1 P HELPS DUNBAR LLP. lender 's Title Policy Endorsement Checklist From the lender 's perspective, every commercial real estate transaction must be evaluated on an individual basis to determine what level of title insurance coverage is appropriate. In many cases the standard form lender 's policy may leave the lender with less coverage than expected. To address these issues, title companies have accepted endorsements to modify the standard coverage afforded under the policy jacket. The following checklist summarizes common endorsements to lenders' title policies. Lending institutions and their advisors should analyze which endorsements to request. (References in parenthesis below are to the 06/17/06 ALTA Loan Policy form, the 2006 Policy.)
2 CR = Covered Risk and Excl. = Exclusion.). Access- The 2006 Policy provides affirmative coverage of legal access to the insured land; however, it does not insure specific access from a public street ( , pedestrian or vehicular access). (CR 4). An access endorsement provides affirmative coverage that the insured property fronts a public street, that such street is publically open and maintained, and the insured has the right to use existing curb cuts. Contiguity- If the insured mortgage covers multiple lots or parcels of land, the 2006 Policy does not insure they are contiguous. A lender should request this endorsement if the insured mortgage covers multiple tracts and it is intended that no gaps or gores exist between the tracts.
3 In addition, this endorsement should be requested if the lender wants to know that the insured parcel is contiguous to another parcel not being insured and which is already owned by the borrower. Creditor's Rights- This endorsement provides affirmative coverage against loss or damage sustained by the lender due to the insured mortgage being set aside due to the violation of applicable federal and state bankruptcy laws or similar creditors' rights laws. While the 2006 Policy now provides affirmative coverage for prior transfers in the chain of title, the lender 's mortgage (for which insurance is being given) could be challenged as a fraudulent or preferential transfer and is excluded from coverage without this endorsement.
4 (CR 13; Excl. 6). Even with this endorsement, however, if the lender knew that the borrower's mortgage was intended to hinder, delay, or defraud any creditor, then the loss or damage is not covered. (Excl. 3). Environmental Protection- This endorsement provides the lender with affirmative coverage that the insured mortgage will not lose priority to any environmental protection lien i) recorded in the public records or filed in the district court where the property is located, as of the date of policy; or ii) provided by specific state statute as of the date of policy, except any specific superior lien statute cited in this endorsement. First Loss- Under the 2006 Policy, the title insurer only pays the lender for actual losses sustained under the policy.
5 If the mortgaged loan can be recovered from other collateral ( , a guaranty or security interest in movables), then the lender has not suffered an actual loss. Generally, with this endorsement, if the lender suffers a loss then the lender may make a claim against the title insurer without having to accelerate the indebtedness or exhaust other collateral first. Last-Dollar- Typically, the amount of insurance coverage is reduced dollar for dollar as payments are made on the indebtedness. This creates an issue when the loan to value on immovable property exceeds 100% ( , when the indebtedness is secured by both immovable and movable property, such as a personal guaranty or UCC on accounts, etc.)
6 , as the amount of coverage under a loan policy cannot exceed the value of the land. Thus, as payments are made coverage would decrease, although the indebtedness may still exceed the value of the land. In these circumstances, the lender should request a last-dollar endorsement. With this endorsement, the amount of coverage is not reduced until the amount of the loan is equal to the coverage amount. (Cond. 8. and 10). Leasehold Mortgage- This endorsement should be requested whenever a lender is obtaining a leasehold mortgage. In the event a lender acquires title ( , foreclosures on its leasehold mortgage and becomes a tenant) and is thereafter evicted, this endorsement provides additional coverage for losses, such as: rent or damages the lender is obligated to pay or reasonable costs incurred securing a replacement leasehold equivalent to the insured estate.
7 Multiple Indebtedness Mortgage / Collateral Mortgage- A lender should request the respective endorsement when the maximum amount of indebtedness secured by the mortgage will be advanced or fluctuate over time. Each of these Louisiana specific endorsements modifies the standard 2006 Policy language to insure all advances made under either the multiple indebtedness mortgage or the collateral mortgage. Restrictions, Encroachments & Minerals- This endorsement is also known as the REM, Comprehensive or ALTA 9 endorsement due to the breadth of its coverage. It is designed to extend affirmative coverage that the lender will not suffer any loss or damage arising from the following matters not of public record: a) present and future violations of existing covenants, conditions and restrictions (the future violation must arise prior to the lender acquiring title by foreclosure or other means); b) encroachments of improvements across setback lines, servitudes or adjoining property; c) surface use of the land for mineral exploitation and oil and gas leases arising from mineral reservations and oil and gas leases affecting the land.
8 Separate Tax Parcel- This endorsement insures against loss or damage sustained by the lender in the event that the land encumbered by the lender 's mortgage is not taxed as a separate or distinct piece of property. If the land encumbered by the lender 's mortgage is taxed with other property and taxes remain unpaid, then the lender runs the risk that the property may be sold at tax sale free of all liens and encumbrances. Subdivision- This endorsement provides affirmative coverage that the land securing the mortgage is a legally subdivided parcel created pursuant to an identified subdivision map. Survey- This endorsement insures the lender against loss or damage sustained due to violations, encroachments or adverse circumstances that would have been disclosed by an accurate survey of the property.
9 A lender may also want to request this endorsement to ensure the boundaries of the property. A current survey will have to be reviewed and approved by the title company before issuing this endorsement. Tie-In / Aggregation- When the lender 's loan is secured by more than one mortgage and more than one title policy is to be issued, the lender should request an tie-in or aggregation endorsement. This endorsement modifies the terms of the 2006 Policy to increase coverage under the policy to the aggregate amount of the insurance under each policy identified on the endorsement. Usury- The 2006 Policy does not insure the mortgage will not be declared invalid or unenforceable because it is usurious.
10 (Excl. 5). To achieve this coverage, a usury endorsement should be requested. Variable Rate- This endorsement insures that the lender 's mortgage will not lose priority due to provisions in the mortgage that provide for changes in the interest rate ( , variable rate, adjustable rate loans). This endorsement does not, however, insure against the loss of priority resulting from a usurious rate or violation of consumer protection laws. Zoning- A lender should request this endorsement to obtain affirmative coverage of the applicable zoning classification and allowed uses under that classification. For improved land, this endorsement further insures against court rulings prohibiting the use of the land or requiring the removal of existing structures on the basis of ordinance violations related to the physical layout of the structure.