Commercial Endorsements. February 2016

Transcription

1 Commercial Endorsements February

2 Housekeeping This PowerPoint is based upon a manual titled The ALTA Commercial Endorsements by Robert S. Bozarth, Senior Underwriting Counsel for Fidelity National Title Group The discussion of title insurance coverage in this work is, necessarily, general in nature and is intended only for informational purposes. It should not be construed as representing the position of the ALTA or Fidelity National Title Group or any of its subsidiaries under any particular set of circumstances. The ALTA policies and endorsements speak for themselves. Their provisions, not the views of the author, govern the coverages which they provide. The American Land Title Association, founded in 1907, is the national trade association and voice of the abstract and title insurance industry. All publications of the American Land Title Association, including ALTA Policy Forms, Endorsements, and Related Documents, are copyrighted and are reprinted by specific permission from: American Land Title Association (ALTA ) 1800 M Street, N.W., Suite 300S Washington, DC Phone: E Mail: service@alta.org Web: The ALTA Copyright applies to all quotes from ALTA forms contained in this paper. 2

3 ALTA Endorsement Forms Preferred 1. Originally focused on residential property (1 thru 8.1) 2. Over 40 forms now most focus on commercial 3. Allows all involved to know the exact language of the endorsements 4. If modified must remove ALTA references and numbering 3

4 Purpose Modify the policy to address specific transaction concerns 1. Add affirmative coverages 2. Clarify coverages in the policy 3. Remove potential defenses 4

5 Integration Every ALTA endorsement ends with this integration paragraph: This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements. 5

6 Alliance Mortgage Company v. Rothwell 1. Influenced the wording of every endorsement 2. Case Fraud scheme involving loans on properties in San Francisco 3. Ticor issued endorsement which stated: The Company assures the insured that at the date of this policy there is located on said land 4 unit Residence known as 447 Haight Street, # 1, 2, 3, 4, San Francisco, California The Company hereby insures the insured against loss which said insured shall sustain in the event that the assurance herein shall prove to be incorrect." 4. Properties were 1 unit dwellings 6

7 Alliance Mortgage Company v. Rothwell 1. Alliance alleged negligent misrepresentation by Ticor 2. Indemnity v. Guarantee Title policies are indemnities against loss not representations of condition of property Court initially held otherwise endorsement amounted to a guarantee instead of promise to indemnify 3. Endorsements revised Company insures against loss or damage sustained by the Insured by reason of the Land not 4. Difference between indemnifying for loss instead of assuring a condition exists 7

8 Alliance Mortgage Company v. Rothwell Avoid assuring language: The Company assures the Insured against loss or damage sustained by reason of any incorrectness in the assurance that, at Date of Policy: The Company hereby insures the Insured against loss which said Insured shall sustain in the event that the assurance herein shall prove to be incorrect. This policy affirmatively insures... 8

9 ALTA 17 Series Access and Entry (17 06, , & ) 1. Policy Covered Risk 4 Lack of a right of access to the Land 2. Access Insured can go to and from one public street to a point on the boundary of the Land without interference of the rights of another party 3. Land abuts or appurtenant easement to public road 9

10 ALTA 17 Series Access and Entry (17 06, , & ) 1. Nature, extent, type of access 2. Old cases If the Insured has a right to get to its Land, it has access. 1. Gates v. Chicago Title Insurance Company access even if way between street and boundary is long and dangerous 2. Magna Enterprises, Inc. v. Fidelity National Title Insurance 2 ½ foot barrier in parking lot might make impractical, but it is not a lack of access 10

11 ALTA 17 Series Access and Entry (17 06, , & ) 1. Marriott Financial Services, Inc. v. Capitol Funds, Inc. Raleigh denied driveway permits (too close to Crabtree Creek); left Insured with only pedestrian access 2. Court held mere pedestrian access was not reasonable when Insured sought vehicular access to use property as fast food restaurant 3. Suggests policy insures reasonable access for planned use unrealistic and leaves questions about access coverage 4. Coined the terms pedestrian and vehicular access 11

12 ALTA 17 Series Access and Entry (17 06, , & ) Insures land abuts public street, Insured has pedestrian and vehicular access, public street is physically open/publically maintained, and can use existing curb cuts. Uses Alliance language. Limited to Date of Policy, so not insuring against interruption or obstruction Addresses land that accesses public street by an easement 12

13 ALTA 17 Series Access and Entry (17 06, , & ) Utility Access insures against loss if there is no access for the specified services through an abutting street or an easement. Connecting to the service is the policyholder s responsibility 2. Insures that there are no gaps between the boundary of the land and the right of way, or gaps in the right of way itself, or a termination of the right of way 13

14 ALTA 3 Series Zoning (3 06, , & ) 1. Provide certain zoning coverages. Not unlimited zoning coverage Zoning classification and list of uses; does not insure current use complies Same as 3 06; adds loss if structures and improvements do not comply with zoning with respect to (i) Area, width or depth of the land as a building site for the structure; (ii) Floor space area of the structure; (iii) Setback of the structure from the property lines of the Land; or (iv) Height of the structure; or (v) Number of parking spaces. 14

15 ALTA 3 Series Zoning (3 06, , & ) Zoning Land under Development Same basic coverages as , but applies to land that will be developed with new improvements 2. Previously buyers of vacant land limited to Defines Improvements and Plans 4. Must be built according to plans 5. Technical corrections in section 3 existing and Date of Policy appear to limit coverage. Date of Policy has been deleted; existing can be deleted 15

16 ALTA 3 Series Zoning (3 06, , & ) 1. Basis for providing coverage Information on ordinance or resolution from knowledgeable source(s) 1. Classifications/maps land falls clearly within boundaries 2. Uses must match a listed use (do not interpret) 3. Restrictions 5 items relating to structures improvements survey indicating compliance 4. Land under development same as above, Plans must include same elements as accurate survey to address restrictions 16

17 ALTA 3 Series Zoning (3 06, , & ) 1. Recent zoning changes a. Constitutionality (federal and state), b. Compliance with state laws notice for hearing, open meeting, quorum of officials, approval by officials, proper recordation/filing, expiration of appeal period c. Potential attack compatibility with surrounding property 17

18 ALTA 6 Series Variable Rate (6 06 & ) Coverage for the invalidity and unenforceability of lien and loss of priority resulting changes in rate of interest 2. Defines Changes in rate of interest limited to those pursuant to a formula in the loan documents secured by the Insured Mortgage Commercial lenders did not want to disclose formulas of record adds interest on Interest and the addition of unpaid interest to the principal balance of the loan 18

19 ALTA Commercial Environmental Protection Lien (residential) Protection over super priority of clean liens a. No liens filed in public records b. Even if lien is filed after Date of Policy, if no exception for state statute c. Super priority liens contained exemption for residential d. Not appropriate for commercial Limited to liens filed at Date of Policy 3. Does not insure land is clean 19

20 ALTA 9 Series Restrictions, Encroachments, Minerals/CCRs/Private Rights 1. Various protections over private property restrictions, building setback lines, encroachments and excepted minerals 2. Initially done in a single endorsement (variations for loan, owners, vacant and improved land) 3. Nationwide Life Insurance v. Commonwealth Land Found ambiguity in form ( Unless expressly excepted in Schedule B ) a. Questionable interpretation of a prior approval of future buyer/occupant b. Exception to declaration of restrictions w/o expressly stating prior approval restriction was not enough 4. Decided to address matters in separate endorsements 20

21 ALTA 9 Series REM/CCRs/Private Rights Restrictions, Encroachments, Minerals ALTA 9 06 (Loan) and ALTA (Land Under Development Loan ALTA (Current Violations); Covenants Conditions and Restrictions ALTA (Owners Unimproved Land), ALTA (Owners Improved Land), ALTA (Loan), ALTA (Owners Land Under Development); Private Rights ALTA (Private Rights Loan), ALTA (Private Rights Current Assessments Loan), ALTA (Private Rights Owners). 21

22 ALTA 9 Series REM/CCRs/Private Rights Private Rights Defined as (i) a private charge or assessment; (ii) an option to purchase; (iii) a right of first refusal; or (iv) a right of prior approval of a future purchaser or occupant. 2. Recognizing private rights is difficult, so coverage limited a. Made Insured Mortgage unenforceable, invalid or affected priority b. If title acquired by lender must show loss of title c. Does not insure against unmarketable title insures lack of priority over a private charge or assessment due and payable at Date of Policy; does not cover those that become due and payable after Date of Policy 22

23 ALTA 9 Series REM/CCRs/Private Rights & Land Under Development allow coverages to be applied to improvements under development; includes definitions of Future Improvements and Plans Current violations Provides same coverage as a 9 06, but limits the coverage to a violation that has occurred before or on the Date of Policy covers violations either existing at Date of Policy or in the future 23

24 ALTA 10 Series Mortgage Assignment 1. ALTA Loan Policy designed to insure owner of indebtedness, even if not named as Insured in Schedule A. Condition 1(e)(i)(A). 2. Policy does not cover challenge to validity or enforcement of assignment 3. Solutions: a. Show assignment in Schedule A Covered Risk 12 b. 10 Series endorsement Failure to vest title to the Insured Mortgage in the Assignee 24

25 ALTA 10 Series Mortgage Assignment adds date down to date of endorsement for priority of lien, notices of federal tax liens, bankruptcy or modifications, releases, reconveyances or discharges of lien of Mortgage 2. Creditors Rights exclusion included 3. Datedowns Owners policies and existing endorsements 25

26 ALTA 11 Series Mortgage Modifications (11 06, & ) 1. Designed to be more efficient than a datedown 2. Datedown may involve additional exceptions, higher costs Does not change Date of Policy; invalidity, unenforceability, loss of priority by reason of modification adds subordinate matters adds additional amount of insurance 6. Contain Creditors Rights exclusion 26

27 ALTA 12 Aggregation 1. Allows multiple policies to be aggregated 2. Avoids having to have one policy with multiple parcels (different counties or states) 3. Can shift coverage from one policy to another 4. Avoids potential mortgage tax issues 5. All policies must be from same insurer 6. Amount in schedule A of each policy must be the amount for that property, not the aggregate amount 7. Watch state reinsurance limits 27

28 ALTA Co Insurance 1. Parties often want to spread the risk on high dollar transactions 2. Me, Too endorsement designed to give consistent coverage by the various title insurers essentially Insured received the same policy from each 3. Lead insurer prepares policy; other insurers review and adopt serves as a separate but identical policy for each company, since companies cannot endorse another title insurer s policy 5. Later endorsements must be approved by all co insurers 6. Notice of claims must go to all co insurers 28

29 ALTA 13 Series Leasehold (13 06 & ) 1. Old leasehold policies designed offices and shopping centers lack coverages that applied the leasehold interests 2. Definitions Evicted, Leasehold Estate, Personal Property, Tenant Leasehold Improvements 3. Valuation Value shall consist of the value for the Remaining Lease Term of the Leasehold Estate and any Tenant Leasehold Improvements existing on the date of the Eviction. No defined method/negotiation between Insured and insurer 29

30 ALTA 13 Series Leasehold (13 06 & ) 1. Additional Items of Loss a. Removing/relocating personal property b. Rent paidor continue to pay c. FMV of lease or sublease/damages to sublessees d. land use, zoning, building permits costs for replacement property e. Cost of improvements not substantially completed, lass salvage value 30

31 ALTA 14 Series Future Advances (14 06, , & ) 1. ALTA Loan policy does protect the lien of a Mortgage for future advances Priority Endorsement for states that give optional advances the priority of obligatory advances or priority as of date Mortgage was filed (NC) Knowledge Endorsement Excludes coverage if Insured had actual knowledge of intervening lien Letter of Credit Used when Mortgage secures a reimbursement obligation for a letter of credit or surety bond 5. Exclusions for Bankruptcy, real estate taxes/assessments, federal tax lien, environmental protection lien, usury, and mechanics liens (optional) 31

32 ALTA 15 Series Non Imputation (15 06, & ) 1. Incoming investors, partners want to shift the risk that notice or knowledge of existing partners might affect title to title insurer 2. Exclusion 3(b) not known to the Company, not recorded in the public records at Date of Policy, but known to the Insured Claimant and not disclosed in writing to the Company by the Insured Claimant prior to the date the Insured Claimant became an Insured under this policy; 3. Exclusion 3(a) created, suffered, assumed or agreed to by the Insured Claimant; 4. Exclusion 3(e) resulting in loss or damage which would not have been sustained if the Insured Claimant had paid value for the Insured Mortgage. 32

33 ALTA 15 Series Non Imputation (15 06, & ) 1. Off record information unrecorded purchase agreement or option 2. Deed in current transaction/recording acts protection in Race states; may lose protection in Notice and Race Notice states 3. Managing Risk: a. Description of structure of transaction; b. Affidavits from individuals, partners, of acquired entity c. Indemnity review of financials of indemnitor d. Written request for endorsement 4. Non Imputations and Datedowns risk must be analyzed; do not want to continue to insure knowledge after investor acquires interest 33

34 ALTA 15 Series Non Imputation (15 06, & ) Full Equity Transfer Complete change of ownership; used with a new policy Additional Insured Incoming partner to an entity that has a policy. Adds the new partner as an Insured to the extent of their interest. Datedown questions Partial Equity Transfer Incoming partner obtaining their own policy 34

35 ALTA 16 Series Mezzanine Financing (16 06) 1. Mezzanine lender has security interest in entity that holds title to Land Wants protection recognizes lender as loss payee under policy 3. Title holder is named Insured in policy 4. Exclusion 3(a), 3(b) & 3(e) will not be applied against borrower to defeat recovery by lender 35

36 ALTA 28 Series Easements (28 06, , & ) 1. Covered Risk 2(c) gives coverage over certain encroachments disclosed by a survey 2. Encroachment reflected on a survey will be excepted for in Sch B 3. Insureds seek affirmative use ALTA 9 for REM or ALTA 28 Series Series gives broader coverage 36

37 ALTA 28 Series Easements (28 06, , & ) Damage or Enforced removal by exercise of right of use or maintenance of specific easement Encroachments Covers improvements encroaching over boundaries (ALTA 9) and adds encroachment of improvements onto easements (exceptions can be made) same as 28.1, but improvements are specifically described, so parties can negotiate which ones get coverage 37

38 ALTA Encroachments Boundaries and Easements Described Improvements and Land Under Development (4 2 15) Actually, despite its name, it is only a Land Under Development variation of the ALTA 28.1 with an expanded definition of Improvement and definitions for Future Improvement and Plans. It does not provide for a negotiated definition of Improvement as the ALTA Described Improvements variation does. CAVEAT: Improvement includes any road, walkway, parking area, driveway, or curb located on the Land or adjoining land. 38

39 ALTA 36 Series Energy Projects ALTA Energy Project Leasehold/Easement Owner s ALTA Energy Project Leasehold/Easement Loan ALTA Energy Project Leasehold Owner s ALTA Energy Project Leasehold Loan ALTA Energy Project Covenants Conditions and Restrictions Land Under Development Owner s ALTA Energy Project Covenants Conditions and Restrictions Land Under Development Loan ALTA Energy Project Encroachments ALTA Energy Project Fee Estate Owner s ALTA Energy Project Fee Estate Loan 39

40 ALTA 36 Series Energy Projects 1. Designed to address needs of energy projects, such as wind farms, solar farms, power plants 2. Value of integrated whole Constituent Parcel recognized the value of Land as part of an integrated system. 3. Initially based off the ALTA 13 series, but have added versions for fee interests 4. Includes features of 9 s, 13 s, 28 s, and 31 s 5. Are combinations of the versions needed? 40

41 ALTA Leasehold Easement Owners Definitions: 1. Constituent Parcel one of the parcels of Land in Schedule A that constitute one integrated project. 2. Electricity Facility equipment and facilities within the definition that customer groups asked the title industry to include, but to be included an item must, by law, constitute real property. Burden is on Insured. 3. Plans Land under development endorsement 41

42 ALTA Leasehold Easement Owners Definitions: 4. Severable Improvements used to distinguish an item of personal property that is attached to the land from an item of personal property that is not attached to the land. Title insurers cannot insure Title to personal property, even if it meets the definition of Severable Improvements, but Severable Improvements can be considered in the valuation of the Insured s loss. 42

43 ALTA Leasehold Easement Owners Valuation Provisions: 1. 3(a) Eviction may be from a portion of Land 2. 3(b) Computation of loss for an eviction from any Constituent Parcel shall include loss or damage to the integrated project caused by the loss of the Constituent Parcel 3. 3(c) Option to have Leasehold Estate, the Easement Interest and any Electricity Facility valued either whole or separately 4. 3(d) Prohibits duplication of recovery in valuing a loss 43

44 ALTA Leasehold Easement Owners Valuation Provisions Severable Improvements: 1. 4(a) Adds diminution of value of Severable Improvements to be included in calculation of loss 2. 4(b) Excludes ownership/lien matters for Severable Improvements i. attachment, perfection, priority of security interest.. ii. Vesting or ownership of title iii. Any defect in or lien or encumbrance on the title iv. Determination of whether any specific property is real or personal 44

45 ALTA 36 Series Variations Loan version of Adds definition of Tenant & Leasehold only Do not include easement definition or insurance & CCRs and Land Under Development Similar to & modified to limit coverage to violation of a covenant to an Electricity Facility or Severable Improvement (36.4 only) Encroachments encroachment of an Electricity Facility or a Severable Improvement either built or to be built according to the Plans identified in the endorsement onto adjoining property or onto an easement on the Land. No encroachments by adjoining land improvements. 45

46 ALTA Energy Project Fee Estate Owner s Policy ( ) ALTA Energy Project Fee Estate Loan Policy ( ) Fee variants of the ALTA and ALTA for leaseholds and easements, and the ALTA and ALTA for leaseholds. Fidelity has issued a proprietary variant insuring all three interests with one endorsement instead of several. These endorsements don t insure that the title includes any of these interests, Schedule A does that; so one endorsement that covers all three can insure any combination of them. 46

47 ALTA Option ( ) insures against loss or damage sustained by the Insured by reason of: a) A defect in the execution of the option; or b) A right to acquire the Title granted to another in a document recorded in the Public records at Date of Policy The ALTA is designed to apply even if options are not recognized as an interest in land by the recording acts of the state. There is no coverage for the ranking of the option in the records or the enforceability of options. 47

48 Others 29 Series Interest Rate Swap 30 Series Shared Appreciation Severable Improvements 32 Series Construction Loan 33 Series Disbursement Identified Risk 35 Series Minerals and other Subsurface Substances Assignment of Leases and Rents Mortgage Tax Tax credit 48

49 ALTA Contiguity Specified Parcels Endorsement ( ) insures against loss or damage sustained by the Insured by reason of there being any gaps, strips, or gores lying within or between [Parcel A, B, C] of the Land [except as depicted on the survey made by ]. The ALTA is more precise if you leave off the optional clause at the end, in brackets. If you add the optional clause, you are insuring the accuracy of the survey. 49

50 ALTA Pari Passu Mortgage Loan Policy ( ) insures against loss or damage sustained by the Insured by reason of: a) the invalidity or unenforceability of the lien of the Insured Mortgage resulting solely from the provisions of a Pari Passu Mortgage or Intercreditor Agreement establishing lien priority; or b) the lack of equal lien priority of the Insured Mortgage to the other Pari Passu Mortgages. Subject to exceptions for failing to comply with intercreditor agreement, to foreclose simultaneously and for any provision in the intercreditor agreement as to sharing of foreclosure proceeds. 50