Common policies and endorsements in title insurance

Real Estate Weekly, May 11, 2005 by Fern Epstein

Title insurance affords us a realm of opportunities to receive the coverage and protection we need when the investment is personal.

Depending upon the transaction there are different types of policies available to provide this safety. Throughout the nation, the standard form of policy used is issued by the American Land Title Association, hence the "ALTA" policy.

The following are two of the most common policies provided to minimize the risk of your real estate investment.

The most basic form of policy is the Fee Title Insurance Policy. This policy covers the purchaser of real property (the "Insured"). Every standard Owners Policy insures as of the date of the policy, not exceeding the amount of Insurance, for any loss sustained or incurred by the insured for the following reasons:

1. Title to the estate or interest of the insured premises being vested other than as stated in the policy;

2. Any defect in or lien or encumbrance on the title;

3. Unmarketability of the title;

4. Lack of a right of access to and from the land.

In cases of legitimate claims, the insurance company will pay the costs, attorneys' fees and expenses incurred in defense of the title, but only to the extent provided in the Conditions and Stipulations of the policy.

Exclusions from coverage on fee policies include, but are not limited to the following:

1. Acts of the insured that would result in a defect in title;

2. Any lien or encumbrance created or attached after the date of the policy;

3. Any liens or encumbrances not of public record

The purchase price of the property dictates the premium and the amount of limit of insurance on the policy.

Mortgage policies are usually required by the lender when there is financing in the transaction; however, in most cases, the cost of the premium is the burden of the borrower. Apart from straight mortgage policies, construction loans, modifications and assumptions can be insured.

The standard ALTA Loan Policy provides the same insurance to the lender as in the owners policy; but, also includes the following:

1. The invalidity of unenforceability of the lien of the insured mortgage upon the title:

2. Lack of priority of the lien of the insured mortgage over any statutory lien.

Exclusions from this coverage mirror the exclusions of the fee policy. Premiums are based upon the loan amount of the transaction.

Both Fee and Loan policies have standard endorsements desired by land owners and required by lenders. There are also many endorsements available to purchase with these policies that provide additional protection.

Title Policy Endorsements in New York State can be placed into one of three general categories:

1) No Cost Endorsements

2) Endorsements which cost $25.00 over and above the premium

3) Special Risk Endorsements for which the cost varies

While this is not a comprehensive analysis of every endorsement available--a task outside the scope of this article--we will summarize some of the more commonly requested endorsements as well as summarize the additional benefits which they afford the insured policyholder.

The most common endorsement of all is the standard New York Endorsement which is provided free of charge to the insured owners as well as lenders. This endorsement protects the Insured during the so-called "gap period" between the closing date and the actual recording date of the closing instruments. This additional protection is crucial because it protects the insured's interest against intervening liens or encumbrances especially due to the serious delays in recording in various counties.

The Cooperative Endorsement is another example of a no-cost endorsement. It insures the Insured under the policy that the property in question is part of a validly created coop.

The Condominium Endorsement is similar to the Cooperative Endorsement in that it insures that the overall premises constitutes a valid condominium regime. It also protects the policyholder from any or failure of title arising out of the exercise of right of first refusal by the condominium board. Unlike the previously mentioned endorsement there is a charge of $25.00.

Perhaps one of the best bargains available among the $25.00 endorsements is the Residential Mortgage Endorsement. It is only available for lenders and limited to premises that are residential in nature and limited to four families or less. It affords the insured lender an astounding amount of additional protection at a relatively low cost to the borrower.

Under the Residential Mortgage Endorsement a lender is protected against any loss caused by any encroachment of the building on the premises onto any easement or right of way as well as any violation of any covenant or restriction excepted in the Policy. This protection includes any such violation of a covenant or restriction that may cause a forfeiture or reversion of title, or otherwise affects the lien.

The Environmental Protection Lien Endorsement is another valuable addition to a Loan Policy which protects the Insured against any loss or damage arising from the insured mortgage not having priority over any environmental protection lien filed in accordance with state law, or any environmental lien provided for by the state statute except certain liens under the Administrative Code of the City of New York. This comprehensive additional protection is added for a mere additional $25.00 in charge.