ALTA Loan Policy Coverage - Attorneys' Title Guaranty Fund

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ALTA Loan Policy Coverage

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January 18, 2017

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Presented by: Lowell KrahnSenior Underwriting AttorneyAttorneys’ Title Guaranty Fund, Inc.


January 18, 2017

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ALTA 2006 Loan Policy


2006 ALTA Loan Policy

Covered Risks– Nos. 1 - 8 are the same as Covered Risks Nos. 1 - 8 on

the Owner’s Policy.

– Nos. 13 and 14 are the same as Covered Risks Nos. 9 and 10 on the Owner’s Policy.

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Covered Risks– 9. The invalidity or unenforceability of the lien of the

Insured Mortgage on title. Similar to Covered Risk No. 2, deals with improper execution of

the mortgage; also loss from things such as improper POAs, fraud and forgery, recording/indexing by county, and notary matters.



Covered Risks– 10. The lack of priority of the lien of the Insured

Mortgage on title over any other lien or encumbrance. Insures first-lien priority over other encumbrances.

Limited by Exclusion No. 3, Items Known to Insured.

Limited also by Exclusions 4 and 5, Doing Business Violations and Usury Laws.

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Mortgage on title: (a) as security for each advance of proceeds of the loan

secured by the Insured Mortgage over any mechanic’s lien where the work is either:

– (i) contracted for or begun before the Date of Policy; or

– (ii) financed in whole or in part by the loan proceeds of the loan secured by the Insured Mortgage.




Mortgage on title. To give this limited mechanic’s lien coverage, issue an ALTA

statement affirming that:– Seller and buyer declare no materials have been delivered to the

property and no work has been done, nor any contracts for work exist within last 4 months; and

– Lender affirms it will not require proceeds of mortgage to be used for improvements to the property and it has no knowledge proceeds will be used for materials and/or improvements.

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Mortgage on title. Mechanic’s lien coverage is limited.

– Language in this covered risk does not cover contracts: entered into or work done after the Date of Policy; and

not financed by the loan proceeds;

even though a mechanic’s lien might, in some situations, gain first-lien priority.




Mortgage on title (b) over the lien of assessments for street improvements under

construction or completed at the Date of Policy.– 11(b) is a new coverage over liens for street improvements that

may interfere with the priority of the mortgage.

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Covered Risks– 12. The invalidity or unenforceability of any assignment

of the Insured Mortgage shown on Schedule A, or

– the failure of the assignment on shown in Schedule A to vest title to the Insured Mortgage in the named Insured assignee free and clear of all liens. Insures assignment of mortgage is valid.

Assignment must either be shown in Schedule A at the time of the policy or issued subsequently by endorsement for this coverage to be effective.



Covered Risks– No. 13(a) and 13(b) are similar to No. 9 of the Owner’s

Policy.

– Offers coverage over lack of priority or avoidance of the lien of the Insured Mortgage due to: a preferential transfer or fraudulent conveyances in a

bankruptcy proceeding prior to the transaction ATG is insuring; or

a preferential transfer/fraudulent conveyance due to Insured Mortgage not being recorded timely or give notice to a purchaser or lien creditor.

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Covered Risks– No. 14 is similar to No. 10 of the Owner’s Policy, but

gives insurance relating to the Insured Mortgage rather than the Deed.

– Provides for gap coverage in event Date of Policy precedes date of recording of Insured Mortgage.



Exclusions from Coverage– Nos. 1 - 3 are the same as Nos. 1 - 3 of the Owner’s

Policy. 1. When no notice given, there is no coverage over zoning,

occupancy, subdivisions, or environmental matters.

2. Eminent domain is not covered unless notice is given, i.e., recording.

3. Risks known or created by Insured.

– Nos. 6 - 7 are the same as Nos. 4 - 5 of the Owner’s Policy.

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Exclusions from Coverage– 4. Unenforceability of the lien of the Insured Mortgage

because of the inability or failure of an Insured to comply with applicable doing business laws of the state where the Land is situated. No coverage for failure of lender or subsequent holder of

indebtedness for failing to qualify “to do business” in the state where property is. (Entities must register with the state they do business in.)

Applies to LLCs, limited partnerships, and corporations.



Exclusions from Coverage– 5. Invalidity or unenforceability in whole or in part of the

lien of the Insured Mortgage that arises out of the transaction evidenced by the Insured Mortgage and is based upon usury or any consumer credit protection or truth-in-lending law. Violation of usury or consumer protection laws sometimes

affect validity of mortgage.

Coverage may be provided by title company by endorsement.

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Conditions– 1. Definitions:

“Amount of Insurance” is the amount stated in Schedule A, as may be increased by endorsement, or Section 8(b), or decreased by Sections 10 or 11 of these Conditions.

“Date of Policy” is the date on Schedule A.

“Entity” is a corporation, partnership, trust, limited liability company, or other similar legal entity.




“Indebtedness.” The obligation secured by the Insured Mortgage including one evidenced by electronic means authorized by law, and if that obligation is the payment of a debt, the Indebtedness is the sum of:

– (i) the amount of principal disbursed as of Date of Policy;

– (ii) the amount of the principal disbursed subsequent to Date of Policy;

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– (iii) the construction loan advances made subsequent to Date of Policy for the purpose of financing in whole or in part the construction of an improvement to the Land or related to the Land that the Insured was and continued to be obligated to advance at Date of Policy and at the date of the advance;

– (iv) interest on the loan;





– (v) the prepayment premiums, exit fees, and other similar fees or penalties allowed by law;

– (vi) the expenses of foreclosure or any other costs of enforcement;

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– (vii) the amounts advanced to assure compliance with laws or to protect the lien or the priority of the lien of the Insured Mortgage before the acquisition of the estate or interest in the Title;

– (viii) the amounts to pay taxes and insurance; and





– (ix) the reasonable amounts expended to prevent deterioration of improvements; but the Indebtedness is reduced by the total of all payments and by any amount forgiven by an Insured.

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“Insured” includes the named Insured on Schedule A and:– (A) the owner of the Indebtedness and each successor in

ownership of the Indebtedness, whether the owner or successor owns the Indebtedness for its own account or as a trustee or other fiduciary, except a successor who is an obligor under the provisions of Section 12(c) of these Conditions;




“Insured” includes the named Insured on Schedule A and:– (B) the person or Entity who has “control” of the transferable

record, if the indebtedness is evidenced by a “transferable record,” as these terms are defined by applicable electronic transactions law;

– (C) successors to an Insured by dissolution, merger, consolidation, distribution, or reorganization;

– (D) successors to an Insured by its conversion to another kind of Entity;

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“Insured” includes the named Insured on Schedule A and:– (E) a grantee of an Insured under a deed delivered without

payment of actual valuable consideration conveying the Title (1) if the stock, shares, memberships, or other equity interests of the

grantee are wholly-owned by the named Insured;

(2) if the grantee wholly owns the named Insured; or

(3) if the grantee is wholly-owned by an affiliated Entity of the named Insured, provided the affiliated Entity and the named Insured are both wholly-owned by the same person or Entity.




“Insured” includes the named Insured on Schedule A and:– (F) any government agency or instrumentality that is an insurer or

guarantor under an insurance contract to guaranty insuring or guaranteeing the indebtedness secured by the Insured Mortgage, or any part of it, whether named as an Insured or not;

(ii) with regard to (A), (B), (C), (D), and (E) reserving, however, all rights and defenses to any successor that ATG would have had against any predecessor Insured, unless the successor acquired the indebtedness as a purchaser for value without Knowledge of the asserted defect, lien, encumbrance, or other matter insured against by this policy.

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“Insured Mortgage” is the Mortgage described in Paragraph 4 of Schedule A.

“Knowledge,” “Land,” “Mortgage,” “Public Records,” “Title,” and “Unmarketable Title” definitions are the same as those found in the Owner’s Policy.



Conditions– Conditions 2 - 15 are the same as those found in the

Owner’s Policy.

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Conditions– 16. Choice of Law; Forum

(a) Choice of Law: The Insured acknowledges ATG has underwritten the risks covered by this policy and determined the premium charged therefore in reliance upon the law affecting interests in real property and applicable to the interpretation, rights, remedies, or enforcement of policies of title insurance of the jurisdiction where the Land is located.



Conditions– 16. Choice of Law; Forum

Therefore, the court or an arbitrator shall apply the law of the jurisdiction where the Land is located to determine the validity of claims against the Title or the lien of the Insured Mortgage that are adverse to the Insured and to interpret and enforce the terms of this policy. In neither case shall the court or arbitrator apply its conflicts of law principles to determine the applicable law.

(b) Choice of Forum: Any litigation or other proceeding brought by the Insured against ATG must be filed only in a state or federal court within the United States of America or its territories having appropriate jurisdiction.

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Schedule A (ATG Form 1021-06)– Policy Number

– Date of Policy

– Amount of Insurance

– Name of Insured

– Owner

– Description of Mortgage

– Legal Description



Schedule A (ATG Form 1021-06)– Endorsements

On the 2006 policies, some endorsements appear on Schedule A, including:

– ALTA 4-06 (Condominium)

– ALTA 4.1-06 (Condominium)

– ALTA 5-06 (Planned Unit Development)

– ALTA 5.1-06 (Planned Unit Development)

– ALTA 6-06 (Variable Rate)

– ALTA 6.2-06 (Variable Rate--Negative Amortization)

– ALTA 8.1-06 (Environmental Protection Lien)

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Schedule A (ATG Form 1021-06)– Endorsements

On the 2006 policies, some endorsements appear on Schedule A, including:

– ALTA 9-06 (Restrictions, Encroachments, Minerals)

– ALTA 13.1-06 (Leasehold Loan)

– ALTA 14-06 (Future Advance-Priority)

– ALTA 14.1-06 (Future Advance-Knowledge)

– ALTA 14.3-06 (Future Advance-Reverse Mortgage)

– ALTA 22-06 (Location)

Issued by Agent, Agent’s address



Schedule B (ATG Form 1022-06)– Standard Exceptions

– Special Exceptions From prior policy

From commitment

From closing documents

From later date search– Recorded Deed and Mortgage

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Common Endorsements


Endorsements

Environmental Protection Lien Endorsement (EPL) (ALTA 8.1-06) (ATG Form 2021-06)– Indemnifies Lender if the mortgage loses priority to an

environmental protection lien recorded at the Date of Policy.

– Not Available for Owner’s Policies.

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Endorsements

Location Endorsement 1 (ALTA 22-06) (ATG Form 2030-06)– Issued with Loan Policy

Assures Lender that there are certain improvements on the Land.

Provides mailing address.


Endorsements

Multiple Mortgage Endorsement(ATG Form 2058-06)– This insures two mortgages on a single policy where

the same lender and the same legal description are on the mortgages.

– Schedule A descriptions of the mortgages must indicate the first mortgage under a heading of Part A and the second mortgage under a heading of Part B.

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Endorsements

Zoning Endorsement 3.1 (ALTA 3.1-06) (ATG Form 2040-06)– Insures against loss or damage arising from a final

decree of a court of competent jurisdiction: Prohibiting the use of the Land, with any structure presently

located thereon, as specified in the zoning classification.


Endorsements

Zoning Endorsement 3.1 (ALTA 3.1-06) (ATG Form 2040-06)– Insures against loss or damage arising from a final

decree of a court of competent jurisdiction: Requiring the removal or alteration of the structure on the basis

that, at Date of Policy, the ordinances have been violated with respect to any of the following matters:

– area, width, or depth of the Land as a building site for the structure;

– floor space area of the structure;

– setback of the structure from the property lines; and

– height of the structure.

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Endorsements

Restrictions, Encroachments, Minerals – Loan Endorsement (ALTA 9-06) (ATG Form 2035-06)– This endorsement assures lenders that:

the covenants, conditions or restrictions (CCR’s) do not extinguish the mortgage or impair it;

unless excepted on Schedule B, the CCRs:– are not violated;

– do not create an easement;

– do not create a lien for liquidated damages;

– do not provide for a private charge assessment;

– do not create an option to purchase, right of first refusal or a prior approval of a future purchaser or occupant;

there are no encroachments onto adjoining land;


Endorsements


unless excepted on Schedule B:– there are no encroachments over setback lines;

– there are no encroachments of improvements from adjoining land onto the insured land;

– there are no encroachments onto recorded easements;

– there are no recorded notices of a violation of any CCR’s related to environmental protection.

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Endorsements

Restrictions, Encroachments, Minerals – Loan Endorsement (ALTA 9-06) (ATG Form 2035-06)– If Schedule B does reveal encroachments onto

adjoining property or over building setback, the endorsement insures against court orders requiring the encroachment to be moved;


Endorsements


a future violation of the CCR’s will not impair the mortgage;

a future violation of the CCR;s will not impair the title if the lender is in title;

the owner of a mineral estate does not have rights to the surface that could cause damage.

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Endorsements

Restrictions, Encroachments, Minerals – Loan Endorsement (ALTA 9-06) (ATG Form 2035-06)– In order to issue this endorsement conduct a thorough

review, taking the following steps: Carefully review any covenants, conditions or restrictions

(CCRs) contained in any document in the chain of title. In particular,

The CCRs should not contain any forfeiture or reversion language; if they do, then do not issue this endorsement and contact underwriting;

If the CCRs provide for an assessment, create a lien for liquidated damages, or create an easement, raise those matters on Schedule B;


Endorsements


review, taking the following steps: If the CCRs contain a right of first refusal, or a lien that may

take priority over the mortgage, raise these matters on Schedule B and obtain waivers from those who hold those interests.

If the CCRs create an option to purchase or a prior approval of a future purchaser or occupant, raise those matters on Schedule B and obtain waivers or approvals from those who hold those interests.

Review the subdivision plat to determine easements and building lines.

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Endorsements


review, taking the following steps: Obtain a current survey or an Affidavit in Lieu of Survey if the

Loan Policy is for a refinance. The current survey should clearly show all improvements as well as all easements, setback lines, and other matters affecting the property. Raise any violations or encroachments as Schedule B exceptions.


Endorsements


review, taking the following steps: Under Illinois law, a conveyance or reservation of coal and

mineral rights carries with it the implied right to make reasonable use of the surface. Accordingly, examine the chain of title to determine if surface rights have been expressly reserved by the fee titleholder. If surface rights have not been expressly reserved by the fee titleholder, this endorsement may not be issued.

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Endorsements

Covenants, Conditions, and Restrictions –Loan Endorsement (ALTA 9.3-06) (ATG Form 2100-06)– Similar to the Restrictions, Encroachments, and

Minerals Endorsement (ALTA 9-06) this endorsement provides coverage to lenders over covenants, conditions and restrictions.

– Unlike the ALTA 9-06, however, this endorsement does not insure damage resulting from the future exercise of any right to use the surface of the Land for the extraction or development of minerals.


Endorsements

Covenants, Conditions, and Restrictions –Loan Endorsement (ALTA 9.3-06) (ATG Form 2100-06)– The requirements for issuing this endorsement are the

same as those required to issue the ALTA 9-06 Restrictions, Encroachments and Minerals Endorsement, without the requirement of conducting a mineral search.