But Wait There s More! The New and Revised 2012 ALTA Endorsements and Update on MERS

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1 But Wait There s More! The New and Revised 2012 ALTA Endorsements and Update on MERS Janice E. Carpi National Underwriting Counsel GRS Group Title Services, LLC Richmond, Virginia Marvin N. Bagwell Chief Counsel, New York Old Republic National Title Insurance Company New York, New York Robert S. Bozarth Sr. Vice President and NTS Underwriting Counsel Fidelity National Title Insurance Company Richmond, Virginia

2 But Wait There s More! A. The New and Revised 2012 ALTA Endorsements In April, 2012, the Board of Governors of the American Land Title Association ( ALTA ) approved for adoption a large number of endorsements. Some of these endorsements are revisions to prior forms, such as the ALTA 9 Restrictions, Easements Minerals Series, and the ALTA 13 Leasehold endorsement series. Some new endorsements were added to existing series, and two brand new series of endorsements were also adopted. All revised and new endorsements have an effective date of April 2, ) Revised Endorsements a) ALTA Endorsement 9-06 (Restrictions, Encroachments, Minerals Loan Policy) b) ALTA Endorsement (Covenants, Conditions and Restrictions Unimproved Land Owner s Policy) c) ALTA Endorsement (Covenants, Conditions and Restrictions Improved Land Owner s Policy) d) ALTA Endorsement (Covenants, Conditions and Restrictions Loan Policy) e) ALTA Endorsement (Private Rights Loan Policy) f) ALTA Endorsement (Leasehold Owner s) (Revised) g) ALTA Endorsement (Leasehold Loan) The entire ALTA 9 Series was revised as a result of the ruling in the Nationwide case. In Nationwide Life Insurance Company v. Commonwealth Land Title Insurance Company, 579 F.3d 304 (3d Cir. 2009), the Third Circuit court dealt with the issue of an option to repurchase that was contained in a Declaration of Restrictions ( CCRs ) recorded against the subject property. The title policy had taken a general Schedule B exception to the CCRs, and had also issued an ALTA 9 endorsement. The ALTA 9 series provides certain affirmative coverage against loss caused by a violation of covenants or restrictions, in existence at Date of Policy, which are not excepted to in Schedule B of the policy. In Nationwide, the court held that the general exception in Schedule B to the CCRs was not enough to remove the option to repurchase 2

3 from the affirmative coverage provided in the ALTA 9 endorsement, and the title company should have expressly excepted the option to purchase in Schedule B. The Third Circuit remanded the case to the District Court for the Eastern District of Pennsylvania, which held that the ALTA 9 Endorsement provides insurance coverage for any loss arising from any instrument referenced in Schedule B that contains both covenants, conditions, or restrictions, as well as, among other terms, an option to purchase, a right of first refusal, or a prior approval of a future purchaser or occupant. The Endorsement does not restrict its coverage to specific provisions within such instruments WL slip op. at 27 (E.D. PA 2011). This interpretation was contrary to established longstanding custom, practice and usage in the title insurance industry. However, since the Nationwide holding created risk that was never intended to be included in the ALTA 9 series, the title industry felt it had no choice but to revise its forms to avoid such risk in the future. The ALTA 9 endorsements have now been changed to (i) add a preamble that reasserts the applicability of the policy terms, (ii) revise the insurance provisions to make the references to insured matters singular instead of plural, (e.g., a covenant, condition or restriction), (iii) remove the old section1(b)(2) which provided affirmative coverage over existing options to purchase, rights of first refusal, etc., from all of the other ALTA 9 endorsements and create a new ALTA with a revised version of this coverage, and (iv) eliminate the Section 2 coverage for encroachments and minerals from the ALTA 9.1 to 9.3, and move it to the new form below. The ALTA 13 Leasehold series endorsements replace the prior Series 13 Leasehold endorsements. The new endorsements include some minor clarifications such as a revision to the definition of Personal Property to make it consistent with use of the term Severable Improvements in the Energy Endorsements. Also added were items relating to valuation of the Land from which the Insured is Evicted, and items of loss related to that portion of the Land... A new Paragraph 4 now recognizes that the endorsement does not insure remediation resulting from environmental damage or contamination, a similar provision that can also be found in the new Energy Project endorsements. The previous versions of these endorsements are no longer ALTA approved forms, and are in the process of being de-certified or withdrawn from use throughout the country. 2) New Endorsements a) ALTA Endorsement (Zoning Land Under Development) b) ALTA Endorsement (Restrictions, Encroachments, Minerals Land Under Development Loan Policy) 3

4 c) ALTA Endorsement (Covenants Conditions and Restrictions Land Under Development Owner s Policy) d) Endorsement (Encroachments Boundaries and Easements) The new ALTA (Zoning Land Under Development) was added to provide zoning coverage for projects where improvements will be constructed on the Land. The coverage in the endorsement is based on plans and specifications that are identified in the endorsement, and in existence at Date of Policy. Coverage is dependent on construction being completed in accordance with those specified plans and specifications, and in compliance with the law. There are three new ALTA 9 series endorsements that are not revisions of prior 9 endorsements. The (Private Rights Loan Policy) provides coverage for instruments containing covenants which establish easements, liens, private charges or assessments, and rights of prior approval. This coverage is the old Section 1(b)(2) coverage from the prior 9 endorsements, now moved to a separate, new endorsement. The new ALTA and (Land Under Development) versions of the 9.0 and 9.2 for projects under construction. Since the prior and were withdrawn, these new endorsements were given non-consecutive numbers in order to avoid confusion. The ALTA (Encroachments Boundaries and Easements) is a new form created to provide coverage with respect to encroachments. It is similar to the (Easement Damage or Enforced Removal), in that the includes insurance against loss by reason of enforced removal of an improvement which encroaches upon adjoining land or an easement. 3) The ALTA Mineral Series a) ALTA Endorsement (Minerals and Other Subsurface Substances Buildings) b) ALTA Endorsement (Minerals and Other Subsurface Substances Improvements) c) ALTA Endorsement (Minerals and Other Subsurface Substances Described Improvements) d) ALTA Endorsement (Minerals and Other Subsurface Substances Land Under Development) Before the creation of the ALTA 35 series of endorsements, there were no ALTA mineral endorsements. The only kind of mineral coverage that was available in any ALTA endorsements was in the ALTA 9-06 (Restrictions, Encroachments, Minerals Loan Policy) and the ALTA Endorsement (Restrictions, Encroachments, Minerals Land Under Development Loan Policy). The new ALTA 35 Series was created to meet the market demand for this type of coverage. 4

5 The four new endorsements in the ALTA 35 series allow the customer to select the appropriate coverage based on the type of improvements located or to be located on the Land, the type of transaction and the particular nature of the minerals and improvements involved. a) The ALTA (Minerals and Other Subsurface Substances Buildings) provides indemnity against enforced removal or alteration of buildings located on the Land at Date of Policy due to the exercise of an existing right to use the surface for extraction or development of minerals or other subsurface substances. b) The ALTA (Minerals and Other Subsurface Substances Improvements) provides indemnity against enforced removal or alteration of Improvements located on the Land at Date of Policy because of the exercise of the right to use the surface for extraction or development of minerals and other subsurface substances. Improvements are defined in the endorsement to include a building, a structure located on the surface of the Land, and any paved road, walkway, parking area, driveway, or curb, affixed to the Land at Date of Policy, and that by law constitutes real property. The definition excludes crops, landscaping, lawn, shrubbery and trees from the definition of Improvements. c) The ALTA (Minerals and Other Subsurface Substances Described Improvements) provides similar coverage as the first two, but Paragraph 2 of the endorsement allows the title company, at the customer s request to describe the specific improvements in existence at Date of Policy that are to be covered by the endorsement. d) The ALTA (Minerals and Other Subsurface Substances Land Under Development), like the others, provides indemnity against enforced removal or alteration of improvements, but deals not only with improvements in existence at Date of Policy, but also includes Future Improvements (as defined in the endorsement) built in accordance with Plans in existence at Date of Policy. Plans are defined as the survey, site and elevation plans or other depictions or drawings prepared by the architect or engineer named in Paragraph 2 (c) of the endorsement. 4) The ALTA Energy Project Series a) ALTA Endorsement (Energy Project Leasehold/Easement Owner s) b) ALTA Endorsement (Energy Project Leasehold/Easement Loan) c) ALTA Endorsement (Energy Project Leasehold Owner s) d) ALTA Endorsement (Energy Project Leasehold Loan) 5