Preparing Final Policies

PREPARING FINAL POLICIES

NOTE: Before preparing a final policy, read carefully the first portion of this manual covering the subject of title commitments including the topic Pre-Printed Exceptions. This material provides information applicable to all policies.

When objections raised in the preliminary commitment have been satisfactorily removed of record or are acceptable to the Insured, the transaction is ready for closing. Upon recording of all required documents, the abstract or search should be continued to show all documents filed and referred back for a final title examination. In some cases, a customer will not require a preliminary commitment and the matter will not be submitted to you until documents have been recorded. In these cases, the abstract or search is continued to show the recordings and a final title examination is required. Upon completion of the search and exam, the final policy of insurance is prepared.

When issuing a final policy, all objections not removed or released of record must be excepted in the final policy.

Issued Through the Office of / Countersigned

The name, address and telephone number of the issuing agent MUST be typed or stamped in the space provided on the policy cover.

Authorized Signatory

The countersignature should be executed by a properly authorized person whose name and authority (i.e. agent, validating officer, etc.) should be typed or stamped beneath their signature.

INSTRUCTIONS FOR PREPARING LOAN POLICIES

Loan Policy Cover

Please pay particular attention to the Insuring Clauses or Covered Risks (depending on the form) of the policy. You’ll note that there are significant differences in policy language and coverage between the 1992 and 2006 policies. Be sure you are familiar with the differences.

The 1992 ALTA policy insures: (1) that the title is vested as stated, (2) that there are no defects in or liens or encumbrances upon the title except as shown in Schedule B, (3) that title is marketable, (4) that there is a right of access to and from the land, (5) that the lien of the insured mortgage is valid and enforceable, (6) that the insured mortgage is prior to any lien or encumbrances, (7) that the insured mortgage is prior to any statutory lien for labor or material, and (8) that any assignment of mortgage shown in Schedule A is valid and enforceable.

The 2006 ALTA policy insures: (1) that the title is vested as stated, (2) that there are no defects in or liens or encumbrances upon the title except as shown in Schedule B (and note that this provision extends survey coverage to the insured), (3) that title is marketable, (4) that there is a right of access to and from the land, (5) that there is no violation of any law, ordinance, permit or governmental regulation of public record relating to the land, (6) that there is no enforcement action of public record, (7) that there is no eminent domain action of public record, (8) that there has been no governmental taking, (9) that the lien of the insured mortgage is valid and enforceable, (10) that the insured mortgage is prior to any other lien or encumbrance, (11) that the insured mortgage is prior to any statutory lien for labor or material and is prior to any lien for street improvement assessments, (12) that any assignment shown in Schedule A is

© 2009 Old Republic National Title Insurance Company All Rights Reserved 0909 valid, enforceable, and vests title in the assignee, (13) that there are no creditors’ rights challenges to prior title interests, and (14) that there are no defects, liens or encumbrances on the title that were created or attached in the recording gap.

It is thus particularly important to know the coverages given since the only exceptions to these coverages are in the Exclusions From Coverage and what you except in Schedule B of the policy. For this reason, you should also be familiar with the Exclusions From Coverage. For a thorough discussion of the 2006 ALTA policy coverage, please refer to that manual section.

Schedule A of Loan Policy

Amount of Insurance

A loan policy ordinarily must be issued for the full principal debt. A policy may, however, be issued for whatever larger amount the insured wants to cover interest, foreclosure costs, etc. When the policy is in an amount in excess of the debt, the premium is for the total amount of insurance written. Generally speaking, however, the policy amount is the same amount as shown in the mortgage document. Sometimes a mortgage may also include personal property and therefore be in an amount larger than the value the parties assign to the real estate securing the debt. This fact should be stated in a note immediately after describing the mortgage in Item 4 of Schedule A. An example of a policy note where the mortgage amount is larger than the insured amount might be: Note: The liability of the policy is limited to $______(the amount assigned by the parties), the remaining amount of the mortgage is secured by personal property.

Policy Date

The date of the policy is generally the date of the recording of the instrument insured. It is the date through which the search is made. A time should be shown after the date to indicate if all or part of the day is covered. If an investor requires the policy to be dated at a later date, the search must be extended to that later date.

In those jurisdictions in which “table funding” occurs, the 2006 Loan Policy can be issued at the closing table, and therefore, the Date of Policy will be the date on which settlement occurs. Covered Risk 14 will provide the insured with gap coverage between the Date of Policy and the recording date of the insured mortgage.

The policy should be dated as of the settlement date only in table funding jurisdictions and the policy date should reflect the date of settlement only in those instances in which: (1) a Company-owned office, an agent of the Company, or an approved attorney conducts the settlement and will record the closing documents, and (2) state law or regulations do not prohibit the issuance of a policy with an effective date prior to the date of recording.

Name of Insured

In conventional mortgages, we use the full name of mortgagee as it appears in the mortgage. If the mortgage has been assigned, the assignee's name should be shown. FHA insured mortgages include the name of the federal agency such as:

GREEN MORTGAGE COMPANY

and/or

SECRETARY OF HOUSING AND URBAN DEVELOPMENT OF WASHINGTON, D.C.

as their interests may appear.

VA insured mortgages use form as follows:

GREEN MORTGAGE COMPANY

and/or

SECRETARY OF VETERANS' AFFAIRS

as their interests may appear.

Where we are to insure the same party under a first mortgage and second mortgage covering the same property, it is usually not practical to issue one policy covering both mortgages. Two policies should be written. In such case, the second mortgage policy should contain a reference to the first mortgage as an exception under Schedule B-I. The first mortgage policy should show the second mortgage under Schedule B-II.

Item 3, Schedule A – Title Findings

Under Item 3 of Schedule A, the name of the fee simple title holder must be set forth exactly as stated in the deed under which title was acquired. Where an estate other than fee simple is being mortgaged, the preprinted language has to be amended. For example, if you have a leasehold mortgage, you would amend No. 3 to read, "3. The title to the leasehold estate in said land . . . ."

Item 4, Schedule A – Insured Mortgage

Under Item 4 of Schedule A, a description of the mortgage and any assignments thereof, complete enough to particularly identify the instrument under which we insure, is all that is necessary.

Item 5, Schedule A – Land Insured

For the 1992 ALTA Loan Policy, the land insured entry is as follows:

5. The land referred to in this policy is situated in ______County, ______, and is the same land as described in the mortgage shown at No. 4 above.

Item 5 contemplates not showing the legal description in the final mortgage policy. By this language, we are saying that we are insuring the same lands as contained in the recorded mortgage.

It is important to make certain that an examination has been made of all the land described in the mortgage, including any easements, etc. If, for example, you cannot insure all of the property described in the mortgage, show the part you are insuring in Item 5 of Schedule A.

Example: The land referred to in this policy is situated in ______County, ______, and is the same land described in the mortgage shown at No. 4 above, described as follows: ______.

Then type the legal description that is being covered by the policy, or, if the description is lengthy, attach an Exhibit and refer to the Exhibit in this space.

YOU SHOULD ALWAYS CONTACT YOUR SUPERVISORY OFFICE FOR GUIDANCE BEFORE INSURING THAT A SPECIFIC ITEM OR FIXTURE IS "REAL PROPERTY.”

For the 2006 ALTA Loan Policy, the entry is simply:

5. The Land referred to in this policy is described as follows: ______

This simplified entry allows you to enter the legal description as necessary, without having to make further modifications to the policy in the instance where the mortgage includes more property than is being insured.

Schedule B-I of Loan Policy

Under this section are listed any known defects, liens and encumbrances against the insured property, and any other matters against which the policy does not insure. All such exceptions should be numbered. It should always be borne in mind that the policy must accurately reflect the true condition of the title including any matters subordinated to the mortgage, and that it is not proper to omit reference to any known defects.

When showing the lien of a senior mortgage or deed of trust as an exception to title, the write-up should read as follows:

If a mortgage:

A (mortgage) to secure an indebtedness of $______and any other amounts payable under the terms thereof, recorded (date) in (Book and Page, Official Records) dated ______, executed by ______as mortgagor to ______as mortgagee.

If a deed of trust:

A deed of trust to secure an indebtedness of $______and any other amounts payable under the terms thereof, recorded (date) in (Book and Page, Official Records), dated ______, executed by ______as Trustor to ______as Trustee for the benefit of ______as Beneficiary.

NOTE: The above examples may be used when the mortgage or deed of trust is an exception in Schedule B-I-Do not include the words "and any other amounts payable under the terms thereof," when you are insuring the mortgage or deed of trust in Schedule A.

Schedule B-II of Loan Policy

Some people in the title industry have approached the issuance of the ALTA Loan Policy as if the policy merely insured that the insured had a first lien on the property. Actually, the ALTA Loan Policy goes much further than this. The policy actually indemnifies against loss by reason of "any defect in or lien or encumbrance on said title" or "title being vested other than as shown."

Thus, the ALTA Loan Policy is not a "lien" policy, merely insuring the priority of the mortgage as a valid lien; it is really a "title" policy reflecting the entire status of title as of the date of the policy. In addition to listing exceptions, you should disclose all matters of record, including junior liens.

For clarification, following is an illustration of what the distinction between “lien policy” and “title policy” means. Assume this scenario: the owner of a property places a mortgage of record; subsequently, he or she makes a second mortgage and also records it; thereafter the first mortgage is assigned to an investor and the title insurance policy is requested.

The second mortgage must be shown on the policy, but since it is junior to the insured mortgage, it should be shown as an exception under Schedule B-II of the policy. Schedule B-II specifically insures that the item shown is subordinate to and inferior to the mortgage described at Item 4 of Schedule A. Therefore, only items that are clearly subordinate to the insured mortgage may be placed in Schedule B- II. Any matter not qualifying as a Schedule B-II item must be shown in Schedule B-I. As you can see, all matters, not just senior title exceptions, should be disclosed.

INSTRUCTIONS FOR PREPARING OWNER’S POLICIES

Amount of Insurance

An owner's policy shall be issued for the full consideration passing in the particular transaction, including the aggregate unpaid principal sum of any mortgages or other liens remaining upon the property on consummation of the purchase transaction. Policies issued for less than full consideration will expose agents to direct LIABILITY to insureds by reason of the coinsurance provisions of the policy.

Example 1: purchasing "Under and Subject" to an existing mortgage. A purchaser buys property for $50,000.00 cash and assumes a mortgage created by the predecessor in title having an unpaid principal balance of $80,000.00. The amount of the policy will be $130,000.00 and premium is charged for $130,000.00 policy. The mortgage will be shown as an exception under Schedule B.

Example 2: purchaser creates new mortgage at time of closing. Sale price is $130,000.00. The purchaser pays $30,000.00 cash and creates mortgage of $100,000.00 at closing. The amount of the owner's policy will be $130,000.00. The mortgage will be shown as an exception under Schedule B. The mortgagee’s policy should be issued in amount of $100,000.00.

Policy Cover

Recall that certain exceptions to title, even though specifically set forth on the Schedules, may be inconsistent with the Insuring Clauses of the Policy or other coverages contained within the Policy. Pay particular attention to the four Insuring Clauses for 1992 Owner’s Policies, and the ten Covered Risks for 2006 Owner’s Policies, which appear on the face of the Policies. Also consider the affirmative coverages implicit in the “Definition of Terms,” Continuation of Insurance After Conveyance of Title,” and “Defense and Prosecution of Actions” sections of the policies.

It is thus particularly important to know the coverages given since the only exceptions to these coverages are in the Exclusions From Coverage and what you except in Schedule B of the policy. Again, for this reason, you should be familiar with the Exclusions From Coverage in the particular policy you intend to issue. Also, be mindful of the additional coverage afforded by the 2006 ALTA Owner’s Policy, and be sure to except any unintended coverage in Schedule B. For a thorough discussion of the 2006 ALTA policy coverage, please refer to that manual section. Also be sure to refer to comments in this manual regarding Access, as this is another key consideration that affects the coverage extended in the policy.

Schedule A of Owner’s Policy

Some Schedule A Forms combine name of insured and the estate. On these forms, if a policy is issued insuring an interest less than the fee simple estate, Item 2 of Schedule A will have to be amended, striking "fee simple" and adding "leasehold," "option," "easement," etc.

NOTE: You are cautioned against issuing such modified policies without approval from your supervisory office.

Name of Insured

The name or names of the insured must be inserted in the policy exactly as shown in the deed under which title was acquired. Care should be exercised in verifying that the names of the grantees as set out in the deed, and mortgagors as shown in any mortgage being created are identical in every respect and that both agree exactly with the signatures as written.

NOTE: On FHA-acquired property, the insured should read: "Secretary of Housing and Urban Development, of Washington, D.C. and his successors in office." Do not include the words "and assigns" as the insured (these words can be used in showing the vesting of title but they are superfluous).

Title Vesting

The tenancy, estate or interest must be set forth exactly as stated in the deed under which title was acquired by the party to be insured.

Policy Date

The date of the policy is not the date of countersigning by our agent, but is the date through which the title to be insured was searched. A time should be shown after the date so the insured will know if all or just part of that day is covered.

The 2006 Owner’s Policy contains a Covered Risk (number 10) which allows for the provision of gap coverage if the policy is dated as of settlement or funding date and the recording of the instrument creating the interest insured under the policy is recorded subsequent to the date the policy is effective.

Legal Description

The description should exclude any reference to acreage, square footage, or any reference to area. Care should also be taken that the title to any easement included be examined. Also be certain there is access to the land (see Insuring Clause / Covered Risk 4 of the Owner's Policy).

YOU SHOULD ALWAYS CONTACT YOUR SUPERVISORY OFFICE FOR GUIDANCE BEFORE INSURING THAT A SPECIFIC ITEM OR FIXTURE IS "REAL PROPERTY.”

Schedule B of Owner’s Policy

Under this section are listed any known defects, liens and encumbrances against the insured property, and any other matters against which the policy does not insure. All known hazards should be listed even

© 2009 Old Republic National Title Insurance Company All Rights Reserved 0909 if the policy by its terms or as endorsed may provide some form of limited coverage (refer to the topic in this manual entitled “Endorsements”).

If, for appropriate reasons, the issuing agent has seen fit to remove certain objections "for mortgagee only," extreme care should be exercised to see that these objections are listed under Schedule B of the owner's policy.

Typical of the items which might be listed under Schedule B would be the following:

1. UNSATISFIED LIENS OR ENCUMBRANCES

2. TAXES AND ASSESSMENTS

Since taxes will be a lien, though not yet payable, the policy must except any taxes subsequent to the last paid levy. A suitable form of exception would be the following:

"General or special taxes and assessments required to be paid subsequent to ______."

When issuing a 2006 Owner’s Policy, be aware of the coverage afforded by Covered Risk 2(b), over “the lien of real estate taxes or assessments imposed on the Title by a governmental authority due or payable, but unpaid.” If the charge constitutes a current lien on the property, coverage is not afforded if the obligation to make payment to the governmental authority has not ripened. If you do not intend to provide coverage for these liens (i.e., they are not paid as part of the settlement process at the time the insurance obligation is incurred), you must insert an appropriate exception in Schedule B setting forth those taxes or assessments for which coverage is not intended.

3. COVENANTS, CONDITIONS AND RESTRICTIONS

(a) When a property is subject to restrictions, a verbatim copy thereof must be examined. The agent is cautioned to check the restrictions thoroughly to determine whether or not they have been violated. You must begin such exceptions using the words "Covenants, Conditions and Restrictions."

(b) If said restrictions contain a forfeiture or reverter clause, it should be so stated in the policy.

(c) In owner's policies the restrictions will be listed as an exception without any affirmative guarantee against violations.

(d) If asked to insure against loss (or unmarketability) of title where there is an existing violation of restrictions, each case should be studied thoroughly on its own merits and determined with due regard to the laws of the state involved. In case of doubt, all information should be referred to your supervisory office for a decision.

(e) If the restrictions give rights in recreational facilities such as tennis courts or swimming pools and the underlying title is not being insured, a NOTE highlighting this fact of non-coverage should be included. If asked to cover such appurtenances, approval of your supervisory office must be obtained.

4. EASEMENT AND SERVITUDES

5. SURVEY

In some areas, the survey exception is not removed from owner's policies. However, this will be determined by the practice in the area involved. Some extended coverage owner's policies and endorsements, as well as the 2006 Owner’s Policy, now give survey coverage. To do this, a current

© 2009 Old Republic National Title Insurance Company All Rights Reserved 0909 survey or equivalent is needed. If you will be giving survey coverage on owner's policies, underwriting procedures must be established with your supervisory office. (Also see the topic entitled “Survey” in this manual.) If survey coverage is not intended on those policies that automatically extend the coverage, you must be sure to include an appropriate exception in Schedule B.

6. ENCROACHMENTS

The 2006 Owner’s Policy extends coverage over encroachments both onto the insured land, and those that extend onto adjoining land (see Covered Risk 2(c)). If encroachment coverage is not intended as it appears in the Covered Risks, you must be sure to include an appropriate exception in Schedule B.

7. MECHANIC'S LIENS

In the general run of cases involving new construction, it will be found that insurance against the possibility of unfiled mechanic's or materialmen's claims will be required only on the loan policy. Some extended coverage owner's policies and endorsements now give mechanic's lien coverage on completed residential properties. If you will be giving this coverage, underwriting procedures must be established with your supervisory office. For a detailed discussion of this subject, see the topic in this manual entitled “Mechanic's Lien Coverage.”

8. RIGHTS AND CLAIMS OF PARTIES IN POSSESSION

For a more detailed discussion, refer to the topic in this manual entitled “Possession Exception.”

LEASEHOLD POLICIES – DIRECTIONS

Leasehold interests can be insured in a number of ways, depending on what forms are currently in use in your particular state. ALTA Leasehold Owner’s and Loan policies are available through the 10-17-92 policy versions, and other leasehold policies have been filed in certain states. Otherwise, leasehold interests are insured by adding a leasehold endorsement.

The primary caution when insuring leasehold interests is to clearly and appropriately identify the interest insured as “leasehold.” Accordingly, pay particular attention to this when completing Schedule A. The ALTA Leasehold Owner’s and Loan policies automatically identify the interest insured as “leasehold,” so no modification is necessary.

Another caution when insuring leasehold interests is that you do not insure over the terms of the lease. Accordingly, be sure to take a Schedule B exception to “the terms and conditions of the lease,” and be sure to identify the lease with sufficient specificity, including the date of the lease, parties to the lease, and recording details.

The leasehold policies already take into consideration the nature of the interest insured. The policies have their own schedules that automatically refer to the estate in Schedule A-2 as a “leasehold” and allow the lease to be described by parties, date and recording data. If the policy involves a “ground lease” and the proposed lessee owns title to the improvements, you should also add the following language to Schedule A-2: “together with all right, title and interest in and to the improvements located thereon as conveyed by (add description of the appropriate instrument conveying same).” It is also possible to include an option to purchase in A-2. If you question whether a particular option to purchase is insurable, check with your supervisory office. If an option is to be included, add “together with an option to purchase the fee simple title thereto, as provided for in said lease.” When an option is insured, exceptions should be taken in Schedule B to (1) failure to make a proper and timely exercise of the option provisions and (2) possible rights of a trustee in bankruptcy to reject or set aside the option provisions. Refer also to the topic in the manual entitled “Options to Purchase.”

Another key difference between standard and leasehold policies is the loss valuation provision. Paragraph 13 of the 1992 ALTA Leasehold policies provides the means of valuing the estate. This provision looks mainly to the difference in value of the insured lease over the remainder of the term and what the insured will have to pay to find similar new space in the event of eviction. Accordingly, many rating schedules that employ the concept of the full value of the property for tax purposes, or the aggregate of the rentals due under the lease, may be inappropriate methods of valuation for purposes of deciding on policy amount.

The leasehold policies are best suited for commercial transactions. In places like Baltimore or Hawaii, where long-term residential leases are common, owners and lenders may prefer to continue using standard ALTA policy forms with Schedule A amended to show it is a lease rather than a fee.

When using standard ALTA policy forms to insure leasehold interests, the use of a Leasehold Endorsement will be necessary to properly convert the coverage. The ALTA series 13 endorsements are for leasehold interests. The ALTA 13 endorsement should be issued when insuring a leasehold owner’s interest, and the ALTA 13.1 endorsement should be issued when insuring a leasehold lender’s interest. If issued in conjunction with a 2006 ALTA policy, be sure to use either the ALTA 13-06 or 13.1-06 endorsement. Several other leasehold endorsement forms have been developed for use with prior policies, and various states use state-specific forms.

The leasehold endorsement forms serve to modify the policy by adding lease-specific definitions, reworking the valuation of estate or interest insured provisions, and providing a list of additional items covered by the endorsement. In all cases, even when including the Leasehold Endorsement, the insured interest should continue to be described as “leasehold,” and proper exceptions should be taken.

ALTA CONSTRUCTION LOAN POLICY 10-19-92

The ALTA Construction Loan Policy is intended to be used in connection with a construction mortgage which is not fully funded at the time of execution and is intended to be disbursed during the course of construction as the work of improvement progresses. The policy is essentially the same as the ALTA Loan Policy except that all language relating to mechanic's lien coverage has been removed and appropriate changes have been made to exclude any matters resulting from or incident to the fact that the insured loan has not been fully funded.

This policy is used in only a small number of states. According to the format, any mechanic's lien coverage that is to be given is added back into the policy by way of an endorsement. Specific endorsement forms have been designated “A,” “B,” “C,” and “D.” Mechanic's lien laws vary considerably from state to state and so do the severity of the problems they may create with regard to the insurance of the continued priority of a construction mortgage. In the same way, the available endorsements vary as to the nature and degree of coverage they provide.

Endorsement “A” is used when state law does not give the construction mortgage any priority and it insures against only liens for labor or material done or furnished prior to a certain date for which payment has been made and waivers or receipts obtained.

Endorsement “B” is used where a mortgage has some priority provided the lender is obligated to continue to advance.

Endorsement “C” is appropriate where priority is available up to the filing of a notice of a lien and, upon such an event, the insured is then required to comply with whatever requirements the local law places on a lender under such circumstances.

Endorsement “D” is used when local laws or circumstances are extremely favorable and provides coverage for loss of priority to any mechanic's lien.

To determine if the form is in use in your area and what endorsements are available and proper, contact your supervisory office.

ALTA RESIDENTIAL POLICY

This is an ALTA standard policy, written in plain language. It was intended to meet the requirements, emerging in some states, that consumer insurance policies be written in plain language. This policy is directed at the one-to-four family residential market and includes extended coverage designed to give the owner the same broader coverage previously given to mortgagees.

The ALTA Residential Policy (ORT form 3375) represents an effort of the entire title industry to catch up with the plain language expanded coverage policy which the Old Republic National Title Insurance Company first offered as its copyrighted Title Guard Policy in 1975. Because of the advantages in the use of standard forms, we have switched over to the ALTA Residential Policy. You will notice inflation coverage is automatically built into Schedule A of the policy.

Since the expanded coverage includes rights of parties in possession, survey and mechanic's liens, the underwriting must be like that in an extended coverage mortgagee's policy. You must follow survey guidelines or have an inspection report showing that the improvements are all within the lot lines and that any set-backs imposed by the restrictions are complied with including the location of any easements.

You should be satisfied that the borrower is in sole possession and that there have been no recent improvements. If there have been new improvements and the period for filing mechanic's liens has not yet run, you must be satisfied by receipts and waivers that the bills for major items of labor and material have been completely satisfied. It may also be a sound practice to secure affidavits from the sellers in cases involving sales of existing properties that they have made no recent improvements and that there are no unpaid bills for labor or material.

U.S. POLICIES

Generally, when the United States or one of its agencies is the insured, a special U.S. Policy form is issued instead of the usual owner's policy. The policy that should be used is the "American Land Title Association U.S. Policy Form," ORT Form 3592 rev. 9-28-91.

At present, the U.S. Policy must be used for the U.S. Postal Service and the U.S. Forest Service (Note - whenever a policy is issued to the U.S. Postal Service, refer also to topic "U.S. Postal Service Endorsement" in this manual.)

Some U.S. agencies require a form of policy different from the Form 3592 mentioned above. For example, on some past projects of the U.S. Fish and Wildlife Service and the U.S. Corps of Engineers, the Company has been required to use special policy forms prepared by the Department of the Army for their land acquisitions or their easement acquisitions. These forms are known as "Final Certificate of Title for Easements" and "Certificate of Title." The text for these policy forms is maintained in the Home Office database as Document Nos. 2785 and 2788.

The Department of Justice Title Standards for 2001 are available at: www.usdoj.gov/enrd/2001_Title_Standards.html. Be sure to check that this is the most recent update before relying on the information contained therein. This information is available on the DOJ website at www.usdoj.gov.

If you are unsure of which form to use or if you are in need of the forms, please contact your Supervisory Office.

COMMON OWNERSHIP INTEREST OWNER'S POLICIES

There are various types of common ownership of real estate which we may be asked to insure from time to time, notably townhouses, time share interests and cooperatives. Two of the most common are townhouses and stock cooperatives.

Townhouse or planned unit developments are usually less formal than condominiums and often do not involve an underlying statute. If there is an underlying statute, you must make sure there is compliance with statutory requirements. Frequently, townhouse ownership will include membership in an association of owners. The association will own land abutting or surrounding the townhouse which provides many amenities and possibly access. This association land must also be examined and title determined in order to issue a policy insuring title with necessary appurtenant easements. An ALTA endorsement is usually required on townhouse owner's policies. For the coverages provided by the ALTA 5 and 5.1, please refer to the Planned Unit Development Endorsement elsewhere in this manual.

Stock cooperatives may be insured with respect to the possessory leasehold estate a shareholder gains with their stock purchase. A stock cooperative or cooperative association must be formed in accordance with state law. A cooperative must hold title to the land and improvements in which the shareholder/lessee has an interest. Where a transfer is occurring, the assignment of both the lease and the stock certificate must be verified prior to issuing a policy. Caution must be exercised regarding real estate taxes and assessments absent a state statute apportioning them and their lien between shareholders. See the article on Leasehold Policies elsewhere in this manual.

NOTE: The following exception should appear on all Cooperative Policies:

NOTE: This policy insures that the named insured has a possessory interest in the insured premises. The policy is subject to the rights of the other owners of shares in the co-operative, the terms and conditions of the organizational documents of the cooperative, as they may be amended, and the terms and conditions of the proprietary lease between ______and the insured.

Caution should be exercised in insuring rights in recreational facilities to be sure that these facilities have been completed and that the underlying title is clear. Dock and water rights present additional problems which must be reviewed with your supervisory office.

Finally, the National Conference of Commissioners on Uniform State Laws (NCCUSL) has drafted the Common Interest Ownership Act (CIOA), which has been adopted or incorporated by many states (you’ll need to verify whether the CIOA has been adopted in whole or in part by your particular state). The CIOA allows interests in cooperatives to be treated as interests in real property.

OWNER'S POLICY ON CONDOMINIUM

The issuance of an owner's policy on a condominium unit gives rise to a few basic requirements. In all states, condominium ownership has become a separate estate recognized by specific condominium acts or statutes.

The act of describing a unit as a "condominium" implies compliance with the applicable act or law in your state so you will want to be sure that the Declaration or other document creating the condominium meets

© 2009 Old Republic National Title Insurance Company All Rights Reserved 0909 the statutory requirements. The same is true of the plats and any master deed or deed to individual units as well as the Articles of the Homeowner's Association.

Experience indicates that it is always wise to add up the total percentage interests in the common areas. It is surprising how frequently mathematical errors are found. Another common problem is a discrepancy between the plats and the actual location or identification of the unit being insured. Be certain they conform. You should also be sure that a separate division has been made for each parcel for tax purposes.

When writing the policy, the land should be described by unit number in a named project together with the percentage interest in the common area. The legal description must meet the statutory requirement, if any, for condominium conveyances. The policy should contain an exception to the provisions of the Condominium Act as well as the recorded Declaration and Articles of the Homeowner's Association.

If coverage is required as to survey, restrictions and other matters, such coverage should be given by the ALTA form 5 Condominium Endorsement. If your state is one in which Homeowner's Association Liens take priority over previously recorded mortgages, the ALTA form 5.1 Condominium Endorsement must be used. For more information on these forms and their underwriting, please refer to the Condominium Endorsements article elsewhere in this manual.