3) the actual access is based on a legal right (e.g.. located on an easement). It does not insure that the access is over a public right of way; for example, the access can be by a private easement. This provision insures "actual" access, but does not insure that the access is paved or publicly maintained.

  4. Covenants, Conditions and Restrictions. The Homeowner's Policy of Title Insurance includes several insuring provisions as to covenants: (1) Covered Risk 12 "You are forced to correct or remove an existing violation of any covenant, condition or restriction affecting the Land, even if the covenant, condition or restriction is excepted in Schedule B, and (2) Covered Risk 13 "Your Title is lost or taken because of a violation of any covenant, condition or restriction, which occurred before You acquired Your Title, even if the covenant, condition or restriction is excepted in Schedule B," and (3) Covered Risk 23 "Someone else tries to enforce a discriminatory covenant, condition or restriction that they claim affects Your Title which is based upon race, color, religion, sex, handicap, familial status, or national origin." Covered Risks 12 and 13 insure against preexisting violations, such as failure to pay assessments and charges (also insured by Covered Risk 8, as liens), preexisting claim of reverter or right of reentry, and liens, securing fines or penalties because of specific existing violations. These coverages are analogous to coverage available in the ALTA Endorsements 4 (condominium) series, 5 (planned unit development) series, and 9 (restrictions, encroachments, minerals) series. Covered Risk 23 is intended to parallel federal law to the extent federal law prohibits discriminatory covenants.

  5. Subdivision Act and Regulation. Covered risk 14 insures the insured against loss if "Because of an existing violation of a subdivision law or regulation affecting the Land: (a) You are unable to obtain a building permit; (b) You are required to correct or remove the violation; or (c) Someone else has a legal right to, and does, refuse to perform a contract to purchase the Land, lease it or make a Mortgage loan on it. The Amount of Your insurance for this Covered Risk is subject to Your Deductible Amount and Our Maximum Dollar Limit of Liability shown on Schedule A." This coverage (similar to the CLTA Endorsement 116.7) has been available in many states in commercial transactions, but has not been customarily issued on residential transactions. This coverage includes unmarketability coverage because of an existing violation of subdivision laws or regulations. The coverage in this paragraph and in Covered Risks 15 (building permit), 16 (zoning, to extent remediation is required), and 18 (encroachments of insured's structures, to the extent they are boundary walls or fences) is subject to a Deductible and Maximum. Those amounts are not established by the ALTA policy; each title insurer must set its own limits that must be shown in Schedule A of the policy.

  6. Building permit. Covered Risk 15 insures against loss if "You are forced to remove or remedy Your existing structures, or any part of them - other than boundary walls or fences - because any portion was built without obtaining a building permit from the proper government office. The amount of Your insurance for this Covered Risk is subject to Your Deductible Amount and Our Maximum Dollar Limit of Liability shown in Schedule A." This coverage was not available until the Eagle Policy was offered. This coverage will probably be most relevant to recent additions or remodeling. It contains a Deductible and Maximum. The policy does not insure against building code violations, because of Exclusion 2 ("The failure of Your existing structures, or any part of them, to be constructed in accordance with applicable building codes...").

  7. Zoning. The Homeowner's Policy of Title Insurance contains two insuring provisions as to zoning: (1) Covered Risk 16: "You are forced to remove or remedy Your existing structures, or any part of them, because they violate an existing zoning law or zoning regulation. If You are required to remedy any portion of Your existing structures, the amount of Your insurance for this Covered Risk subject to Your Deductible Amount and Our Maximum Dollar Limit of Liability shown in Schedule A," and (2) Covered Risk 17 "You cannot use the Land because use as a single-family residence violates an existing zoning law or zoning regulation." This coverage is similar to the ALTA Zoning Endorsement 3.1. The ALTA Residential Title Insurance Policy insures against forced removal of existing structures, other than other than a boundary wall or fence, because it violates an existing zoning law, and insures against loss if the insured cannot use the land because use as a single-family residence violates an existing zoning law. The Homeowner's Policy of Title Insurance expands the insurance previously available in the Residential Policy by insuring against loss if the insured is required to remedy any portion of existing structures (subject to the Deductible and Maximum). Claims under the prior coverage included violations by use of multiple structures for separate residential uses (such as a rented garage apartment).

  8. Survey and Encroachments. This policy contains several insuring provisions as to survey matters: (1) Covered Risk 18 "You are forced to remove Your existing structures because they encroach onto Your neighbor's land. If the encroaching structures are boundary walls or fences, the amount of Your insurance for this Covered Risk is subject to Your Deductible Amount and Our Maximum Dollar Limit of Liability shown in Schedule A;" (2) Covered Risk 19 " Someone else has a legal right to, and does, refuse to perform a contract to purchase the Land, lease it or make a Mortgage loan on it because Your neighbor's existing structures encroach onto the Land," (3) Covered Risk 20 "You are forced to remove Your existing structures which encroach onto an easement or over a building set-back line, even if the easement or building set back line is excepted in Schedule B," (4) Covered Risk 21 "Your existing structures are damaged because of the exercise of a right to maintain or use any easement affecting the Land, even if the easement is excepted in Schedule B," and Covered Risk 25 "Your neighbor builds any structures after the Policy Date - other than boundary walls or fences - which encroach onto the Land."

  9. Surface Use for Extraction of Minerals, Water, and Other Substances. Covered Risk 22 insures against loss if "Your existing improvements (or a replacement or modification made to them after the Policy Date), including lawns, shrubbery or trees, are damaged because of the future exercise of a right to use the surface of the Land for the extraction or development of minerals, water or any other substance, even if those rights are excepted or reserved from the description of the Land or excepted in Schedule B." This coverage includes insurance as to (1) use of the surface for extraction or development of minerals set forth in the ALTA 9, 9.1 and 9.2, CLTA 100, CLTA 100.23, and (2) use of the surface for extraction or development of water (CLTA 103.5), and (3) the new coverage as to use of the surface relating to "any other substance."

  10. Taxes. Covered Risk 24 provides broad coverage for supplemental taxes. It insures against loss 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." This insurance provides coverage against tax liens that otherwise might be "post-policy" matters.

  11. Residence and Address. Covered Risk 28 insures against loss if "The residence with the address shown in Schedule A is not located on the Land at the Policy Date." This insures that the land has a residence and that the residence is that structure with the address shown in Schedule A. The title company must complete the address in Schedule A. This coverage includes a part of the coverage provided by the CLTA 116 (location) endorsement, which is commonly issued on commercial transactions and is issued in some residential loan transactions in states such as California.

  12. Optional Map Attached. Optional Covered Risk 29, which will be used in western states such as California, insures against loss if "The map, if any, attached to this Policy does not show the correct location of the Land according to the public records." This coverage only provides insurance if the map is attached. However, title companies may choose to print a policy form without this paragraph if the coverage will not be given customarily. This coverage does not insure the dimensions of the land.


The Revised Schedule A.Schedule A of this policy includes the following additional matters: (1) the Deductibles and Maximum Dollar Limit of Liability for Covered Risks 14, 15, 16 and 18, and (2) the "Street Address of the Land." The Deductibles and Maximum Dollar Limit of Liability are established separately by each title insurer. The policy contemplates that the Deductible could be the lesser of a percent or dollar amount. The title company must complete the Street Address.



Schedule B.This Schedule has not been modified substantively. The title insurance agent should consult with its underwriter for appropriate wording if a Covered Risk will be deleted because it deems the risk unreasonable in the circumstances. For example, a title company could state that "Covered Risk __ is hereby deleted. No insurance is provided as to ____." An exception to covenants will not remove liability for prior violations or prior outstanding assessments, unless a specific exception also is made. An exception to minerals will not limit the coverage as to use of the surface, unless a more specific exception is made. A specific exception to an encroachment may not limit the coverage as to removal, unless the exception is specially worded to negate the Covered Risk insurance. The title insurance agent will need to consult with its underwriter for guidelines on survey and mechanics' lien coverage.



The Exclusions.The Exclusions have been modified for consistency: they note, as appropriate, that they do not limit the Covered Risks. For example, the police power exclusion (Exclusion 1) does not limit the coverage of the Covered Risks relating to subdivision, building permit, zoning, and supplemental taxes. Exclusion 2 states that the policy does not provide insurance as to building codes, except if a notice of violation appears in the Public Records on Policy Date. The policy does not include a creditors' rights exclusion.



The Conditions. The policy provides "gap coverage" by its definition in paragraph 1.f. of the Conditions: "f. Policy Date - the date and time shown in Schedule A. If the insured named in Schedule A first acquires the interest shown in Schedule A by an instrument recorded in the Public Records later than the date and time shown in Schedule A, the Policy Date is the date and time the instrument is recorded."



The policy expands the Continuation of Coverage provisions to insure a spouse who receives the insured's title because of dissolution of the marriage, the trustee or successor trustee of a Trust to whom the insured transfers title, and the beneficiaries of the insured's Trust upon the insured's death.



Like the ALTA Residential Title Insurance Policy, this policy agrees to pay rent for a reasonably equivalent substitute residence until the claim is satisfied, if the insured cannot use the land because of a covered claim. The policy expands coverage (to be analogous to coverage as to additional costs included in leasehold policies) to include payment of reasonable relocation costs.



The policy provides that the Policy Amount will increase by 10% of the Policy Amount shown in Schedule A for each of the first five years after the policy date, up to 150% of the policy amount shown in Schedule A.



The policy includes an arbitration clause.



Underwriting Practices.The title insurance agent should consult with its underwriter for any guidelines concerning the Homeowner's Policy of Title Insurance. Those guidelines may address (or in some cases simply agree to assume the risk) whether a survey or inspection is needed, whether an affidavit and/or review of a seller's disclosure should be reviewed or required, what to do if there is a second residence on the land, what to do if there was a recent addition or remodeling, what platting requirements must be met, consideration of recent lienable improvements, consideration of taxes and supplemental assessments, consideration of homeowners' association certificates, consideration of actual access, and verification of the address.



The title insurance agent also should consult with its underwriter as to whether to disclose the availability of this policy if the lender will secure a Loan Policy. Many states require by regulation or statute that the title company disclose the availability of an owner's policy if a Loan Policy will be issued on a purchase money loan for the purchase of residential property. See, Virginia Code Section 38.2-4616.



Definition of Title Insurance.The Covered Risks comply with the definition of title insurance in most, if not all, states.



For example, Section 21.66.480(6) of the Alaska Statutes states that " 'title insurance' means insuring, guaranteeing, or indemnifying owners of real or personal property or the holders or encumbrances on it or others interested therein against loss or damage suffered by reason of (A) liens, encumbrances upon, defects in, or unmarketability of the title to the property; or (B) the invalidity or unenforceability of liens or encumbrances on the property."



Virginia Code Section 38.2-123 provides that " 'Title insurance' means insurance against loss by reason of liens or encumbrances upon property, defects in the title to property, and other matters affecting the title to property or the right to the use and enjoyment of property. 'Title insurance' includes insurance of the condition of the title to property and the status of any lien on property."



Such definition is broad enough to include any of the post-policy coverages in the ALTA Homeowner's Policy of Title Insurance. Post-policy coverages are already available in some endorsements and can be considered as provided by the mechanics' lien coverage of the Loan Policy. The coverages as to subdivision laws and ordinances and zoning are given in most states and are construed as title insurance. The coverage as to building permits should be considered as analogous to zoning coverage and as permissible.


By James L. Gosdin, Copyright reserved