Lenders, Borrowers and Purchasers May Receive Help through ALTA Changes

December 2006

For the first time in 14 years, the American Land Title Association has made extensive changes to its commercial title insurance policies and forms, responding to the needs of lenders, borrowers and purchasers. The revisions are intended to clarify portions of the commitments and policies, eliminate certain provisions and expand coverage. Revisions to the ALTA Owner’s Policy and ALTA Loan Policy are scheduled to become effective June 17, 2007, along with a number of new and revised Endorsements to the Policies.

ALTA and its members strive for the safe and efficient transfer of real estate by searching, reviewing and insuring land titles. To that end, the revised 2006 Policies have been designed to be more logically organized and precise in wording for lenders, borrowers and purchasers. For example, the policies now contain definitions for some key phrases previously left undefined, such as “Amount of Insurance,” “Land” and “Mortgage.” The definition of “Insured” in the 2006 Loan Policy is expanded, rendering a Fairway Endorsement less relevant or compelling. The definition of “Unmarketable Title” in the 2006 Policy is expanded, and as a consequence, marketability coverage may be expanded. And, there is increased consistency between the Owner’s and Loan Policies: most provisions are the same in the Owner’s and Loan Policies and there are fewer provisions that apply only to one Policy.

The new policies contain additional insurance that was previously only indirectly issued or not addressed at all. Important among these additions is coverage relating to Electronic Transactions. Now, the Insured may be protected against a defect in Title because a document, such as a deed, was not properly created by electronic means, or because a document was not properly filed, recorded or indexed by electronic means. It is even generally accepted that the new coverage will insure against invalidity of an insured mortgage due to a failure of the underlying promissory note to have been created in accordance with applicable electronic transactions laws.

For the first time, the policies will provide explicit survey—or boundary and encroachment—coverage without the issuance of a special endorsement. In the past, explicit insurance was provided by most of the commercial policies only by an endorsement. When no endorsement was provided, the trial courts were left to sort out the meaning of coverage on a policy with just the survey exception deleted. Further, because of the new definition of and insurance against any “encroachment,” an improvement existing on the Land covered by the Policy which encroaches onto adjoining land will, for the first time, be a matter covered by the new policy.

The ALTA now has two sets of endorsements: one set for the 1992 Policies and one set for the 2006 Policies. The small handful of new or revised endorsements adopted for issuance with the 1992 Policies include a number of endorsements related to environmental matters, and future advances-reverse mortgage. The ALTA has adopted modified versions of each of the existing and new endorsements for issuance with the new Owner’s and Loan Policies as well. These endorsements include in the assigned numbering “-06” and incorporate the definitional terms used in the new policies.

The existing ALTA Loan Policy and Owner’s Policy (10/17/92) will be de-certified as ALTA Forms on June 17, 2007. Thereafter, they may continue to be issued if available in the state and if specifically requested by the customer.

This legal update is for informational purposes only as a service to clients and other friends, is not a complete summary of the rules relating to the subject matter discussed above, and is neither to be construed as legal advice nor intended as basis for decisions in specific situations. For more information about this subject matter or other recent developments, please contact the attorneys in our Real Estate practice group or any other attorney in our firm with whom you normally consult by calling (303) 825-4200.