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TITLE INSURANCE BASICS: What Every Massachusetts Lawyer Should Know. By Ward P. Graham, Esq., New England Region Counsel Stewart Title Guaranty Company, Boston, MA

I. WHAT IS TITLE INSURANCE?

A. Origin and Basic Characteristics.

Fundamentally, title insurance insures title and interests in real estate, including improvements constituting real estate in accordance with local law. Title Insurance has been available in the United States for over a hundred years. As one would expect, its origin stems from the need of owners and mortgagees of real property to have a ready source of recovery for losses suffered from claims against their title or interest in real estate and for losses suffered because of defects or encumbrances affecting their title or interest in real estate. Of course, an owner or mortgagee suffering a loss because of such matters may have a claim against a seller, borrower or, perhaps, a closing attorney or closing company (a/k/a, a “settlement agent”), but such claims would generally have to be pursued through the litigation process and even a hundred years ago that was a fairly lengthy process with no guarantee of being able to establish liability, let alone assuring recovery if liability were successfully established.

As time has passed and our society has become more and more litigious, the judicial process, as we all know, has become both cumbersome and almost interminable. At the same time, in the event the owner or mortgagee obtains a judgment, recovery has become more and more difficult thanks to our transient society and the ever-growing popularity of the bankruptcy system. That’s where the benefit of title insurance comes in.

With certain limitations set forth in the title insurance policy, the insured has a direct contractual claim for recovery under the policy in the event of a loss due to title claims, defects, liens, encumbrances and certain other matters insured against by the policy. In essence, in order to recover under the title insurance policy, the insured must only show that the matter causing the loss is covered by the policy and that loss has been incurred and is payable in accordance with the terms of the policy. If coverage and loss are established under the policy, there is no need to sue the company to establish negligence, fraud, breach of covenants, misrepresentation, deceit, etc., etc., as might be necessary in the case of a claim for recovery against a seller, borrower or a closing attorney. The contractual right of recovery under the title insurance policy is the indemnity part of the title insurance contract with the title insurance company.

In addition to the indemnity, a title insurance policy includes a duty to defend the insured’s title. This is the other major need of owners and mortgagees that title insurance fills. Expenses and fees involved in defending any claim in court have always been high. Litigation involving a claim against a real estate title is no different.

1 A large and growing portion of the claims dollars paid by title insurance companies each year is for fees and expenses incurred in litigation, usually defending or clearing the insured’s title or interest in the insured property. While the duty to defend is not unlimited, in many instances, it is the insured’s most significant benefit under a title insurance policy. This is especially so in the situation where the title as insured is accurate and the adverse claim is erroneous, invalid or outright frivolous. In such case, the title is not lost or impaired and, therefore, there can be no loss payable under the policy but the fees and expenses incurred in successfully defending or establishing the title can be enormous. Even a successful defense of a title in court can cost $50,000.00 to $100,000.00 or more. The added significance to this benefit under a title insurance policy is that the attorneys fees and expenses are in addition to the face amount of insurance provided by the policy. Thus, if a duty to defend the insured’s title arises (or if the Company in certain situations opts to affirmatively establish or cure the title by judicial action) and the title is confirmed or established as insured, the Company pays the fees and expenses of the litigation, even if no loss is incurred or payable, and there is no reduction or offset against the amount of insurance set forth in the policy.

While title insurance has been available in most parts of the United States for the better part of a hundred years or more, its current popularity arose out of the development of the secondary mortgage market in the 1970’s and the desire of the secondary market to have a standardized product which insured its mortgages in a form that was fairly consistent throughout the country. The secondary market simply needed to know that the title to the real estate being mortgaged was acceptable within its guidelines and that its mortgages were valid and enforceable without it’s having to become familiar with the vagaries of real estate law and conveyancing practice from jurisdiction to jurisdiction. Title insurance, again, filled that need. As mortgage lending over the last 25 years has become more and more a part of interstate commerce, title insurance has become a required part of virtually every mortgage loan transaction.

B. Title Insurance as a Contract of Indemnity.

As eloquently stated in the case of Golden Security Thrift & Loan Assoc. v. First American Title Ins. Co., 53 Cal. App. 4th 250, 258-259, 61 Cal. Rptr.2d 442, 446-447 (1997):

“Title insurance is a contract for indemnity under which the insurer is obligated to indemnify the insured against losses sustained in the event that a specific contingency, e.g., the discovery of a lien or encumbrance affecting title, occurs. [citations omitted.] The policy of title insurance, however, does not constitute a representation that the contingency insured against will not occur. [citations omitted.] Accordingly, when such contingency occurs, no action for negligence or negligent misrepresentation will lie against the insurer based upon the policy of title insurance alone. [citations omitted.] ‘A title policy is not a summary of the public records and the insurer is not supplying information; to the contrary, [the insurer] is giving a contract of indemnity.’ ” Lawrence v. Chicago Title Ins. Co. , 192 Cal. App. 3d 70, 74-75, 237 Cal. Rptr. 264 (1987).

The Massachusetts Appeals Court stated the concept a little differently in the case of Private Lending & Purchasing, Inc., v. First American Title Insurance Company, 54 Mass. App. Ct. 532; 766 NE2d 532 (2002): 2 "A title insurance policy provides protection against defects in, or liens or encumbrances on, title." Id. at 428. Title insurance is neither an agreement to guarantee the state of title, nor a representation of title, but is more in the nature of a covenant of warranty against encumbrances. See Falmouth Natl. Bank v. Ticor Title Ins. Co., 920 F.2d 1058, 1062 (1st Cir. 1990). See also Focus Inv. Assocs., Inc. v. American Title Ins. Co., 992 F.2d 1231, 1237 (1st Cir. 1993).

Private Lending, supra, 54 Mass.App.Ct. at 536. In addition to these judicial recitations of the indemnity nature of the title insurance policy, Paragraph 7 of the Conditions and Stipulations of the standard ALTA policy form, entitled “Determination, Extent Of Liability And Coinsurance” specifically states: “This policy is a contract of indemnity against actual monetary loss or damage sustained or incurred by the insured claimant who has suffered loss or damage by reason of matters insured against by this policy and only to the extent herein described.” As can be seen by the above cases, however, despite that the courts and the policy itself make the indemnity character of the policy pretty clear, the industry continues to have to litigate the issue from time to time.

C. Title Insurance Compared to Other Forms of Insurance.

1. Retrospective Character and Risk Elimination vs. Risk Assumption.

Historically, unlike other forms of insurance, title insurance has been retrospective in character. As the Supreme Court of North Carolina put it in the case of National Mortgage Corporation v. American Title Ins. Co., 299 N.C. 369, 261 S.E.2d 844 (1980):

Nothing else appearing, title insurance operates to protect a purchaser or mortgagee against defects in or encumbrances on title which are in existence at the time the insured takes his title. [Citations omitted.] “It is not prospective in its operation and has no relation to liens or requirements arising thereafter.” [Citations omitted.] “The risks of title insurance end where the risks of other kinds [of insurance] begin. Title insurance, instead of protecting the insured against matters that may arise during a stated period after the issuance of the policy, is designed to save him harmless from any loss through defects, liens or encumbrances that may affect or burden his title when he takes it.” [Citations omitted.]

Id., 299 N.C. at 374-375, 261 S.E.2d at 847-848. Accord, Rosen v. Nations Title Ins. Co., 56 Cal. App.4th 1489, 1499, 66 Cal. Rptr.2d 714, 720 (1997) (“Title insurance is a contract to indemnify against loss through defects in the title or against liens or encumbrances that may affect the title at the time when the policy is issued.” [Citations omitted.] )

In other words, a title insurance policy looks backwards where other forms of insurance look forward in terms of the happening of the event or contingency that gives rise to the loss for which the insurance coverage is provided.

3 Under the terms of the policy, title insurance insures against loss or damage incurred by the insured after the date of the policy but the loss or damage must result from covered matters which had occurred on or before the date of the policy. Contrast this with other forms of insurance (liability, casualty, medical, automobile, life, malpractice, etc.) where both the event or matter insured against and the loss or damage (or the right to have a third party paid directly, such as a hospital in the case of medical insurance) occur after the policy date.

Thus, other forms of insurance insure against the future happening of a covered event, whereas title insurance insures against the economic consequences of an event that has already occurred. That being the case, rather than relying on statistical happenstance, the underwriting of title insurance incorporates certain procedures to identify and eliminate the possibility of the existence or prior occurrence of events which fall into the categories of matters insured against by the policy. These procedures thus seek to eliminate any identifiable sources of risk and thereby eliminate the risk of loss to the insured and, consequently, the title insurance company. Among these procedures are the examination of the title to the proposed insured property (including the records at the Registries of Deeds and Probate), sometimes obtaining a survey or, more often, a mortgage inspection plan of the property to be insured or an affidavit from the seller or borrower certifying to as to certain survey-related issues as well as to mechanics liens and parties in possession of the property to be insured. Other types of inquiry or information gathering functions must be performed as well, customarily part of any real estate closing, such as obtaining municipal lien information, condominium lien information, and mortgage and lien payoff information. Additional investigatory functions may be necessary, also, depending on the results of the title examination and the other inquiries just mentioned.

In Massachusetts, these functions are performed, for the most part, by attorneys or by employees or independent contractors retained by the attorneys but ultimately for whose work the attorney is generally responsible. The title insurance company relies on these procedures to assure that the title it will be insuring is free from identifiable risk, although, as will be discussed later, some risks insured against by a title insurance policy are not necessarily identifiable even by the most careful title examination and inquiries on the part of the closing attorney; but then, that is yet another benefit of title insurance.

4 2. Evolution from Risk Elimination to Risk Assumption.

The basic risk elimination procedures mentioned above remain pretty much in place. However, in response to competitive pressures and the increasing demand from buyers and lenders to decrease both transaction time frames and closing costs, the title insurance industry has periodically modified its procedural requirements to make things easier and quicker for the closing attorneys as well as to eliminate certain costs. Examples are the increasing reliance on existing title insurance policies as so-called “title starts” whereby the title examination process can by substantially reduced together with a reduction in time-to-closing and in the cost of the title examination. In some cases (usually mortgage refinance situations), Certificates of Municipal Liens may be omitted and reliance may be placed upon “verbal tax lien information” provided by telephone. The once-prevalent mortgage inspection plan (relied upon to address certain survey and zoning set-back issues) is giving way to affidavits by sellers or owner- borrowers as mentioned above.

These are just some of the examples of how title insurance is assuming some additional risks by eliminating the need for as detailed a title examination and information gathering process as was once required before a title insurance policy would issue. As will be discussed later, the title insurance industry has also over the years incorporated into its policy forms more and more forms of affirmative coverages over matters that have either been identified or for which little or no information exists to conclusively eliminate the matter as a risk of loss or claim. Because of the myriad issues that can affect title to real estate, many of these kinds of affirmative coverages are given on a case-by- case basis and tailored to the specific matter affecting the particular title. However, as you will see, many of the coverages that, over time, became commonly requested have found their way into preprinted endorsement forms, which are attached to the policy or incorporated by specific reference or by checking a box indicating the endorsement is considered part of the policy. Affirmative coverage endorsements and specific affirmative coverages are additional examples of title insurance moving more and more away from risk elimination and into the realm of risk assumption that traditionally characterized other forms of insurance.

A further example of this movement toward risk assumption is the new “enhanced coverage” (or “extended coverage”) policy forms that are being introduced into the marketplace and will be discussed elsewhere in these materials. As you will see from the discussion of these new forms, title insurance is beginning to cover a number of items that are excluded from coverage under the current forms of policies.

3. Premium Structure and Rates.

Because the basic tenet of title insurance is still “risk elimination” and “retrospective coverage,” the premium for title insurance is a one-time premium, whereas the premiums paid for all other forms of insurance are based on an ongoing annual premium structure. This makes sense. As of the date of the title insurance policy, either a covered event that could cause loss exists (even though it may not yet be known or its legal or economic consequences have not yet occurred) or it doesn’t exist. While the likelihood of loss or damage resulting from the event, if it existed, 5 may vary with time, the likelihood of the existence of the event itself remains the same. With other forms of insurance, the statistical likelihood of the event covered by those forms of insurance occurring generally increases over time. Charging an ongoing premium (and even a premium that increases from year to year or after a certain number of years) seems reasonable when viewed in this light.

The risk of loss under a title insurance policy does not increase over time and, in fact, in many cases, the passage of time may even reduce or eliminate the risk of loss resulting from an event that existed at the date of the policy.1 Hence, for title insurance, the one-time premium structure makes sense.

As for premium rates, the rates for residential owner’s and lender’s policies in Massachusetts have been fairly uniform among the various companies. As of the writing of these materials (2005) a fairly common rate structure in Massachusetts would be as follows:

Owner’s Policy: $4.00 per thousand dollars coverage up to $1 million; $3.00 per thousand dollars coverage from $1 million to $2 million; For Policy Amounts above $2 million, negotiable rate

Loan Policy: $2.50 per thousand dollars coverage up to $500,000; $2.00 per thousand dollars coverage from $500,000 to $2 million; For Policy Amounts above $2 million, negotiable rate

Also, there has been for quite some time what is known as a “Simultaneous Rate.” This rate gives a discount to an owner/borrower (whose usually the one paying the title insurance premium along with all the other closing costs) who purchases an owner’s policy simultaneously with the customarily required loan policy. In that case, the owner/borrower pays for the owner’s policy at the owner’s policy rate and the title insurance company issues the loan policy at the same time for only an additional $100 on any loan policy amount up to the owner’s policy amount. Again, this is fairly uniform among the various title insurance companies doing business in Massachusetts. However, as Massachusetts, surprisingly enough, does not specifically regulate title insurance or its premium rates, there are some variations in the rate structures among the companies. Accordingly, check with your particular company for their rate structure.

4. Duration of a Title Insurance Policy.

We are getting a little ahead of ourselves here because this topic gets into some of the specific provisions of the policy which will be discussed later but it is appropriate to deal with this aspect of the policy here where we are comparing title insurance to other forms of insurance. Generally, other forms of insurance policies lapse after a

1 Such cases would include, for example, situations where liens, or the possibility of inchoate liens, were overlooked in the title examination process but are of limited duration, such as mechanics liens (90 days), corporate excise tax liens (3 years), attachments (6 years), executions (6 years and 90 days), estate tax liens (10 years), certain Mass. DOR liens (10 years), etc. 6 certain period of time and must be renewed if the insured desires continuation of coverage. (Of course, for other forms of insurance, this will also require the continuation of premium payments.)

Some policies, such as automobile, liability, casualty and malpractice, traditionally are renewed annually. Other forms, such as medical, homeowner’s and some forms of life insurance, continue so long as you continue to pay your premiums or until, for example, the home is sold or the final payout event occurs. Still others, such as term life insurance, continue for a certain time with the possibility that, even if the event insured against has not yet occurred, renewal may not be allowed.

Title insurance, on the other hand, continues for as long as the insured holds the title or interest insured by the policy. In certain circumstances, the policy may even continue after the named insured’s interest in the property ceases. The continuation of coverage provisions in the standard owner’s and loan policies are contained in the Conditions and Stipulations (“C&S”) printed in the policy jackets.2 The relevant provisions of the Conditions and Stipulations affecting the duration of the policy are found in the Definition of “Insured” contained in C&S para. 1. (a) and the Continuation of Coverage provisions contained in C&S para. 2.

In the standard ALTA Owner’s Policy, the definition of “insured” includes “those who succeed to the interest of the insured by operation of law as distinguished from purchase, including, but not limited to, heirs, distributees, devisees, survivors, personal representatives, next of kin, or corporate fiduciary successors.” C&S para. 1. (a). C&S para. 2, entitled, “Continuation of Insurance After Conveyance of Title,” provides for continuation of coverage so long as the insured “retains an estate or interest in the land,” holds a purchase money mortgage given by a purchaser from the insured or has liability under warranty covenants (the latter being rare in Massachusetts, at least in the Eastern 2/3 of the state).

In the standard ALTA loan policy, the definition of insured in C&S para. 1. (a) states:

The term “insured” also includes

(i) the owner of the indebtedness secured by the insured mortgage and each successor in ownership of the indebtedness except a successor who is an obligor under the provision of Section 12(c) of these Conditions and Stipulations (reserving, however, all rights and defenses as to any successor that the Company 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, adverse claim or other matter insured against by this policy as affecting title to the estate or interest in the land):

(ii) any governmental agency or governmental instrumentality which is an insurer or guarantor under an insurance contract or guaranty insuring or guaranteeing the indebtedness secured by the insured mortgage, or any part thereof, whether named as an insured herein or not;

(iii) the parties designated in Section 2(a) of these Conditions and Stipulations.

2 The standard policy forms used in Massachusetts today (particularly for residential transactions) are the American Land Title Association (“ALTA”) 1992 versions of the Owner’s and Loan Policies. These policy forms are attached to these materials as Exhibits A and B. 7 C&S para. 2, entitled simply, “Continuation of Insurance,” provides:

(a) After Acquisition of Title. The coverage of this policy shall continue in force as of Date of Policy in favor of (i) an insured who acquires all or any part of the estate or interest in the land by foreclosure, trustee’s sale, conveyance in lieu of foreclosure, or other legal manner which discharges the lien of the insured mortgage; (ii) a transferee of the estate or interest so acquired from an insured corporation, provided the transferee is the parent or wholly-owned subsidiary of the insured corporation, and their corporate successors by operation of law and not by purchase, subject to any rights or defenses the Company may have against any predecessor insureds; and (iii) any governmental agency or governmental instrumentality which acquires all or any part of the estate or interest pursuant to a contract of insurance or guaranty insuring or guaranteeing the indebtedness secured by the insured mortgage.

(b) After Conveyance of Title. The coverage of this policy shall continue in force as of Date of policy in favor of an insured only so long as the insured retains an estate or interest in the land, or holds an indebtedness secured by a purchase money mortgage given by a purchaser from the insured, or only so long as the insured shall have liability by reason of covenants of warranty made by the insured in any transfer or conveyance of the estate or interest. This policy shall not continue in force in favor of any purchaser from the insured of either (i) an estate or interest in the land, or (ii) an indebtedness secured by a purchase money mortgage given to the insured.

As you can see, C&S, para. 2. (a) carries forward the same concepts found in the Owner’s Policy and the lender’s insurance will continue so long as the insured holds an estate or interest in the property and it will inure to the benefit of the lender’s corporate successors by operation of law but the loan policy provision allows for continuation of coverage to governmental agency successors who take over because of an insurance or guarantee contract. C&S para. 2. (b) of the Loan Policy is essentially the same provision found in C&S para. 2 of the Owner’s Policy.

As the foregoing indicates, under the 1992 form of Owner’s Policy, coverage is not continued in favor of related transferees of an insured owner unless they take title by operation of law, such as heirs or devisees. Indeed, in a recent Maryland Court of Appeals case,3 the court held that the title insurance policy terminated upon the transfer of the insured property by husband-and-wife insureds to a family LLC, even though a claim had been filed by the husband-and-wife insureds under the policy before the transfer. In part, this decision was based on the court’s finding that the transfer was an attempt by the husband and wife to avoid creditors and that the deed recited a six figure consideration for the transfer. While the court may have felt differently if the plaintiffs had shown a pure estate planning intent behind the transfer and the deed had recited nominal consideration, it is important to bear in mind that one person’s estate planning device is another person’s creditor avoidance device.

In any case, no matter what the intent was, what was also missing in the Maryland case was an endorsement to the husband and wife’s policy substituting the family LLC as the insured. Had that been done, the LLC could have then continued with the claim as the substituted insured. Thus, it is important from an insured’s standpoint to make sure that a request is made to the title insurance company to endorse an existing owner’s policy to substitute a related transferee as insured. The title insurance company may decide to scrutinize the substance of the transaction to see if

3 Gebhardt Family Investment, L.L.C., et al v. Nations Title Insurance of New York, Inc., 132 Md.App. 457, 752 A.2d 1222 (2000). 8 there are any fraudulent transfer implications but in a bona fide estate planning situation, the insured should not want to run the risk that even a nominal consideration estate planning transfer terminates the title insurance policy.

In order to accommodate this situation, the companies have devised endorsement forms to accomplish the substitution of insureds. These endorsement forms and the requirements for issuing them are not yet standardized, if you have such a situation, you should check with your individual underwriter for procedures and forms.

5. Policy Interpretation.

One area where title insurance and other forms of insurance have something in common is where the policy itself becomes the subject of litigation between the insurer and the insured in a dispute over coverage and the policy provisions must be interpreted by the court. In such cases, interpretation of an insurance policy (including a title insurance policy) is no different from the interpretation of any other contract - the court must construe the words used in the policy in their usual and ordinary sense. Hakim v. Massachusetts Insurers’ Insolvency Fund, 424 Mass. 275, 675 N.E.2d 1161 (1997); Hatch v. First American Title Ins. Co. , 895 F.Supp. 10 (D.Mass. 1995). Where the provisions of an insurance policy are “plainly and definitively expressed, the policy must be enforced in accordance with [its] terms.” Somerset Savings Bank v. Chicago Title Ins. Co., 420 Mass. 422, 427, 649 N.E.2d 1123 (1995). Accord, Private Lending & Purchasing, Inc., v. First American Title Insurance Company, 54 Mass. App. Ct. 532, 536, 766 NE2d 532, ___ (2002), citing the Somerset Savings Bank case. In the Somerset Savings Bank case, the Massachusetts Supreme Judicial Court outlined the general rules of insurance policy interpretation this way:

As a general rule, a dispute concerning the proper interpretation of an insurance policy raises only a question of law. Massachusetts Bay Transp. Auth. v. Allianz Ins. Co., 413 Mass. 473, 476, 597 N.E.2d 439 (1992), citing Nelson v. Cambridge Mut. Fire Ins. Co., 30 Mass. App. Ct. 671, 673, 572 N.E.2d 594 (1991). In interpreting the provisions of a policy, we construe and enforce unambiguous terms according to their plain meaning. See Thomas v. Hartford Accident & Indem. Co., 398 Mass. 782, 784, 500 N.E.2d 810 (1986); Royal-Globe Ins. Co. v. Schultz, 385 Mass. 1013, 434 N.E.2d 213 (1982). When the provisions of a policy are plainly and definitively expressed, the policy must be enforced in accordance with the terms. See Cody v. Connecticut Gen. Life Ins. Co., 387 Mass. 142, 146, 439 N.E.2d 234 (1982). Absent ambiguous contractual language in the policy, custom and practice evidence cannot be used to vary the provisions of the policy. See Newell-Blais Post #443, Veterans of Foreign Wars of the U.S., Inc. v. Shelby Mut. Ins. Co., 396 Mass. 633, 638, 487 N.E.2d 1371 (1986) (language clear and unambiguous; recourse to extrinsic evidence not required); Nilsen v. Mutual Marine Office, Inc., 428 F. Supp. 1375, 1378-1380 (D. Mass. 1977). However, pertinent custom and usage are, by implication, incorporated into a policy and are admissible to aid in policy interpretation, not as tending to contradict or vary a contract, but on the theory that usage forms part of the contract. See Affiliated FM Ins. Co. v. Constitution Reinsurance Corp., 416 Mass. 839, 845, 626 N.E.2d 878 (1994), and authorities cited. In the final analysis, however, express terms are to be given preference in interpretation over course of performance and usage of trade. See Restatement (Second) of Contracts § 203 (b) (1981). 9 Somerset Savings Bank, supra, 420 Mass. at 427. On the other hand, generally, any ambiguity in the language of an insurance policy will be construed most strongly against the insurer. Falmouth National Bank v. Ticor Title Ins. Co., 920 F.2d 1058 (1st Cir. 1990). As pointed out in the Falmouth National Bank case, this general rule is not always so strongly applied to coverage provisions when the insurer and the insured (such as a mortgage lender or a sophisticated developer) are of relatively equal bargaining power. See also, Hatch, supra. However, when it comes to exclusionary provisions (i.e., exclusions or exceptions from coverage), relative bargaining power is of little consequence.

Exclusionary provisions in an insurance policy are viewed with particular scrutiny by the courts. If free from ambiguity, the terms of an exclusionary provision, like any other provision of the policy, will be given their usual and ordinary meaning. Hakim, supra. Nonetheless, exclusionary provisions will be strictly construed and any ambiguity will be resolved against the insurer and in favor of the insured. Hakim, supra; Quincy Mutual Fire Ins. Co. v. Abernathy, 393 Mass. 81, 469 N.E.2d 797 (1984); Hingham Mutual Fire Ins. Co. v. Niagara Fire Ins. Co., 46 Mass. App. Ct. 500, 707 N.E.2d 390 (1999); Swift v. Fitchburg Mutual Ins. Co., 45 Mass. App. Ct. 617, 700 N.E.2d 288 (1998), rev. den., 428 Mass. 1108, 707 N.E.2d 366 (1999); Stop & Shop Companies, Inc. v. Federal Ins. Co., 136 F.3d 71 (1st Cir. 1998). Put another way, where the language of an exclusionary provision permits more than one interpretation, the interpretation most favorable to the insured will prevail. Morin v. Massachusetts Blue Cross, Inc., 365 Mass. 379, 311 N.E.2d 914 (1974).

On the flip side of the coin, where the insured specifically negotiates affirmative coverages in the policy, the weight of policy interpretation shifts back to a more even balance so that any ambiguity is not automatically resolved against the insurer. A closer look at the language used and the circumstances under which the affirmative coverage was provided will be undertaken by the court. See, Falmouth National Bank, supra; Golden Security Thrift & Loan Assoc., supra; First National Bank of Northbrook v. Stewart Title Guaranty Co., ___ Ill. App. ___ , 644 N.E.2d 310 (1996).4

6. Insurer’s Duty to Defend. a. Duty to Defend Generally

Another area in which the duty of the insurer under a title insurance policy is not any different than that under other forms of insurance policies is in the area of the duty to defend. As with policy language interpretation, the courts will also take the view most favorable to an insured in situations involving the duty to defend. It is often said that the duty to defend is broader than the duty to indemnify. Doe v. Liberty Mut. Ins. Co., 423 Mass. 366, 368-369, 667 N.E.2d 1149 (1996); Boston Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 10, 545 N.E.2d 1156 (1989); Swift v. Fitchburg Mut. Ins. Co., 45 Mass. App. Ct. 617, 623, 700 N.E.2d 288, (1998). In the Boston Symphony Orchestra case, the Supreme Judicial Court elaborated on the point, stating:

4 These three cases will be discussed further in the materials dealing with affirmative coverages. 10 It is axiomatic that an insurance company's duty to defend is broader than its duty to indemnify. An insurer must indemnify its insured when a judgment within the policy coverage is rendered against that insured. The duty to defend, however, is antecedent to, and independent of, the duty to indemnify. See Magoun v. Liberty Mut. Ins. Co., 346 Mass. 677, 681-682 (1964). The obligation of an insurer to defend is not, and cannot be, determined by reference to the facts proven at trial. Rather, the duty to defend is based on the facts alleged in the complaint and those facts which are known by the insurer. Desrosiers v. Royal Ins. Co., 393 Mass. 37, 40 (1984).

Boston Symphony Orchestra, supra, at 10-11. At the same time, the duty to defend, while broader than the duty to indemnify, is not unlimited. If the allegations of the complaint demonstrate that the claim is not covered (either because it is not a matter insured against by the policy or because it is excluded from coverage), there is no duty to defend. See Doe v. Liberty Mut. Ins. Co., supra (no duty to defend where complaint alleged intentional conduct, which was excluded from liability policy); Aetna Casualty & Surety Co. v. Cotter, 26 Mass. App. Ct. 56, 59, 522 N.E.2d 1013 (1988) (no duty to defend or indemnify against personal injury action where complaint alleged no theory of negligence, but, instead, alleged claims for misrepresentation and breach of contract and, therefore, allegations fell within provision of homeowner's insurance policy expressly excluding from coverage liability assumed under any unwritten contract or agreement); See also, Vecchia v. Gage, 1999 Mass. Super. LEXIS 551, MICV-99-01572E (Middlesex Sup. Ct., Hamlin, J., Nov. 19, 1999) (no duty to defend under homeowner’s policy where allegations in complaint of misrepresentation/fraud, negligent misrepresentation and breach of contract do not involve bodily injury or personal injury as covered by the policy). b. Duty to Defend Under a Title Insurance Policy.

Under the ALTA 1992 policy form commonly in use today, the duty to defend arises pursuant to the following statement that appears as part of the insuring provisions contained on the face of the policy jacket:

The Company will also pay the costs, attorneys fees and expenses incurred in defense of the title or the lien of the insured mortgage, as insured, but only to the extent provided in the Conditions and Stipulations.

(Note that the “or the lien of the insured mortgage” language does not appear in the Owner’s Policy form. Otherwise, the language is the same in both Owner’s and Loan policies.) One then looks to Para. 4. (a) of the Conditions and Stipulations to find the provisions describing the circumstances under which the duty to defend arises:

Upon written request by the insured and subject to the options contained in Section 6 of these Conditions and Stipulations, the Company, at its own cost and without unreasonable delay, shall provide for the defense of an insured in litigation in which any third party asserts a claim adverse to the title or interest as insured, but only as to those stated causes of action alleging a defect, lien or encumbrance or other matter insured 11 against by this policy. The Company shall have the right to select counsel of its choice (subject to the right of the insured to object for reasonable cause) to represent the insured as to those stated causes of action and shall not be liable for and will not pay the fees of any other counsel. The Company will not pay any fees, costs or expenses incurred by the insured in the defense of those causes of action which allege matters not insured against by this policy. [Emphasis added.]

The duty to defend provisions in a title insurance policy were most recently reviewed in Massachusetts in the case of Premier Homes, Inc. v. Lawyers Title Ins. Co., 76 F.Supp.2d 110 (D. Mass., 1999). This case involved the question of the title insurance company’s duty to defend an action in which the complaint named the insured owner as an “interested party” because the plaintiffs were trying to obtain reconveyance of the property. The insured owner was a downstream purchaser after a mortgage foreclosure sale and the plaintiffs’ primary complaint was against the foreclosing mortgagee. The only basis for seeking reconveyance against the insured owner was the bare assertion in the complaint that the insured owner was not a bona fide purchaser. In his Memorandum and Order, Judge Young observed the following with regard to an insurer’s duty to defend in Massachusetts:

Under Massachusetts law, an insurer’s duty to defend in a particular case is determined by comparing the allegations in the complaint to the policy provisions. See Simplex Technologies, Inc. v. Liberty Mut. Ins. Co., 429 Mass. 196, 197-98 (1999). “[I]f the allegations of the complaint are “reasonably susceptible” of an interpretation that they state or adumbrate a claim covered by the policy terms, the insurer must undertake the defense.” Continental Cas. Co. v. Gilbane Bldg. Co., 391 Mass. 143, 146 (1984); see also Dryden Oil Co. of New England, Inc. v. Travelers Indem. Co., 91 F.3d 278, 282 (1st Cir. 1996); GRE Ins. Group v. Metropolitan Boston Hous. Partnership, Inc., 61 F.3d 79, 81 (1st Cir., 1995); Liberty Mut. Ins. Co. v. SCA Servs. Inc., 412 Mass. 330 (1992). The “complaint need only show, through general allegations, a possibility that the liability claim falls within the insurance coverage.” SCA Servs., Inc. v. Transportation Ins. Co., 419 Mass. 528, 532 (1995). The allegations of the complaint, not the insurer’s belief as to the merits of the complaint, determine an insurer’s duty to defend. See Boston Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 13 (1989). Thus, in Massachusetts, an insurer’s duty to defend an insured is more expansive than its duty to indemnify. See Id at 10.

Premier Homes, supra, 76 F.Supp.2d at 115. Following these guidelines, Judge Young found that the claims asserted against the insured in the action sought to deprive the insured of title by virtue of conduct by third parties. Opining that this is precisely the type of threat envisioned by a title insurance policy, Judge Young found a duty to defend.

While the Premier Homes case is not an appellate decision and the cases cited by Judge Young did not involve title insurance, the basic principles Judge Young enunciated regarding the duty to defend under a title insurance policy in Massachusetts have been followed in other jurisdictions. See, e.g., Cheverly Terrace Partnership v. Ticor Title Ins. Co., 100 Md. App. 606, 642 A.2d 285 (1994) (duty to defend is not determined by the facts ultimately proven but whether the allegations in the complaint potentially bring the claim within the policy’s coverage); Havstad v. 12 Fidelity National Title Ins. Co., 58 Cal. App.4th 654, 68 Cal. Rptr.2d 487 (1997) (duty to defend is only triggered where the potential for policy coverage is shown); Gebrayel v. Transamerica Title Ins. Co., 132 Or. App. 271, ___ P.2d ___ (Or. App. 1995) (although the duty to defend is broader than the obligation to pay, the scope of the duty to defend is determined by comparing the terms of the title insurance policy with the allegations of the complaint to determine whether there is a possibility of coverage for the claims made).

As stated earlier, the duty to defend is not unlimited. If the subject matter of the complaint against the insured is not a matter insured against in the first instance, then there is no duty to defend the insured. See, e.g., United Bank v. Chicago Title Ins. Co., 168 F.3d 37 (1st Cir. Me. 1999) (no duty to defend action for misrepresentation as to deeded access where, not only does this allegation fall within the exclusion for matters created by the insured, but also, the policy only insures a legal right of access not any particular form or basis for that right); Farrington Corp. v. Commonwealth Land Title Ins. Co. of Philadelphia, 936 P.2d 1157 (Wash. App. 1997) (defect arising after the date of the policy is not covered and there is no duty to defend an action based on that defect); NPH Realty, Ltd. v. TICOR Title Insurance Company, C.A. No. 96-11197-GAO, 25 M.L.W. 1458 (D. Mass. Feb. 28, 1997) (complaint alleging tortious conduct - fraudulent and collusive conduct involving the foreclosure of a mortgage so as to wipe out a junior lienholder - is based on a matter not within the scope of the policy).

Similarly, if the subject matter of the lawsuit against the insured is excluded from coverage, there is no duty to defend. See, e.g., N.E. Properties, Inc. v. Chicago Title Ins. Co., 660 A.2d 926 (Me. 1995) (no duty to defend suit to enforce recorded Declaration of Covenants where, even though not specifically excepted from coverage, the Declaration was made and recorded by the insured); Barczewski v. Commonwealth Land Title Ins. Co., 258 Cal. Rptr. 386, 210 Cal. App.3d 406 (4th Dist. 1989) (allegations of fraud, misrepresentation, breach of fiduciary duty, breach of contract, etc., on the part of the insured are excluded from coverage as matters “created, suffered or assumed by the insured” and, in any event, such matters were not insured against as they were not on the public record and did not affect the title as of the policy date); Safeco Title Ins. Co. v. Moskopoulos, 172 Cal. Rptr. 248, 116 Cal. App. 3d 658 (2d Dist. 1981) (no duty to defend allegations of tortious conduct because excluded from coverage by unambiguous terms of policy, no allegations establish defect lien or encumbrance on the record title and lis pendens filed after policy date).

The Moskopolous case is frequently cited with regard to conduct of the insured negating a duty to defend. Depending on the circumstances as alleged in the complaint, conduct of the insured, especially tortious conduct, can be either excluded from coverage or deemed to be a matter not insured against in the first place. In construing the policy provisions relative to the complaint alleging tortious conduct in the Moskopolous case, the court, reiterating the oft-quoted principle that the duty to defend is broader than the duty to indemnify, nonetheless stated:

An insurance company may limit the coverage of a policy issued by it. When it has done so, the plain language of the limitation must be respected. Continental Cas. Co. v. Phoenix Constr. Co., 46 Cal.2d 423 (1956).

13 Moskopolous, supra, 116 Cal. App.3d at 666. Thus, the basic principle to be gleaned from foregoing is: When issues of coverage are involved, there is no substitute for reading the policy carefully in relation to the circumstances at hand.

II. BASIC PROVISIONS OF A TITLE INSURANCE POLICY.

A. Standard Forms of Policies in Use Over the Last Decade.

The standard title insurance policy forms used by most title insurers in Massachusetts are based on the American Land Title Association (ALTA) Title Insurance Policy forms promulgated in 1970. Those forms have been revised several times, in 1984, 1987, 1990 and 1992. For the last eight or nine years the 1992 version of the 1970 ALTA form. As will be discussed in other materials, newer forms of expanded coverage policies are about to enter the title insurance marketplace. Up to this point, we have been discussing and will continue to discuss the 1992 policy forms used for the better part of the 1990’s and which are, for the moment at least, still the predominant forms of policies in use in New England. As noted before, samples of the 1992 forms of Owner’s and Loan (Mortgagee’s) Policies are attached to these materials as Exhibits A and B, respectively.

In the standard ALTA 1992 policy form, the insuring provisions, the standard Exclusions From Coverage, the definitions and the Conditions and Stipulations of the policy are contained in pre-printed form in the policy jacket. Inserted schedules prepared by the company or its policy issuing agent provide the specifics with regard to the insureds, the property, the mortgage (in the case of a loan policy), the nature of the interest being insured, the amount and date of the policy and any particular exceptions related to the title being insured that the company will not insure against. Samples of the inserted schedules are included as part of Exhibits A and B.

The policy jacket is the form that contains the pre-printed Insuring Provisions, the Exclusions From Coverage and the Conditions and Stipulations of the policy. It also contains a signature block and the seal of each company in order to validate the policy.

B. Schedule A – Who and What Are Being Insured?

The policy information for each particular policy is generally contained in a Schedule A. This information includes the policy number, the date of the policy (usually the recording date of the deed and/or mortgage), the amount of insurance, the named insured(s) and (in the Loan policy) the parties in whom the title to the property is vested, the estate or interest being insured (usually fee simple as to the owner’s estate and the mortgage interest as to the lender), and basic property information, such as the address of the property and, in the case of a condominium, the unit number and condominium name.

While the full description of the property may be placed on Schedule A if it is short enough, customarily, the property description is contained in a Schedule A Description sheet or an Exhibit sheet. It is important to note that 14 the Description of the property to be insured should generally be limited to the actual description of the land (together with the buildings thereon) by metes and bounds or by references to lots on recorded plans.

Most title insurance companies strongly discourage, if not prohibit, the inclusion of acreage or area (such as “containing 1/2 acre or 26,890 sq. ft.”) in the Description of the insured property. Among other reasons for this, recitals of acreage and area in deed descriptions are notoriously uncertain (quite frequently the words “approximately” or “more or less” are included) and many times they are inaccurate or misleading.

Appurtenant rights, such as easements or the benefits of a scheme of restrictions, should not be placed in the Schedule A Description either, unless the validity of those rights has been specifically searched and verified.

Encumbrances listed in the deed or mortgage, or other matters to which the title being conveyed is stated to be subject, should be placed in Schedule B as exceptions from coverage (as discussed below) not in the Description sheet.

Title references or other explanatory matters appearing in a deed or mortgage also have no place on the Description of the property to be insured. In part, they are usually irrelevant to the insurance policy and many times they are misleading or inaccurate because of mistakes, such as scrivener’s errors.

Basically, the Description sheet serves a somewhat different function than the deed or mortgage from which it is derived. Its function is to describe only the property and interests intended to be insured by the policy. As will be seen later, essentially anything set forth in the Schedule A or its related Description sheet will be insured by the policy under Insuring Provision No. 1. Thus, particular attention should be paid to what is placed in both the Schedule A and its related Description sheet.

C. Schedule B – What Is Not Being Insured, Generally or Specifically?

As the Massachusetts Appeals Court observed recently,

An exception to a title insurance policy is a matter affecting title to the insured property that the insurer expressly excludes from the policy's coverage. See Burke, Law of Title Insurance § 2.01, at 2-16, § 9.01, at 9- 3 (3d ed. 2000). The purpose of Schedule B is to identify matters affecting the insured property that are excepted from coverage. The identification of matters excepted in Schedule B is not the equivalent of a title abstract, a title search, or a representation as to title. See Focus Inv. Assocs. v. American Title Ins. Co., 992 F.2d at 1237. Nor is the identification of excepted matters in Schedule B a substitute for a lender's own review of referenced instruments or due diligence.

Private Lending & Purchasing, Inc., v. First American Title Insurance Company, 54 Mass. App. Ct. 532; 536- 537, 766 NE2d 532, 536 (2002). Thus, as alluded to previously, Schedule B is the schedule in which are listed 15 matters that affect, or may affect, the title to the property or the mortgage to be insured and against which the title insurance policy will not insure. Such matters are referred to in the preamble to the policy jacket as the “Exceptions From Coverage contained in Schedule B,” although the words “Exceptions From Coverage” do not actually appear on Schedule B itself. Matters listed on Schedule B are excepted from coverage by virtue of the following statement printed at the top of the Schedule B:

This policy does not insure against loss or damage arising by reason of the following:

Actually, as you can see, this “statement” is more a clause and the list of matters placed in Schedule B complete the sentence and, thus, constitute those matters for which the policy does not provide coverage. Because the listing of any matters in Schedule B is the completion of that statement, it is not necessary to start a Schedule B exception with the words “subject to”. Just the listing of the matter itself (such as an easement) together with identifying information (such as the parties to it and, perhaps, its subject matter, such as “utility easement” or “drainage easement”)5 and recording information (book and page and the date of the instrument or, preferably, the date of recording6) is sufficient to except it from coverage.

Originally, the ALTA form of Schedule B did not contain any pre-printed exceptions. The top of the Schedule B merely began with the disclaimer statement referred to above: After that disclaimer statement, specific exceptions as to title matters not to be insured would be listed. Over time, some pre-printed exceptions began to appear and were shown on the Schedule B as “General Exceptions” or “Standard Exceptions”. Like the Exclusions From Coverage appearing in the policy jacket, these “General” or “Standard” Exceptions dealt primarily with matters which a customary title search would not normally cover or discover. Although the precise wording may be somewhat different from company to company, the more common pre-printed Standard Exceptions in the current Schedule B forms are as follows:

1. Rights or claims of present tenants, lessees or parties in possession not shown by the public record. 2. Discrepancies, conflicts in boundary lines, shortage in area, encroachments, or any other facts which a correct survey and inspection of the premises would disclose, and which are not shown by public records. 3. Any lien, or rights to a lien, for services, labor or material heretofore or hereafter furnished, imposed by law and not shown by the public records. 4. Liens for municipal taxes and assessments which become due and payable after the date of this policy.

After these Standard Exceptions, any “Special Exceptions” revealed by the title search or a plot plan or survey will be listed in the Schedule B. In both commercial and residential transactions, most of the affirmative coverages the title insurance company will be asked to provide to an insured will relate to either Standard or Special Exceptions appearing in Schedule B rather than to Exclusions From Coverage.

5 Although one must, of course, be careful if characterizing the nature of an encumbrance to do so accurately. 6 Generally, the date of recording is more significant than the date of the instrument as the Massachusetts recording priority system is based on who gets to the Registry of Deeds first, not who signed the document first. 16 Note that the Schedule B does not state that anything contained in it is a defect, lien or encumbrance on the insured’s title. It is simply a schedule by which the title insurance company identifies certain matters against which it will not insure. To be sure, many times Schedule B matters do affect the title in some way and they may, indeed, be deemed to be defects, liens or encumbrances. However, based on the character of a title insurance policy as a contract of indemnity for loss, the title insurance company may want to take exception for matters which may or may not necessarily affect the title, or the use or possession of the property as an incident of that title, but the company sees some risk of claim, litigation, loss or controversy and seeks to eliminate its exposure to paying for the consequences of same. In other cases, the company may be seeking by a particular Schedule B exception to clarify, define or limit a particular insuring provision. In still other cases, the company may be placing a particular exception in Schedule B in order to provide some affirmative coverage for that matter upon the request of the insured. Thus, the Schedule B form is not only a form that contains Exceptions From Coverage, but it may also be used to recite affirmative coverages over certain matters that might otherwise be excluded or excepted from coverage.

In both residential and commercial transactions, it is quite common that the lender will request that the Standard Exceptions (other than the tax lien exception) be deleted from a Loan policy. This has become fairly routine for Loan Policies and can be accomplished by merely filling in the blank appearing in the Loan Policy Schedule B within a statement that tells the lender what pre-printed Exceptions are being deleted from the Loan Policy. Even though deleting the first three Standard Exceptions (some form of tax lien exception should always appear in Schedule B) has become routine, it is usually done based on standardized plot plans and (for commercial policies) surveys and title insurance affidavits7 which show that the insured property is not affected by any of the matters covered by these Exceptions. If the plot plan, survey or affidavits reveal a specific adverse matter falling within the Standard Exceptions, in most cases the Standard Exception can still be deleted but a specific or “Special Exception” will be taken in Schedule B for the particular adverse matter. Whether a residential or commercial title insurance policy is involved, higher level surveys, more extensive affidavits and, sometimes, Indemnities will usually be required if a proposed insured owner requests deletion of these Exceptions from an Owner’s Policy. In any case, it is important to keep in mind that whatever the requirements are that may be imposed by the title insurance companies in order to delete Exceptions from the policy, the title insurance company is essentially looking for information which eliminates or minimizes the risk that the property is affected by one of the types of matters to be deleted from the policy. With the introduction of Extended Coverage Policies into the marketplace, however, that is beginning to change and, as you will see, more risk is being assumed with less information.

The sample Schedule B’s included with Exhibits A and B are specialized forms designed for residential transactions and include a lot of preprinted matters that the original Schedule B form promulgated by the ALTA did not have. The sample Schedule B’s are likely to be the forms you will use in residential title insurance policies.

7 Examples of a standard title insurance affidavit and a “long-form” or “survey coverage” affidavit are attached to these materials as Exhibits C and D. 17 Note also, that the residential form of Schedule B included with the Loan Policy in Exhibit B also includes a list of endorsements, which can be incorporated into the policy by simply checking the appropriate box. As will be discussed later, such endorsements provide specific kinds of affirmative coverages and assurances that the Secondary Market requires whether or not a specific exception for the matter appears in Schedule B.

D. Standard Insuring Provisions.

The insuring provisions in the two standard forms of policy (owner’s and loan) are essentially the same as they relate to title matters but the lenders policy also contains some additional coverages and exclusions that relate to matters affecting the enforceability and lien priority of the mortgage. As mentioned, the jacket of both the Owner’s and Loan Policies contains the standard insuring provisions. They appear on the face page of the jacket. The basic Insuring Provisions in both the Owner’s and Loan Policies are recited as follows:

SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS CONTAINED IN SCHEDULE B AND THE CONDITIONS AND STIPULATIONS, [THE COMPANY] . . . insures, as of Date of Policy shown in Schedule A,. against loss or damage, not exceeding the Amount of Insurance stated in Schedule A, sustained or incurred by the insured by reason of: (1) Title to the estate or interest described in Schedule A being vested otherwise than as stated therein; (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.

The Company will also pay the costs, attorney’s fees and expenses incurred in the defense of the title, as insured, but only to the extent provided in the Conditions and Stipulations.8

The Loan Policy also contains additional insuring provisions relating to the enforceability and lien priority of the mortgage and adds language to the “defense of title” clause to include defense of the mortgage. The additional Loan Policy insuring provisions and its “defense of title clause” are as follows:

5. The invalidity or unenforceability of the lien of the insured mortgage upon the title; 6. The priority of any lien or encumbrance over the lien of the insured mortgage; 7. Lack of priority of the lien of the insured mortgage over any statutory lien for services, labor or material: (a) arising from an improvement or work related to the land which is contracted for or commenced prior to Date of Policy; or (b) arising from an improvement or work related to the land which is contracted for or commenced subsequent to Date of Policy and which is financed in whole or in part by proceeds of the indebtedness secured by the insured mortgage which at Date of Policy the insured has advanced or is obligated to advance;

8 This is the provision in the Owner’s Policy that triggers the Duty to Defend discussed earlier in these materials. 18 8. The invalidity or unenforceability of any assignment of the insured mortgage, provided the assignment is shown in Schedule A, or the failure of the assignment shown in Schedule A to vest title to the insured mortgage in the named insured assignee free and clear of all liens.

The Company will also pay the costs, attorneys’ fees and expenses incurred in defense of the title or the lien of the insured mortgage, as insured, but only to the extent provided in the Conditions and Stipulations.9

Note that the title insurance policy tries to make it very clear that the insuring provisions are subject to the Exclusions From Coverage, any Schedule B Exceptions and the Conditions and Stipulations of the Policy by reciting just that in all capital letters before the insuring provisions are recited. In evaluating any title insurance matter, whether in the underwriting context or in the claims context, understanding the interplay among these provisions is critical. With that in mind, let’s move on to the Exclusions From Coverage and then return to a discussion about some of the insuring provisions.

E. Exclusions From Coverage.

Exclusions From Coverage are also pre-printed in the policy jacket of the standard ALTA Owner’s and Loan Policy forms. In the Owner’s Policy form, the Exclusions are recited on the face page along with the insuring provisions. In the Loan Policy, they start on the first page and carry over to the second page. The Exclusions are recited as follows:

The following matters are expressly excluded from the coverage of this policy and the Company will not pay loss or damage, costs, attorneys’ fees or expenses which arise by reason of:

(Owner’s Policy)

1. (a) Any law, ordinance or governmental regulation (including but not limited to building and zoning laws, ordinances, or regulations) restricting, regulating, prohibiting or relating to (i) the occupancy, use, or enjoyment of the land; (ii) the character, dimensions or location of any improvement now or hereafter erected on the land; (iii) a separation in ownership or a change in the dimensions or area of the land or any parcel of which the land is or was a part; or (iv) environmental protection, or the effect of any violation of these laws, ordinances or governmental regulations, except to the extent that a notice of the enforcement thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy.

(b) Any governmental police power not excluded by (a) above, except to the extent that a notice of the exercise thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy.

9 This is the provision in the Loan Policy that triggers the Duty to Defend discussed earlier in these materials. 19 2. Rights of eminent domain unless notice of the exercise thereof has been recorded in the public records at Date of Policy, but not excluding from coverage any taking which has occurred prior to Date of Policy which would be binding on the rights of a purchaser for value without knowledge.

3. Defects, liens, encumbrances, adverse claims or other matters: (a) created, suffered, assumed or agreed to by the insured claimant; (b) not known to the Company, not recorded in the public records at Date of Policy, but known to the insured claimant and not disclosed in writing to the Company by the insured claimant prior to the date the insured claimant became an insured under this policy; (c) resulting in no loss or damage to the insured claimant; (d) attaching or created subsequent to Date of Policy; or (e) resulting in loss or damage which would not have been sustained if the insured claimant had paid value for the estate or interest insured by this policy.

4. Any claim, which arises out of the transaction vesting in the Insured the estate or interest insured by this policy, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors’ rights laws, that is based on: (a) the transaction creating the estate or interest insured by this policy being deemed a fraudulent conveyance or fraudulent transfer; or (b) the transaction creating the estate or interest insured by this policy being deemed a preferential transfer except where the preferential transfer results from the failure: (i) to timely record the instrument of transfer; or (ii) of such recordation to impart notice to a purchaser for value or a judgment or lien creditor.

(Loan Policy)

(Exclusions 1 and 2 and 3(a) through 3(c) are the same as in the Owner’s Policy and are omitted here. As shown below, the Loan Policy limits the application of the post-policy Exclusion in 3(d) where mechanics liens are involved, refers to paying value for the mortgage in Exclusion 3(e) and has some additional Exclusions which relate to the lien of the mortgage.)

3. Defects, liens, encumbrances, adverse claims or other matters: . . . (d) attaching or created subsequent to Date of Policy (except to the extent that this policy insures the priority of the lien of the insured mortgage over any statutory lien for services, labor or material); or (e) resulting in loss or damage which would not have been sustained if the insured claimant had paid value for the insured mortgage.

20 4. Unenforceability of the lien of the insured mortgage because of the inability or failure of the insured at Date of Policy, or the inability or failure of any subsequent owner of the indebtedness, to comply with applicable doing business laws of the state in which the land is situated.

5. Invalidity or unenforceability of the lien of the insured mortgage, or claim thereof, which 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.

6. Any statutory lien for services, labor or materials (or the claim of priority of any statutory lien for services, labor or materials over the lien of the insured mortgage) arising from an improvement or work related to the land which is contracted for and commenced subsequent to Date of Policy and is not financed in whole or in part by proceeds of the indebtedness secured by the insured mortgage which at Date of Policy the insured has advanced or is obligated to advance.

7. Any claim, which arises out of the transaction creating the interest of the mortgagee insured by this policy, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors’ rights laws, that is based on: (a) the transaction creating the interest of the insured mortgagee being deemed a fraudulent conveyance or fraudulent transfer; or (b) the subordination of the interest of the insured mortgagee as a result of the application of the doctrine of equitable subordination; or (c) the transaction creating the interest of the insured mortgagee being deemed a preferential transfer except where the preferential transfer results from the failure: (i) to timely record the instrument of transfer; or (ii) of such recordation to impart notice to a purchaser for value or a judgment or lien creditor.

As you can see, the Exclusions From Coverage modify or limit the scope of the broad insuring provisions appearing on the face page of the policy jacket. This is the first form of “risk elimination” within the policy itself. An extensive review of the Exclusions From Coverage is beyond the scope of these materials but, suffice it to say, that the pre-printed jacket Exclusions are, for the most part, generic in nature and represent matters for which, given the nature and intent of title insurance, either the title insurer ought not be responsible in any event or the title insurer could not come by the information necessary to identify a problem or risk by means of the customary title search. The title search is, of course, the foundation upon which the rest of a real estate transaction must ultimately be built. It is the primary source of information on title matters affecting a particular property and it is the primary source of information upon which the title insurance company (or its policy issuing agent) relies in identifying and, hopefully, eliminating any issues that could cause a claim or loss under the title policy.

As mentioned, a review of the Exclusions reveals that most of the matters excluded are not usually or necessarily discoverable by a title search. Thus, historically, it has been only with great reluctance that the title insurance 21 industry provided affirmative coverage over matters contained in the pre-printed Exclusions. With every year that passes, however, the business climate dictates that the title insurance industry assume more and more risk (unfortunately without much in the way of corresponding premium increases) and part of that risk includes affirmative insurance over, or in some cases deleting from the policy, some of the Exclusions. When it is done, it is usually done in the context of a commercial transaction and the title insurance company will usually have stringent underwriting guidelines to follow. You will find that the guidelines will generally be based on providing documents or information that eliminate the risk that the matter to be insured over or deleted would cause a loss to the insured and, thus, a claim under the policy. Where the documentation and information are insufficient to eliminate the risk or the facts and circumstances are such that the risk cannot be eliminated to the total satisfaction of the title insurance company, some party to the transaction may be required to provide an Indemnity to the company.10 In that instance, the risk is not being so much eliminated as the risk of liability for any loss that results is being shifted to an appropriately responsible party.

It seems that much of the litigation involving the Exclusions From Coverage involve Exclusion 1 (often referred to as the “Governmental Regulation Exclusion”) and, more often, Exclusions 3(a) (matters created or agreed to by the insured) and 3(b) (matters known to the insured and not disclosed to the Company) and, occasionally, Exclusions 3(c) (no loss or damage) and 3(d) (post-policy matters). Discussions of Exclusion 1 can be found in such local cases as Chicago Title Ins. Co. v. Kumar, 24 Mass. App. Ct. 53, 506 N.E.2d 154 (1987), South Shore Bank v. Stewart Title Guaranty Co., 688 F.Supp. 803 (D.Mass. 1988) and Somerset Savings Bank v. Chicago Title Ins. Co., 420 Mass. 422, 649 N.E.2d 1123 (1995).11 Discussions of Exclusion 3(d) can also be found in the Chicago Title and South Shore Bank cases in relation to the possible future filing of a hazardous waste clean-up lien.

10 A discussion of the use of Indemnities in title insurance underwriting appears later in these materials along with Affirmative Coverages. 11 The first two cases dealt with issues involving hazardous waste on the property and the possibility of a lien being filed by governmental authorities and the latter case dealt with the lack of building approval under a Massachusetts statute regulating building on former railroad rights of way. These three cases are discussed in more detail in Section II. G. 1. b. and c. of these materials in relation to Insuring Provisions 2 and 3. 22 Exclusion 3(a) was discussed in the Suffolk Superior Court decision by Judge Kottmeyer in the case of Private Lending & Purchasing, Inc. v. First American Title Ins. Co., C.A. No. 98-2083, 1999 Mass. Super. LEXIS 421, 1999 WL 1073657 (August 26, 1999) (no coverage for effect of dragnet clauses in prior mortgages where exceptions taken in Schedule B for the mortgages themselves and insured bought junior mortgages at 55% of face value with knowledge of existence and effect of the dragnet clauses in the senior mortgages), affirmed on different grounds, Private Lending & Purchasing, Inc., v. First American Title Insurance Company, 54 Mass.App.Ct. 532; 766 N.E.2d 532 (2002).

While Exclusion 3(b) does not seem to be litigated often in this jurisdiction, it has been the subject of a few cases in other jurisdictions. See, e.g., Insured Titles, Inc. v. McDonald, 275 Mont. 111, 911 P.2d 209 (1996) (alteration of deed by insured increasing acreage to an amount he knew to be inaccurate implicated Exclusion 3(b) and company had no liability for failure of title to additional acreage) and L. Smirlock Realty Corp. v. Title Guar. Co., 52 N.Y.2d 179, 418 N.E.2d 650 (1981) (construing equivalent provision in NY form of policy, held exclusion inapplicable if matter known to insured is also shown by the public records and company fails to except for it).

Exclusion 3(c) was discussed in the context of the ripeness of a lender’s claim of loss under a loan policy in the case of Falmouth National Bank v. Ticor Title Ins. Co., 920 F.2d 1058 (1st Cir. 1990) (lender’s claim of loss does not ripen until all reasonable actions for recovery under the note have been pursued and deficiency remains). See, also, Debral Realty, Inc. v. Ticor Title Ins. Co., C.A. No. 95-5929, Middlesex Super. Ct., 1998 Mass. Super. LEXIS 539 (Neel, J., Sept. 30, 1998) (following Falmouth National Bank, supra, insured mortgagee has no loss under policy where foreclosure of first mortgage - excepted in policy - wiped out both an intervening second mortgage - not excepted in policy - and the insured mortgage).

F. Conditions and Stipulations.

The Conditions and Stipulations, in effect, form the framework for the contractual relationship between the insurer and the insured.

As with most kinds of insurance, the Conditions and Stipulations of a title insurance policy start, in Paragraph 1, with various definitions. Included among the definitions in this paragraph are the definition of “insured” discussed earlier, the “land” insured by the policy, the meaning of “public records” as used in the policy and an attempt to define “unmarketability of title” as used in the insuring provisions.

We’ve already discussed the Continuation of Insurance provisions addressed in Paragraph 2. One issue that seems to be arising more and more often with regard to owner’s policies is the circumstance in which, for estate planning purposes as opposed to sale, the insured property is transferred from the original insured owner to a related party or to an estate planning vehicle, such as a trust. In such an instance, neither the Continuation of Insurance provision under Paragraph 2 nor the Definition of Insured in Paragraph 1 allow for the transfer of the policy and 23 continuation of coverage to the related party or the estate planning vehicle. However, upon request, the title insurance companies, for a nominal fee, will authorize the issuance of an endorsement that designates the related party or the trustee(s) of the estate planning trust as the insured under the policy, in effect transferring the policy and continuing the coverage. This assumes, of course, that there are no circumstances which would call into question the legitimacy of the transfer or raise fraudulent conveyance concerns.

Paragraph 3 of the Conditions and Stipulations sets out the requirements for giving Notice of a Claim. The basic premise here is that the insured must notify the Company promptly in writing (i) in case of any litigation challenging the insured’s title or interest on the basis of a matter covered by the policy, (ii) if the insured becomes aware of any claim of title or interest which is adverse to the title to the estate or interest, as insured, and which might cause loss or damage for which the Company may be liable by virtue of this policy, or (iii) if title to the estate or interest, as insured, is rejected as unmarketable. If the insured fails to promptly so notify the Company and the Company is prejudiced as a result, the Company may be able to deny liability to the extent of the prejudice.

We’ve already discussed the basic Duty to Defend provisions of Paragraph 4 of the Conditions and Stipulations of the policy. This provision of the policy also allows the Company (but does not require the Company) to undertake the cure of a covered title issue by means of litigation and, if there is a question as to whether the matter was covered, such undertaking does not concede liability. Under this provision, the insured has a Duty to Cooperate. Again, if the failure of the insured to fulfill this responsibility results in prejudice to the Company, the Company may have no further liability to the insured, at least insofar as the Company was prejudiced.

The insured also has an obligation to provide the Company with a Proof of Loss or Damage under Paragraph 5 of the Conditions and Stipulations. Under this provision, the insured must describe the defect in, or lien or encumbrance on the title (or such other matter as may be claimed to be insured against by the policy), which forms the basis of loss or damage and the insured must state, to the extent possible, the basis of calculating the amount of the loss or damage claimed. Once again, failure to fulfill this responsibility may result in relieving the Company of liability under the policy for the particular claim.

Paragraphs 6 and 7 of the Conditions and Stipulations of the policy deal with the Payment and Settlement Options of the Company in the event a covered matter does, or is anticipated to, cause loss or damage to the insured. These provisions discuss the options of the Company in paying a claim and relieving itself of further liability (para. 6) and the limits of the Company’s liability (para. 7). As to the latter, the basic outer limit of the Company’s liability is the lesser of the Amount of Insurance or the diminution in the value of the estate or interest, which is generally the difference between its value as insured and its value subject to the matter covered by the policy. The Loan policy adds a third element to this “lesser of” provision by including the outstanding principal balance as an item of limitation as to the Company’s liability.

Paragraph 9 of the Conditions and Stipulations (Paragraph 8 in the Loan policy) is one of the more frequently misunderstood provisions of the policy. This paragraph limits the liability of the Company so as to relieve the 24 Company from liability for loss or damage incurred by the insured in the event that the Company diligently and successfully defends or, in the appropriate case, establishes the insured’s title as it was insured by the policy. Furthermore, in the event of litigation, the Company is not obligated to pay loss or damage until the case is finally determined, even if that includes appeals. This Limitation of Liability paragraph, while pretty clear in its provisions, is often overlooked by insureds and their counsel when claims are made under the policy.

The remaining paragraphs of the Conditions and Stipulations discuss the reduction in the amount of insurance in the event of payments under the policy by the Company (Paragraph 10 in the Owner’s Policy, Paragraph 9 in the Loan Policy), the non-cumulative liability of the Company whereby the amount of insurance is reduced by payments made to the insured’s mortgagee in accordance with the policy (Paragraph 11, in the Owner’s Policy, Paragraph 10, in the Loan Policy), conditions of payment of loss (Paragraph 12 in the Owner’s Policy, Paragraph 11 in the Loan Policy), the Company’s rights of subrogation in the event of settlement or payment of a claim under the policy (Paragraph 13 in the Owner’s Policy, Paragraph 12 in the Loan Policy), an Arbitration clause allowing for unilateral requirement of arbitration on policies under $1 mil., but requiring mutual consent by the insured and the Company on policies over that amount (Paragraph 14 in the Owner’s Policy, Paragraph 13 in the Loan Policy), an integration clause [this is the entire contract and the Company’s liability is limited to it] (Paragraph 15 in the Owner’s Policy, Paragraph 14 in the Loan Policy), a severability clause [if any provision is invalid, the others are still okay] (Paragraph 16 in the Owner’s Policy, Paragraph 15 in the Loan Policy), and, finally, a paragraph providing the address of the Company where written notice of claims are to be sent (Paragraph 17 in the Owner’s Policy, Paragraph 16 in the Loan Policy). In addition to the Conditions and Stipulations discussed in more detail above, a review of the ones listed in this paragraph would be beneficial to anyone seeking to better understand title insurance and the Company’s procedures, responsibilities and rights in the event of a claim under a title insurance policy.

G. Selected Issues Regarding the Basic Policy Provisions and Schedules.

1. Insuring Provisions Raising the Most Issues.

The vast majority of issues involved in claims under title insurance policies fall within the first four basic insuring provisions found in both the Owner’s and Loan Policies. Consequently, those are the only ones that will be discussed here.

a. Insuring Provision 1: “Title to the estate or interest described in Schedule A being vested other than as stated therein.”

While claims solely under Insuring Provision 1 are not quite as common as claims under the other insuring provisions, they do occur.12 As mentioned previously, Schedule A provides, to a large degree,

12 See, e.g., Armstrong v. Lawyers Title Ins. Corp., 138 Ga. App. 727, 227 S.E.2d 409 (1976), where the title policy insured a fee simple estate (as usual) but the insured learned upon attempting to sell the property that he owned only 25 merely identifying information regarding the insureds and the property. Controversies do arise, though, when there is a claim of adverse title such that the fee simple title of the named owners is challenged or a third party claims some portion of the interest as, for example, an overlooked or unnamed heir from a predecessor decedent’s probate years ago. When such claims do happen, however, Insuring Provision 2 (“A defect in, or a liens or encumbrance on the title”) and Insuring Provision 3 (“Unmarketability of the title”) are usually implicated as well. When only Insuring Provision 1 is involved, it is usually because the policy preparer attempted to add more information than is needed in the Schedule A of the policy. Adding a tenancy (tenancy in common, joint tenancy or tenancy by the entirety) to the title vesting statement in Schedule A has been claimed to insure that such a tenancy exists and that, therefore, the Company is responsible for probate proceedings or other types of curative measures if the tenancy is not as stated. Adding title references or other recitations as to source of title can also result in the Company incurring liability not normally assumed by the policy. In most policies, only the basic identifying information is needed in Schedule A.

At the same time, it must be remembered that the Schedule A Description sheet or the description Exhibit sheet, containing the description of the property insured, is considered part of Schedule A. Therefore, the contents of the description sheets fall within the purview of Insuring Provision 1. Accordingly, one should always be extremely careful about including in the description easements and rights of way recited in the deed or chain of title unless there is a record basis for establishing that the insured property has the benefit of the easement or right of way as described. This may, on occasion, require a longer search back into the chain of title beyond the standard 50-year search or it may require a search of the servient estate’s chain of title. Of course, if your property is the servient estate, then an easement or right of way over the property to be insured may be construed as an encumbrance, if not a defect, on the title, depending on the nature and extent of the easement and its interference with the use and enjoyment of the property. This could also affect the marketability of the title as well. As discussed previously, such matters should not be left in or placed in the Schedule A Description but rather should be moved to and taken as a specific exception in Schedule B of the policy.

b. Insuring Provision 2: “Any defect in or lien or encumbrance on the title.”

This insuring provision is closely associated with Insuring Provision 3 (“Unmarketability of the title”) and, in most instances, the two are discussed together in any case involving one or the other. Whether something constitutes a defect in or lien or encumbrance on the title is a function of statutes, case law (the common law) and local title standards. We are fortunate in this state to have the Massachusetts Conveyancers Association, which is fairly active in promulgating title standards that address many of the issues a conveyancer and a title insurance company my face in evaluating a title to real property. These standards are of immeasurable assistance in determining not only whether an issue constitutes a defect in or lien or encumbrance on the title, but also in determining ways to cure or eliminate such matters. For a 1/2 undivided interest. 26 your reference, a list of the Real Estate Bar Association for Massachusetts (“REBA”, formerly the Massachusetts Conveyancers Association) Title Standards is attached to these materials as Exhibit E.

Even with title standards to refer to, questions frequently arise as to whether a matter constitutes a defect in or lien or encumbrance on the title to the insured property as opposed to many types of matters which merely affect or limit use and enjoyment of the property, such as governmental laws and regulations of the type described in Exclusion 1 of the policy. And then there are non-record matters, such as adverse possession or prescriptive use that is not yet the subject of any court action to establish title or prescriptive rights. In this jurisdiction, there have been three cases that have evaluated Insuring Provision 2 in the context of a claim involving governmental regulatory matters: Chicago Title Ins. Co. v. Kumar, 24 Mass. App. Ct. 53, 506 N.E.2d 154 (1987), South Shore Bank v. Stewart Title Guaranty Co., 688 F.Supp. 803 (D.Mass. 1988) and Somerset Savings Bank v. Chicago Title Ins. Co., 420 Mass. 422, 649 N.E.2d 1123 (1995).

In Kumar, supra, at 56, the Appeals Court held that the presence of hazardous waste on the insured property did not constitute a defect in or lien or encumbrance on the title even though the presence of hazardous waste on the property certainly affected its physical condition and could give rise in the future to a lien on the property (there being no statement of claim by the Commonwealth on record as provided for under G.L. c. 21E) or the refusal of a purchaser to buy the property. Faced with essentially the same circumstances in the South Shore Bank case,13 the U.S. District Court followed the reasoning in the Kumar case and held that the possibility that a lien could be filed under Connecticut’s environmental lien statute did not trigger insurance coverage under an endorsement that insured against loss of lien priority of the insured mortgage resulting from the filing of a lien under the Connecticut statute. The court found that the possibility of the future filing of the lien, despite the presence at the policy date of hazardous materials on the property, did not constitute a “defect in or lien or encumbrance on . . . title.” South Shore Bank, supra, at 805, quoting Kumar, supra, at 56.

The court in Somerset Savings Bank, supra, was faced with a slightly different situation. In that case, the insured lender had disbursed about half of a $9.5 million loan on a condominium project located on a former railroad right of way for which project the developers had never obtained permission to build from the Massachusetts Executive Office of Transportation as required by G.L. c. 40, s. 54A. A cease and desist order was issued and permission to complete the project was refused. The property, thus, became almost valueless. In deciding that there was no coverage under the policy for this matter, the court shows us that not every impairment of use and enjoyment of property nor every impairment of the value of the property will result in a defect in or lien or encumbrance on the title or make the title unmarketable. The court put it this way:

13 This case involved an insured lender who had foreclosed and bought back the property at the foreclosure sale, it involved Connecticut property subject to that state’s equivalent to G.L. c. 21E, and the Stewart policy contained an endorsement insuring against loss of priority in the event that a lien attached pursuant to the Connecticut statute. As in Kumar, no lien had been filed as of the commencement of the lawsuit against Stewart. 27 It is well established that building or zoning laws are not encumbrances or defects affecting title to property. See Dover Pool & Racquet Club, Inc. v. Brooking, 366 Mass. 629, 631, 322 N.E.2d 168 (1975); Silverblatt v. Livadas, 340 Mass. 474, 479, 164 N.E.2d 875 (1960). Such restrictions are concerned with the use of the land. See Marathon Builders, Inc. v. Polinger, 263 Md. 410, 418- 419, 283 A.2d 617 (1971). There is a difference between economic lack of marketability, which concerns conditions that affect the use of land, and title marketability, which relates to defects affecting legally recognized rights and incidents of ownership. See Chicago Title Ins. Co. v. Kumar, 24 Mass. App. Ct. 53, 56-57, 506 N.E.2d 154 (1987). An individual can hold clear title to a parcel of land, although the same parcel is valueless or considered economically unmarketable because of some restriction or regulation on its use. See id. at 57, citing Hocking v. Title Ins. & Trust Co., 37 Cal. 2d 644, 651, 234 P.2d 625 (1951). A title insurance policy provides protection against defects in, or liens or encumbrances on, title. See Chicago Title Ins. Co. v. Kumar, supra at 56. Such coverage affords no protection for governmentally imposed impediments on the use of the land or for impairments in the value of the land.

General Laws c. 40, § 54A, regulates land use. The requirement of EOTC approval, prior to the issuance of a building permit, is a restriction on the use of the property, but it does not affect the owner's title to the property. It is a restriction that may affect the value of the property and the marketability of the parcel, but it has no bearing on the title to the property.

The insurance policy provided coverage for losses sustained as the result of a defect in or lien or encumbrance on the title to the property and for unmarketability of the title. Although they may have impaired the property's market value or caused a halt to construction on the property, the requirements of G.L. c. 40, § 54A, have no effect on the marketability of the title nor did they create a defect, lien, or encumbrance on the title. The existence of the statutory restriction, therefore, does not give rise to coverage under the policy.

Somerset Savings Bank, supra, at 428-429. Finding that there was no coverage to begin with for the regulatory scheme established under G.L. c. 40, §54A for former railroad property, the court deemed it unnecessary to also discuss the application of Exclusion No. 1 regarding governmental regulatory matters. The court’s analysis in this case reminds us that you begin the analysis of title insurance coverage with the insuring provisions and only if you find that the subject matter of a claim is within the insuring provisions do you then look to see if it is excluded or excepted from that coverage. This case is a must-read for both title insurance counsel and any counsel representing an insured in making a claim under a title insurance policy. c. Insuring Provision 3: “Unmarketability of the title.”

28 The observations regarding marketability of title in the Somerset Savings Bank case give us some guidance as to what kinds of matters do not render a title unmarketable when those matters relate to physical facts affecting the property and certain kinds of restrictions on the use and enjoyment of the property. But what about cases where there are matters of record which raise some question as to the validity or quality of the insured’s title? When do such matters render a title unmarketable?

To begin with, we must look at the definition of “unmarketability of title” in Paragraph 1 of the Conditions and Stipulations of the title insurance policy. The title insurance policy defines “unmarketability of title” as “an alleged or apparent matter affecting the title to the land, not excluded or excepted from coverage, which would entitle a purchaser of the estate or interest described in Schedule A to be released from the obligation to purchase by virtue of a contractual condition requiring the delivery of marketable title.” What would render a title unmarketable under this definition then is based on local law. Note also, that it must be based on a contractual provision requiring the delivery of a marketable title. That is important because most of the case law in Massachusetts evaluating the marketability of titles is based on the quality or standard of title required by a purchase contract.

For quite some time now, most standard forms of purchase contracts call for the conveyance of a clear record and marketable title free from all encumbrances (except certain customary ones such as utility easements that do not materially interfere with the use of the property). This poses a conflict with the title insurance definition of “unmarketability of title” because the requirement of a “clear record and marketable title” is more stringent than a requirement for just a “marketable title.” Indeed, a review of the case law in Massachusetts bears this out.

Where the purchase agreement fails to specify the quality of title to be conveyed, the standard to be applied is that of a marketable title. Mishara v. Albion, 341 Mass. 652, 171 N.E.2d 478 (1961); Jeffries v. Jeffries, 117 Mass. 184 (1874). Mucci v. Brockton Bocce Club, Inc., 19 Mass. App. Ct. 155, 472 N.E.2d 966 (1985). Similarly, marketable title is the standard where the contract calls for conveyance of a “good and clear title,” First African Methodist Episcopal Society v. Brown, 147 Mass. 296, 17 N.E. 549 (1888), a title “free from all encumbrances,” Guleserian v. Pilgrim Trust Company, 331 Mass. 431, 120 N.E.2d 193 (1954), a “clear title free from all encumbrances,” Cleval v. Sullivan, 258 Mass. 348, 154 N.E. 920 (1927), a “good and clear title free from all encumbrances,” Morse v. Stober, 233 Mass. 223, 123 N.E. 780 (1919), a “good and sufficient corporation deed,” Sullivan v. F.E. Atteaux & Co., Inc., 284 Mass. 515, 187 N.E.906 (1933), and, of course, a “marketable title,” Queenin v. Blank, 268 Mass. 432, 167 N.E. 680 (1929). On the other hand, a higher quality of title is required when a purchase contract calls for the conveyance of a “good and clear record and marketable title free from all encumbrances,” Swartz v. Sher, 344 Mass. 636, 184 N.E.2d 51 (1962), O’Meara v. Gleason, 246 Mass. 136, 140 N.E. 426 (1923), Coons v. Carstensen, 15 Mass. App. Ct. 431, 446 N.E.2d 114 (1983), King v. Stephens, 9 Mass. App. Ct. 919, 404 N.E.2d 115 (1980), or its close cousin, “good and clear record and merchantable title,” Oliver v. Poulos, 312 Mass. 188, 44 N.E.2d 1 (1942). 29 The distinction between the standard of “marketable title” and “good clear record and marketable title” is not always clear but the courts have tried to articulate the difference. The basic standard was set forth in the Jeffries case:

[A] defendant, in proceedings for specific performance, shall not be compelled to accept a title in the least degree doubtful. It is not necessary that he should satisfy the court that the title is defective so that he ought to prevail at law; it is enough if it appear to be subject to adverse claims which are of such a nature as may reasonably be expected to expose the purchaser to controversy to maintain his title, or rights incident to it. [Citations omitted.] He ought not to be subjected, against his agreement or consent, to the necessity of litigation to remove even that which is only a cloud upon his title.

Jeffries, supra, at 187. The court elaborated further in the First African Methodist Episcopal Society case, stating:

The general rule is well settled, that, in order to maintain a bill for specific performance of a purchase of land, the plaintiff must show that the title tendered by him is good beyond reasonable doubt. But a doubt must be reasonable, and such as would cause a prudent man to pause and hesitate before investing his money. It would be seldom that a case could occur where some state of facts might not be imagined which, if it existed, would defeat a title. When questions as to the validity of a title are settled beyond reasonable doubt, although there may be still the possibility of a defect, such mere possibility will not exempt one from his liability to complete the purchase he has made. [Citation omitted.] Thus, it might be conceived in a case similar to that at bar that the plaintiff's grantor, from infancy, insanity, or similar cause, was without legal capacity to have conveyed to it, but the plaintiff would not therefore be required to prove affirmatively the existence of such capacity before he could insist on the performance by the defendant of his contract. It would be often practically impossible for a party to negative all objections which might be imagined, and which, if they existed, would defeat his title.

First African Methodist Episcopal Society, supra, at 297-298. Focusing in on the distinction between “clear record and marketable title” and simple “marketable title,” the Supreme Judicial Court provided this explanation in O’Meara v. Gleason, supra:

A good and clear record title free from all incumbrances means a title which on the record itself can be again sold as free from obvious defects, and substantial doubts. Sturtevant v. Jaques, 14 Allen, 523, 526; Hayes v. Harmony Grove Co., 108 Mass. 400, 402; Conley v. Finn, 171 Mass. 70, 50 N.E. 469, 68 Am. St. Rep. 399; Oakey v. Cook, 41 N. J. Eq. 350, 7 Atl. 495; Moore v. Williams, 115 N. Y. 586, 22 N.E. 233, 5 L. R. A. 654, 12 Am. St. Rep. 844. The distinction is plain between 30 the obligation of the defendant under the wording of the agreement and that which would have attached if the language had been, 'conveying a good and clear title free from all incumbrances,' as pointed out in Shanahan v. Chandler, 218 Mass. 441, 443, 105 N.E. 1002, and Aroian v. Fairbanks, 216 Mass. 215, 103 N.E. 629. A 'good marketable title' also is not the same as 'a good and clear record title.' The first embraces an actual title, which may rest on disseisin for 20 years or more, and is established by evidence independently of the record. The second rests on the record alone, which must show an indefeasible unencumbered estate. Conley v. Finn, 171 Mass. 70, 72, 73, 50 N.E. 460, 68 Am. St. Rep. 399; Morse v. Stober, 233 Mass. 223, 225, 226, 123 N.E. 780, 9 A. L. R. 78.

O’Meara, supra, at 138. Thus, it is clear that a title may have some doubt or question that is raised by the record but the title may yet be “marketable” by resort to extrinsic evidence. See Coons v. Carstensen, supra, at 433. While the cases refer to a “marketable title” as being one “free from reasonable doubt,” the SJC has made it clear that the “free from reasonable doubt” doubt standard used in this context is not standard of certainty “beyond a reasonable doubt” required in criminal proceedings. Mishara v. Albion, supra. More specifically, the court stated:

"The question, whether the defendant's title was clear . . . was one of fact, . . . with the burden upon the plaintiff to prove that the defendant's title was not good beyond a reasonable doubt, and that the defendant did not have a marketable title." Cleval v. Sullivan, 258 Mass. 348, 351. This being a usual civil case, the state of the title (good or not good beyond a reasonable doubt) is to be proved by the preponderance of the evidence. There is no basis for requiring proof beyond a reasonable doubt, as in a criminal prosecution. [Citations omitted.]

Mishara, supra, at 655. Thus, it is by no means the case that any doubt as to an issue of record affecting the title will render the title “unmarketable” even if it is not “clear of record.” The doubt must be a reasonable one but it may be overcome by resort to information or documentation outside the record. This is where there is a conflict at times with the definition of “unmarketability of title” in the title insurance policy because, in most cases, modern purchase and sale agreements call for “good clear record” titles as well as “marketable” ones. Consequently, under Massachusetts law, a purchaser may be able to decline a title based on record matter that, being resolved or supported outside the record, does not render the title unmarketable. d. Insuring Provision 4: “Lack of a right of access to and from the land.”

An ongoing area of concern for insureds and title insurers is access to and from the insured property. Generally, there is not too much problem where the property fronts on a public way. Where the issues involving a right of access usually come up is in the context of easements and rights of way, particularly

31 where there is uncertainty as to the nature, extent and basis for a right of way serving the property. This directly implicates Insuring Provision 4 regarding access to and from the land.

Notice first that this provision insures access “to and from the land” not into and over it. Notice, also, that this provision insures a “right of access” not that there is physical access. With very few (and unusual) exceptions, it is generally held that this provision of the policy does not insure either (a) a physical means of access to the land, particularly for vehicles, or (b) any particular form of a right of access.14 Accordingly, in addition to being bounded on a public way, any of the forms of private rights of way or easements for ingress and egress recognized in the particular jurisdiction in which the property is located should satisfy this insuring provision. The trouble comes from attempting within the policy, either as part of the description, as stated above, or in affirmative coverage provided in the policy, to characterize the particular form of access to which the insured property is entitled without having done the necessary research to be certain of it.

In addition to the right of access insured by the 1992 ALTA form, the new “expanded coverage” policies coming into the marketplace specifically address means of access issue where the older policy forms did not. For example, the new ALTA Homeowner’s Title Insurance Policy form provides, in insuring clause (a/k/a “Covered Risk”) #11, coverage in the event that the insured “do[es] not have both actual vehicular and pedestrian access to and from the land, based upon a legal right.” This type of coverage, expanding upon the basic insurance for the “right of access,” has been, up to now, provided by an affirmative coverage note in the Schedule B of the policy or in an endorsement. Historically, this type of coverage was not provided unless specifically requested and that usually occurred only in commercial property situations. Even when requested, the request frequently was to insure that the land abutted and had access to a “physically open street” or that an access easement serving the property provided the insured a “right of ingress and egress to and from a public street”. See, e.g., Exhibit F (California Land Title Association (“CLTA”) 103.7 - Access Endorsement) and Exhibit G (Access Over Easement to Public Way Endorsement). Assurance regarding actual vehicular and pedestrian access was not as commonly requested even for commercial title insurance policies, although such assurance may be implicit in coverage referring to a “physically open street.” At the same time, note that even the new policy forms do not characterize the form or nature of the right of access (public way, deeded easements or rights of way, implied easements, license, etc.). Accordingly, affirmative coverage notes or endorsements will still be necessary if those issues need to be addressed in a particular policy.

14 As to Insuring Provision 4 not insuring physical means of access, see, e.g., Title & Trust Co. of Fla. v. Barrows, 381 So.2d 1088 (Fla.App. 1979) (policy does not insure against physical infirmities of platted street) and Hocking v. Title Ins. & Trust Co., 37 Cal.2d 644, 234 P.2d 625 (1951) (the fact that platted streets were not constructed involves the condition of improvements on the property, not the title). As to the policy not insuring particular form of the right of access, see, e.g., United Bank v. Chicago Title Ins. Co., 168 F.3d 37 (1st Cir. Me. 1999) (although deeded right of access would be more valuable than an easement by necessity or a license, all that the policy protects is a “right of access,” which may be secured in a variety of ways). For a full discussion of these and other access topics, see D. Barlow Burke, Jr., Law of Title Insurance, 2d ed. (Little, Brown and Company) (1991), Sec. 3.2.5, and J. Bushnell Nielsen, Title & Escrow Claims Guide (Foundation Press) (1996), Sec. 9.6 (and subsections thereunder). 32 III. RISK ASSUMPTION: AFFIRMATIVE INSURANCE (A/K/A AFFIRMATIVE COVERAGES) AND ENDORSEMENTS

A. Affirmative Insurance Generally.

As you can see from the discussion of Exclusions and Exceptions up to this point, Exclusions and Exceptions modify or, in some instances, eliminate one or more of the insuring provisions of the policy. This means that the insured will not be covered for loss or damage occasioned by a matter which may have fallen within one of the insuring provisions but which, by virtue of an Exclusion or an Exception, is not covered by the policy. Affirmative insurance (a/k/a “affirmative coverage”) in a title insurance policy provides either expanded coverage on top of the insuring provisions already discussed or coverage for a matter otherwise excluded or excepted from coverage, although it may also qualify or define an insuring provision or an exclusion or exception. Affirmative coverage may be provided by means of specific language placed in one of the policy schedules (most often, Schedule B) or by an endorsement to be attached to and become a part of the insurance policy.

B. Affirmative Insurance in Endorsements.

Where certain affirmative coverages and the procedures for providing them have become fairly routine, the coverages appear in certain form endorsements. First of all, it is important to keep in mind that, once upon a time, essentially all Endorsements started their lives as an embryonic affirmative coverage over a certain matter addressed in a title insurance policy, usually in an Exception in Schedule B, but sometimes within other terms and provisions of the policy. If a particular matter was being dealt with often enough and/or a particular affirmative coverage was being given often enough, someone would decide at some point to put the coverage into an Endorsement form, give it a name and a new standardized Endorsement would be born. As word of the existence of the new Endorsement spread throughout the land and the legend of its wondrous coverage became ingrained in the folklore, more and more of its followers would request its divine presence in their policies. In most instances, especially when a mere humble abode was the subject matter of the policy, the disciples of this new Endorsement were predominantly lenders and they lamented that their lives would be meaningless without it and they beseeched the benevolent title insurance companies to bestow the miracles of the new Endorsement upon them with ever increasing frequency such that the yearning for its attachment to the standard residential policy would become near universal.

The most familiar to residential conveyancers are the ALTA form endorsements (of which there are about a dozen and many of them are attached to a Residential Loan Policy by means of pre-printed check boxes beside the title of the endorsement in the Schedule B) and the so-called “Secondary Market Endorsement” (Exhibit H), also listed as a standard endorsement on the typical Residential Schedule B forms commonly in use today. (Samples of the more common ALTA endorsements used in residential transactions are shown in Exhibits I, J and K.)

33 You may note that each of the sample ALTA endorsements have a reference to an ALTA form number. Note that the Secondary Market Endorsement is not an ALTA-generated form but rather has been promulgated by the various title insurance companies within the last 20 years to provide the secondary mortgage market with standard affirmative coverages (for example, regarding easements and restrictions, as well as municipal taxes) that had been previously requested as individual affirmative coverages in Schedule B whenever such matters were listed as exceptions. Over the years, commercial lenders and their counsel had requested additional affirmative coverages so often that those were incorporated into an endorsement form called a Comprehensive Endorsement. This endorsement was similar to the Secondary Market Endorsement but, as its name would imply, it provided a more comprehensive list of standard affirmative coverages over matters for which commercial insureds had routinely asked for specific affirmative coverage.

The Comprehensive Endorsement as based on the California Land Title Association (CLTA) Comprehensive Endorsement form 100. For a while, that form was used or the various title insurance companies put together their own forms. Eventually, ALTA adopted the Comprehensive Endorsement as ALTA Form 9, although the ALTA entitles it the “Restrictions, Encroachments, Minerals Endorsement.” In recent times, we are seeing more and more requests for adding the Comprehensive Endorsement forms to residential loan policies either in lieu of the Secondary Market Endorsement or, more often, in addition to it. Accordingly, whether you are involved in a residential or a commercial loan transaction, you will need to be familiar with this form as well as the others mentioned. This form is attached to these materials as Exhibit L.

Those with greater exposure to commercial transactions will also be familiar with another ALTA Endorsement, the “Zoning Endorsement.” This endorsement comes in two versions, Form 3.0 and Form 3.1. Samples of each are attached to these materials as Exhibits O and P.15 These endorsements represent a classic situation in which affirmative coverage is being given over matters otherwise excluded from coverage. In these cases, coverage is being provided relative to zoning matters that would otherwise be excluded from coverage under the governmental regulation exclusion, Exclusion No. 1. The reason for two versions is that one version, Form 3.0, is for unimproved land or where less comprehensive coverage is desired or authorized. Form 3.1 is the more comprehensive of the two and fairly customary for improved commercial property transactions. It can be issued to both owners and lenders, although it is much more customary for lenders. Because the endorsement covers matters not traditionally covered by title insurance and because there is some additional risk associated with the assurances provided by the endorsement, these endorsements traditionally require an extra risk premium, customarily between ten cents and twenty-five cents per thousand dollars of coverage. Also, providing these endorsements, especially the Form 3.1, will usually necessitate an extensive survey of the property together with a surveyors certificate or report16 and, depending on the property, an attorney’s zoning opinion letter.

15 Exhibits M and N have been omitted from these materials. 16 The title insurance industry has developed a standardized form for the Surveyors Report but it has not been included in these materials as you need not be familiar with it for purposes of this seminar. 34 When dealing with any kind of affirmative coverage endorsement, the key principle to keep in mind is that they must be reviewed in relation to the particulars of each policy and if the coverages or assurances given in the endorsement would not be appropriate under the circumstances, would unduly increase the Company’s risk of loss or you are unsure whether the particular endorsement even applies to your situation, you should consult with the title insurance company’s underwriting counsel before issuing the endorsement.

While we will go into a little more detail on a few standardized affirmative coverage endorsements later in these materials, our focus in this section will be more on discussing particularized types of affirmative coverage that have not, and perhaps could not, become the subject of standardized endorsements. When dealing with affirmative coverages, it is important to keep in mind that, whether by standardized endorsement or by specifically negotiated language, affirmative coverage is another of the ways in which title insurance has evolved away from its traditional notion of risk elimination and into the intriguing realm of risk assumption.

C. Affirmative Insurance - Case Law Perspective.

Before we can take a look at some examples of affirmative coverage and the variations in language used from one situation to another, it would help to look at some examples where the language employed resulted in litigation, a result that is as unwelcome to an insured as it is to an insurer.

1. Falmouth National Bank v. Ticor Title Ins. Co., 920 F.2d 1058 (1st Cir. 1990). The Falmouth National Bank case involved affirmative insurance “against all loss, including attorney’s fees, arising out of the appeal, final decision, judgment or award” in a certain state court action. At the time the affirmative coverage was negotiated, an earlier trial court decision that, in essence, forced the seller to complete a conveyance, was on appeal by the seller. The object of the appeal was to overturn the lower court decision and to seek reconveyance of the property on the basis that the lower court did not have jurisdiction to render the particular judgment that caused the seller to be forced to complete the sale even though an appeal was taken. As it turned out, the appeal resulted in the lower court’s decision being overturned and the appellate court remanded the case for an order to reconvey the property but not until proceedings were held to determine any appropriate offsets for delay and the improvements the defendant mortgagor/developer had made to the property using proceeds of the insured construction loan.

Without waiting for further proceedings on the remand, the bank filed a claim under the policy, relying on the affirmative coverage. The bank sought payment of its outstanding indebtedness of $1.9 million. The title insurance company denied the claim as premature. The 1st Circuit Court of Appeals agreed. In an opinion that discussed many of the characteristics of title insurance discussed at the beginning of these materials, the court found that the “loss” contemplated by the affirmative coverage would not be determined until (1) after the final result on the remand regarding the offsets to which the mortgagor/developer may be entitled (which the bank could presumably attach) and (2) after the bank had pursued its remedies under the note and a deficiency

35 remained for which the insured property no longer could serve as security. On the latter point, the court observes:

[A] mortgagee-insured’s loss cannot be determined unless the note is not repaid and the security for the mortgage proves inadequate. [Citations omitted.] Such is the case because it is only after the insurer or the insured sues on the note and the debtor fails to pay, that the actual loss can be determined. [Citation omitted.] Put another way, it is not the mortgage note that is insured, but rather, what is insured is the loss resulting from a defect in the security.

Falmouth National Bank, supra, at 1063. Note that the primary issue in this case was the timing and determination of the amount of the loss to ultimately be paid by the title insurance company, if any, but there really wasn’t much discussion about what the components of the loss would be. Probably this is because of the very broad language used in the affirmative coverage insuring against “all loss, including attorney’s fees.” Under such language, whatever the insured could prove at the end of the day was part of their “loss” and not recoverable from the debtor, the title insurance company was likely going to have to pay. But the transaction in this case occurred in the wild and crazy days of the 1980’s when nobody ever thought the balloon was going to burst. My suspicion is that such broad language regarding loss would not be so readily offered by a title insurance company today but rather would be more precisely defined. At the same time, sophisticated lender’s counsel may ask for specific language as to when, or under what circumstances, the loss may be payable and a claim may be made under the policy without, for example, having to chase the borrower.

2. Golden Security Thrift & Loan Assoc. v. First American Title Ins. Co., 53 Cal. App. 4th 250, 258-259, 61 Cal. Rptr.2d 442, 446-447 (1997). In the Golden Security case, the insured lender was provided affirmative insurance by means of a CLTA Endorsement Form 116. This endorsement provides specific assurances regarding the “location and dimensions” of the property as shown on a specified plan and as shown in the public records. In describing the company’s liability, the endorsement went on to provide that the policy insured against “loss . . . in the event that the assurance herein shall prove incorrect.” Golden Security, supra, 61 Cal. Rptr.2d at 443. The plan referred to showed an area for the parcel of 2.06 acres when, in fact, the parcel contained only 1.36 acres.

The issue in this case was whether the word “dimensions” could be construed as meaning or including the word “area” as contended by Golden Security. The court found in favor of the title insurance company finding that the word “dimensions” was not ambiguous and that it refers to the length of the lines which describe the boundaries of the parcel not its “area.” The court also pointed out that, in terms of any alleged reliance on the affirmative insurance creating an expectation as to the amount of area of the parcel, an appraisal had been done for the lender before the closing and it had showed the area of the parcel to be the very same 1.36 acres that it turned out to be. Thus, no valid claim of reliance.

36 3. First National Bank of Northbrook v. Stewart Title Guaranty Co., 279 Ill.App.3rd 188, 664 N.E.2d 310 (1996). Lack of reliance on the affirmative insurance was also a major factor in the court upholding the denial of a lender’s title insurance claim in the First National Bank of Northbrook case. In that case, the mortgaged property was supposed to contain two parcels but only one ended up in the mortgage description in a refinance transaction. At the request of the insured lender, the title insurance policy contained affirmative coverage by means of a location and dimensions endorsement, which, in this case, specified the dimensions of the insured property, including both parcels. The language regarding the company’s liability in this case stated that the company insured against loss or damage sustained “by reason of” any inaccuracies in the assurances given with regard to the location and dimensions of the insured property. The court found that the words “by reason of” required reliance by the lender on the assurances provided and the facts and testimony in the case showed no such reliance. In addition, the insured mortgage was the result of a refinance transaction in which a prior mortgage between the same borrower and lender was being paid off and which had contained the same error in the mortgage description. The title insurance policy for the prior mortgage transaction did not contain the affirmative coverage that was requested in the refinance policy.

Cases like these show how easy it is for an argument to arise over the meaning of the language used in any kind of affirmative insurance. Now, in these cases, the results were ultimately in favor of the insurance companies. I can tell you from my own experience, that is not always the case. Even more importantly, notice that these cases made it all the way up to the appellate level. That means that both parties spent a lot of money litigating over the meaning and effect of the words used. This kind of situation can at least be minimized by taking great care in drafting affirmative coverage to make it clear to the insured and the insurer what is and is not covered. I refer to it in my underwriting discussions as “telling it like it is.”

4. An Unreported Arbitration Case. In this case, owners of a property over which an obvious right of way existed were refinancing their mortgage. As part of the refinance transaction, in which they were represented by their own counsel, they requested an owner’s policy of title insurance from the closing attorney who, for that purpose, was acting in his capacity as policy issuing agent for the title insurance company. The owners had recently completed litigation by settlement with one set of their neighbors over the use of the right of way. At the time of the refinance, no other litigation was pending. Affirmative insurance was requested in the owner’s policy over the exception that was taken in Schedule B for the rights of others in the way, with particular reference to the deed into the neighbors with whom the insureds had already litigated. The language, specifically requested by the insureds, through their counsel, was as follows:

Note: This policy affirmatively insures against loss or damage arising out of the assertion by others of rights to utilize said right of way under instruments of record other than on [the recorded plan referred to on which the right of way was shown] and the deed [into the neighbors with whom the insureds had litigated]. [Emphasis added.]

37 Several years after the proposed insureds had acquired title, but before the refinance transaction in which the owner’s policy was requested, the common grantor of both insureds and their first set of neighbors (the ones with whom the insureds had previously litigated) granted the remainder of her land to a second neighbor and included in her deed a grant of rights over the way located on the insured property. This deed was, of course, outside the insureds’ chain of title and the grant of rights over the insured property was not proper because the common grantor had not reserved those rights when she had deeded the insured property to the insureds several years earlier. In addition, the right of way, while convenient to get to a portion of the back of the second neighbor’s property, was not necessary for access as their lot otherwise had frontage on, and actual access to, a public way. It was not long before the second neighbor began using the right of way to more easily access the back of his property. The insureds filed the claim under the policy. The company denied. Not surprisingly, litigation resulted both against the new neighbor and against the company.

In an arbitration decision, the language employed in the affirmative coverage was deemed to be ambiguous and was construed against the company. The arbitrator found that the neighbor was asserting rights in the way and it was based on an instrument of record. Because the affirmative coverage was deemed to modify any of the provisions of the policy affected by the language, the fact that the deed was outside the chain of title to the insured property and recorded after the common grantor had deeded the insured property without reserving easement rights or the right to grant easements did not matter. It was “of record” prior to the policy date and the second neighbor was “asserting rights” under it. The company had discovered that the insured’s purchase and sale agreement with the common grantor had contained a provision whereby they had agreed with the common grantor that she would reserve the right to grant rights of way to others after the conveyance to the insureds. That provision was overlooked when the deed to the insureds was drafted and the reservation was never inserted. The insured never disclosed this to the company until it came to light in the process of the company’s investigation of the claim. Nonetheless, despite the facts that (1) the insureds had agreed to the granting of such rights as were the subject of the claim, (2) the deed to the insureds made no mention of any reservation and there was nothing else of record to point out any need of the second neighbor to have rights in the subject way and (3) the deed to the second neighbor was outside the chain of title and, therefore, was not (and could not have been) found in the customary title examination, the arbitrator determined that these factors were not enough to trigger Exclusion 3 (a) or 3 (b) because specific affirmative coverage was involved and the situation fell within the language of the coverage.

5. Lessons to be Learned.

The lesson to be learned is that affirmative coverages are open to interpretation and ambiguities will be construed against the insurance company. It is important to describe what is and is not being insured as clearly and unambiguously as possible. In the right of way case just discussed, the affirmative coverage language probably should have limited coverage to certain types of instruments and to such instruments as were recorded within the chain of title of the insured property before the recording of the deed into the insured owners. All of these things were probably contemplated by the parties (indeed, the policy issuing agent 38 indicated that was his understanding) but none of these limitations were put into the affirmative coverage language. While the last case discussed is not a court decision, it is not beyond the realm of possibility that a court could approach the case in the same way the arbitrator did. Consequently, it is imperative to draft affirmative coverages to properly and clearly reflect what coverage is being given and against what particular events the company will insure.

At the same time, always bear in mind that affirmative coverages reinstate the insuring provisions affected by a related Exclusion or Exception only so far as the wording of the affirmative coverage allows. In most instances, the insuring provisions of the policy will only be partially reinstated, as you will see from the wording of the affirmative coverage examples discussed below. As we just saw, however, that will not always be the case if the language used is too broad. Most commonly, Schedule B exceptions are connected to Insuring Provision No. 2 (relating to defects, liens and encumbrances) and Insuring Provision No. 3 (relating to that most ill-defined and unworkable of all legal principles: unmarketability of title). Affirmative coverage will generally be able to deal with the defects, liens and encumbrances issues more effectively because those are more readily definable and the risks associated with them are more readily identifiable and predictable. Unmarketability of title, however, is less susceptible to definition, much more susceptible to individual attorney interpretation and, therefore, highly unpredictable and less likely to be specifically insured as part of an affirmative coverage.

D. Some Affirmative Coverage Samples.

1. List of Some Common Affirmative Coverage Examples.

Attached to these materials as Exhibit U is a compilation of some of the more common situations practitioners may see in terms of requests for affirmative coverages. This list is by no means exhaustive, but it will, hopefully, give you a flavor of how title insurance can give enough of a degree of comfort and assurance to an insured to enable the insured to proceed with a transaction that might otherwise fall apart. Of course, the affirmative coverages compiled in Exhibit U should not be used on any kind of “cookie cutter” basis. As with the insured properties themselves, each transaction, and the title problems, solutions and risks associated with it, are unique and the affirmative coverage to be provided should be specifically tailored to that transaction, that property and that insured. You will see from some of the coverages sampled in Exhibit U that they were rather restrictive in terms of providing coverage for litigation costs or in terms of limiting liability to only certain circumstances or sources of the claim or loss. In circumstances other than the ones for which these coverages were crafted, they might be liberalized.

2. Limited Marketability of Title Coverage.

One way the title insurance industry has attempted to deal with the lack of a workable definition of what constitutes a “marketable” or, conversely, an “unmarketable” title is by introducing the concept of Limited 39 Marketability Coverage. An example of such coverage is provided in Item I. B. of Exhibit U. As you will see from reading the coverage, what this does is essentially equate “marketability of title” with “insurability of title”. This may not work in all instances where the marketability of the title is uncertain because of a title problem that cannot be cured or removed from the record, but it can be a deal-saver when accompanied by other affirmative coverage that insures the insured against the identifiable eventualities that could occur because of the problem, such as adverse claims against the title or assertion of rights of way or easements that could materially interfere with the use and enjoyment of the property. If all of the parties are in a facilitative mood rather than an adversarial one, this type of coverage can sometimes salvage an otherwise doomed transaction.

3. Plot Plan / Encroachment / Zoning Setback Problems – Forced Removal Coverage.

Among the more common situations for which affirmative coverage is requested, particularly for lenders, is the situation where a plot plan (a/k/a “mortgage inspection plan”) or an actual survey reveals an encroachment of improvements over the property line, into an easement area or street layout or into a zoning setback area. (A sample plot plan is attached to these materials as Exhibit V.) The types of improvements which may encroach will vary with each case, of course, but most commonly, in residential transactions, they are the pools, decks, sheds, fences, garages and driveways and, on occasion, the house itself or some addition to it. In commercial situations, it can be similar things, including portions of the main buildings, but can also be signs, fire escapes, landscaping, parking areas, loading docks, etc. While in both cases, the first reaction may be that the title insurance company should be able to routinely give “forced removal coverage,” there are both legal and practical issues to be discussed with your underwriting counsel before such coverage is given. Among the issues that the underwriter may want to discuss are:

1. What is the Loan to Value Ratio (LTV) for the transaction? (Hopefully, 80% or less.) 2. Is the encroachment over a lot line, into an easement or right of way, into a public street or over a private setback line and/or over the zoning setback line? 3. How long has the encroaching structure or improvement been there? (This may be the most crucial question of all!) 4. Does the encroachment have the benefit of protection under M.G.L. Ch. 40A, Sec. 7 (the zoning violation enforcement statute of limitations) or M.G.L. Ch. 184, Sec. 23A (the private building restrictions enforcement statute of limitations)? 5. If an encroachment over the lot line, do we have more than twenty years of occupation without the permission of the neighbor or the neighbor’s predecessors in title? 6. Are we talking about lender’s coverage only or lender’s and owner’s? 7. If it is a zoning violation not protected by Ch. 40A, Sec. 7, will the insured agree NOT to pursue a variance so as to avoid waking the proverbial “sleeping dogs”? In the case of a private restriction, will the owner agree NOT to pursue a release or approval for the same reason? 8. From whom can we get affidavits of relevant facts? 40 9. From whom can we get an Indemnity Agreement if we think there is still some risk after reviewing any or all of the foregoing?

A number of examples of affirmative coverages involving set-back and encroachment issues are included in Exhibit U. In most such cases, the form of coverage will revolve around “forced removal” coverage but may involve coverage for other forms of enforcement. As you will see, sometimes the coverage can be fairly open- ended and sometimes it will be very specifically tailored to the circumstances of an unusual situation. Coverage for marketability of title is rarely included. Once a setback or encroachment problem is identified, it is very difficult to assess the likelihood of the next purchasers or their attorney turning down a transaction because of the issue. In many cases, the best the title insurance company can do is offer to provide the same coverage to subsequent purchasers or mortgagees. As always, however, any specific request for affirmative coverage in a title insurance policy should be fully discussed with the underwriter before such coverage is provided.

4. Characterization of a Way.

It is not unusual to have situations in which there is some question as to the basis of the rights of the owners of a certain property to travel over ways referred to in the chain of title or even shown on record plans. These situations sometimes arise when you cannot find an express grant in your chain of title and you either know it is not a public way or you have no idea whether it is, or once was, and the local municipality cannot produce records to help. Nonetheless, your property owners (or their predecessors) have been using the way for an extended period of time, preferably more than 20 years. Together with other factors derived from the particular chain of title or a current plot plan or inspection of the property, a title insurer may feel that one of the implied or prescriptive methods of acquiring rights in the way may have accrued but the circumstances are not sufficiently certain to rely on case law regarding the right of access in order to issue the policy without any limitation on the insurance for a right of access contained in Insuring Provision No. 4 discussed previously. In that instance, the insurer may want to provide affirmative insurance, which, in essence, modifies the standard access coverage with coverage such as that set forth in Exhibit U, Item II A, Access - Lack of Express (Granted) Right of Access to Insured Premises.

As you can see when you take a look at the sample coverage, this coverage spells out the circumstances in which coverage will be triggered and what the insured must do in order to preserve the coverage. In this case, the company is not willing to pay the costs of defending against the adverse claim but will pay if its judgment that some rule of law will provide the requisite access was wrong. Of course, the better the facts and circumstances, the more the company may consider taking out some of the limitations contained in the bottom portion of the coverage.

E. Indemnity Agreements. 41 Indemnity Agreements generally go hand-in-hand with affirmative insurances and special coverage endorsements. In some instances, Indemnity Agreements will be required even if there is no known problem with the matter for which affirmative insurance is being requested, particularly when it involves deleting an Exclusion or Exception. In many instances, problems identified in a title examination simply cannot be cured for any number of reasons, not the least of which is commonly that the problem is so old. In many other instances, because of the fast-paced nature of modern conveyancing practice, there simply is not enough time to cure some of these problems before the transaction must close. When the title insurance company is asked to “insure over” such matters (whether by providing affirmative coverage or by omitting or deleting an exception) and it is felt that some risk of exposure to loss still remains, the title insurer will look to see if there is some other party to whom the risk of loss is more appropriately directed. If that person or entity is financially viable, has mortgageable assets or is willing to provide an appropriate escrow of funds, then the transaction is one that is a candidate for an Indemnity Agreement with that party. And if the problem is one that can be cured, but not before the closing, and it is simply a matter of time to complete the process, the Indemnity Agreement may also contain an agreement of undertaking to cure the problem, usually within a specified time frame.

Exhibit W included with these materials is an example of an Indemnity and Undertaking Agreement that may be used in these situations. Like a lot of other things in the title insurance industry, you may see variations on the form of Agreement required by any given company but the basic components are likely to be the same or similar.

The form shown in Exhibit W is set up so that provisions for any undertaking that might be required as part of the Indemnity arrangement may be customized as well as the provisions for an escrow of funds and/or a second mortgage to be taken as security for the Indemnity and Undertaking. These provisions appear on Page 2 of the Agreement form.

Generally, if additional security for the Indemnitor’s performance under the Agreement is deemed necessary under the circumstances of the particular case, it will usually be an escrow of funds. In that case, a title insurance company will usually be looking for an escrow amount that approximates the financial loss that could result from the matter insured against, together with an appropriate cushion for attorneys fees and costs in the event that the Indemnitor fails to perform and the title insurance company must hire counsel to undertake the cure and/or to pursue recovery from the Indemnitor. However, if there are no funds available to escrow or they are deemed insufficient, the title insurance company may insist on a second mortgage or other form of security as well. As always, such matters are handled on a case-by-case basis depending on the type of problem and amount of risk involved as well as on the manner in which the matter is being “insured over” (affirmative coverage or no exception at all).

The example in Exhibit W involved a missing interest that undoubtedly would require various release deeds and some court actions (probates and, perhaps, an adverse possession action) to cure the title, but the nature, amount and risk of loss was definable and manageable and sufficient security could be pledged, whether in the form of an

42 escrow or a combination of escrow and a mortgage on another property. Absent the underwriter stepping in and facilitating the transaction in this manner, a transaction involving this kind of issue would likely die on the vine.

Over the last five to seven years, there has also been a proliferation of Indemnities between title insurance companies. These are usually done by letter rather than by the type of elaborate agreement just discussed. A sample of the type of letter issued by Stewart Title to other companies appears as Exhibit X. Each company has its own form of letter but the common provisions describe the matter at issue, indemnify the company issuing the new policy and, usually, include an undertaking to cure the matter at issue. Sometimes it is a pure indemnity, such as when a matter will cure by passage of an acceptable amount of time, but usually an undertaking is involved. By the form of the letter itself, you can discern that this type of indemnity only comes into play where the indemnifying company feels it has liability under an existing policy and the insured needs to have a transaction completed where another company is supposed to issue the title insurance for the current transaction but is raising an issue with regard to the title already insured by the Indemnifying company. This is just another way that the title insurance industry contributes to the facilitation of real estate transactions in a highly competitive and frantic marketplace.

IV. RISK ASSUMPTION IN THE 21ST CENTURY: NEW EXPANDED COVERAGE POLICIES AND NEW EXPANDED COVERAGE LEASEHOLD ENDORSMENTS.

A. New Expanded Coverage Policy Forms.

1. Introduction.

Up to this point, we have been discussing title insurance as it has existed historically and since its introduction to the New England marketplace about 20-odd years ago. But, as with all things, change is inevitable and new Expanded Coverage Policy forms are finding their way into the marketplace. Since these policies are very new (in some cases, only a couple of years old), we do not have much experience with them. However, the basic insurance principles discussed up to this point will, for the most part, still apply to the new Expanded Coverage Policies. What is changing is that the new policies move the title insurance industry a quantum leap into the world of risk assumption.

As discussed earlier, the current (1992 version) ALTA Owners Policy contains four (4) insuring provisions and the current ALTA Loan Policy contains an additional four (4) relating to the priority and enforceability of the insured mortgage. In contrast, the various forms of Expanded Coverage Policies being promulgated by the various underwriters and ALTA contain anywhere from twenty (20) to twenty-nine (29) insuring provisions (also, referred to as “coverages” or “covered risks”). Many of those coverages, or covered risks, include forced removal coverages, zoning violation coverages and, as mentioned previously, more particular access coverage. As a result, where these policy forms are used, some of the affirmative coverages included in the samples in Exhibit U will become moot, if not obsolete.

43 On the other hand, as with the traditional insuring provisions discussed previously, the standard covered risks in the new Expanded Coverage Policies are provided on the basis that neither the title insurance company nor the parties to the transaction have any information to know that there is, in fact, some problem affecting the particular property to be insured which brings into play one or more of the enumerated covered risks. If a problem is known, an exception might still be taken in Schedule B as with the older form policies so as to modify or delete the covered risk involved. In that instance, given the proper circumstances, affirmative insurance can be requested as before. In that case, the samples provided in Exhibit U may still offer some guidance as to how to draft coverages to address these issues in relation to the Expanded Coverage Policy forms.

Unlike the current forms of policy in use (the 1992 version of the ALTA Owners and Loan Policies), there is no one Expanded Coverage Policy form that has been adopted industry-wide as yet, but it is anticipated that the recently promulgated ALTA “Homeowner’s Policy of Title Insurance” (adopted by ALTA on 10/17/98) will soon become the norm. Until then, bear in mind that each major title insurance company had promulgated their own forms under various names: Stewart Title’s “Gold Policy,” Chicago Title’s “Castle Enhanced Policy,” the Commonwealth/Lawyers Title group’s “Advantage Residential Policy,” Fidelity National’s “Title Plus Policy,” First American’s “Eagle Policy,” and Old Republic’s “Premium Policy.” Each of these Expanded Coverage Policy forms promulgated by the individual title insurance companies has both Owners Policy and Loan Policy versions. More recently, on 10/13/01, ALTA adopted its version of “Expanded Coverage Residential Loan Policy” as well. Both forms of expanded coverage policies (owners and loan) require an additional premium of 10% of the premium for the standard 1992 owners and loan policies.17 Consequently, as of this writing, residential lenders have been reluctant to require the expanded coverage loan policies because of the additional expense to their borrowers. Owners, on the other hand, are receptive to the modest additional increase in premium given the substantial increase in coverages under the new policies.

There are some minor variations in wording and specific covered risks between the various companies’ expanded coverage policy forms and the ALTA versions, so, until the ALTA versions become the norm, you should check with your particular underwriter to obtain their particular version of these forms. Because it is anticipated that the ALTA versions will become the norm at some point in the near future, only the ALTA versions of these policies are attached to these materials as Exhibits Y and Z. With that in mind, the following will provide an outline of the significant aspects of the new expanded coverage policies using the ALTA Homeowner’s Policy as the basic reference. Much of what will be said about the ALTA form will apply to the individual companies’ forms, but please review them for differences if you will be issuing them or your clients are or will be insured by them. As an additional assistance in comparing the Homeowner’s Policy with the existing 1992 Owners Policy, there is also included in these materials, as Exhibit AA, a Coverage Comparison Chart, which you may find useful.

2. Main Features of the ALTA Homeowners [Extended Coverage] Policy.

17 In other words, where, for example, a standard owners policy under $1million of coverage would cost $3.50 per thousand of coverage, an expanded coverage owners policy would cost $3.85 per thousand. Similarly, the standard loan policy premium of $2.50 per thousand would become $2.75 per thousand for an expanded coverage loan policy. 44 a. Greater Specificity as to the Matters Covered (Covered Risks) and Terms and Conditions of the Policy Written in Plain Language.

1. One of the main features is the enumeration of the kinds of matters that will be covered under the Homeowners Policy, thus helping both the insured and the Company in determining whether a particular type of title problem falls within the insuring provisions. For example, Covered Risks (CR) #1 through 6 provide coverage when “someone else” owns an interest in the insured’s title (CR 1), has rights affecting the title under leases, contracts or options (CR 2), claims rights in the title due to forgery or impersonation (CR 3), has an easement on the insured property (CR 4), has a right to limit the insured’s use of the insured property (CR 5) or the title is defective (CR 6).

2. The Homeowners Policy is written in plain language format. Again, this helps both the insured and the Company in determining coverage issues and each other’s respective rights and obligations under the contract. b. New Coverages for Post-Policy Matters.

1. Covered Risk #7 covers risks 1-6 even if they occur Post-Policy.

2. Covered Risk #8 d covers mechanics liens filed after Policy Date if labor or material was furnished before the Policy Date. However, the remaining liens covered under Covered Risk #8 (mortgages, judgment liens, state or federal tax liens or special assessments and homeowner’s or condominium association liens are covered if they arose prior to the Policy Date.

3. Covered Risk #22 provides coverage for damage to existing improvements on the Property (or replacements or modifications made to them Post-Policy) because of the future exercise of rights to extract minerals, water, etc.

4. Covered Risk #24 provides coverage against Post-Policy assessments of supplemental real estate taxes for any period before the Policy date, where such assessment is based on construction or a change of ownership or use before the Policy Date.

5. Covered Risk #25 provides coverage for the neighbor building structures (except walls and fences) after the Policy Date, which encroach onto the insured property. c. New Coverages Even if Excepted in Schedule B.

1. Covered Risk #12 Coverage against insured being “forced” to correct or remove existing violation of a covenant, condition or restriction (C, C or R) even if C, C or R listed in Schedule B. 45 NOTE: One omission from the new policy form is a definition or explanation as to what is required to “force” the insured to remove or correct something, who it is that must be the enforcing party and whether a court order is necessary.

2. Covered Risk #13 provides coverage against title being lost because of a violation of C, C or R that occurred before the Insured acquired title, even if C, C or R is excepted in Schedule B.

NOTE: There is nothing in the Policy that prohibits excepting for the violation itself if the policy issuing agent or the company know about the violation before the policy is issued.

3. Covered Risk #20 provides coverage against “forced” removal of existing structures that encroach onto an easement or over a building setback line, even if the easement or set-back line is excepted in Schedule B.

NOTE: Again, there is nothing to prevent the company from specifically excepting for the encroachment itself if the company knows about it at the time the policy is being issued.

4. Covered Risk #21 provides coverage if the insured’s structures are damaged because of the exercise of someone else’s easement rights in the insured property, even if the easement is excepted in Schedule B.

NOTE: If the company is aware of a specific structure that could be damaged because of the exercise of rights by an easement holder, the company may require a specific exception in Schedule B relative to that structure with language such as:

“Notwithstanding the provisions of Covered Risk #20, We [or the Company] will not pay for any loss or damage you incur because of any damage or injury to, or destruction of, the garage [for example] located on your land resulting from the exercise by XYZ Gas Company of its rights under the Gas Line Easement excepted from coverage in Exception #6, above, nor will we provide or pay for any defense or prosecution of any legal action or proceeding of any nature related to or stemming from the exercise or proposed exercise by XYZ Gas Company of its easement rights under the excepted Gas Line Easement.”

Or, more simply:

“No insurance is given pursuant to the Covered Risks as to this matter.”

5. Covered Risk #22 provides coverage for damage to improvements because of the exercise by someone else of rights to the extraction of minerals, water, etc.

46 NOTE: This Covered Risk was already mentioned in terms of Post-Policy matters but this is also one where coverage is given for damage to the improvements even if the mineral or water rights, etc., are excepted in Schedule B or, perhaps, excluded or excepted as part of the Description of the property. .However, again, if the company is aware of a particular issue, a specific exception in Schedule B may be required using the type of language mentioned above.

d. New and Expanded Coverage Concepts.

1. Covered Risk #11 now provides coverage for lack of “actual vehicular and pedestrian access based on a legal right,” whereas, previously, only the right of access itself was insured.

2. Covered Risk #14 provides coverage for the consequences of violations of Subdivision Laws and Regulations: a. Insured is unable to obtain a building permit or is b. forced to remove or correct the violation; or c. If a purchaser, lessee or mortgagee refuses to complete a transaction (i.e., marketability coverage).

NOTE: Coverage is not only for inability to get a building permit or having to remove or correct a violation but also for unmarketability of the property because of the violation. This is a very new approach since, traditionally, subdivision and zoning are treated as affecting use of the property not the title to it and, therefore, was considered beyond the scope of title insurance.18 At the same time, note that the marketability coverage in this instance requires that a purchaser, lessee or mortgagee actually refuse to perform under the contract. Contrast this with the general marketability coverage given under Covered Risk #26 discussed later in these materials, which comes into play when a title issue “allows” a person to back out of the deal, whether or not the person actually does.

3. Covered Risk #15 provides coverage against forced removal of the structures because of lack of a building permit.

4. Covered Risk #16 provides coverage against forced removal of structures because of zoning violations.

5. Covered Risk #17 provides coverage in the event the insured is unable to use the property as a single family residence because such use violates local zoning.

Note: It is unclear as to why this provision relates only to single family residences as opposed to one-four family residences.

18 See the discussion earlier in these materials of the Somerset Savings Bank case. 47 6. Covered Risk #18 provides coverage against forced removal of encroachments over the property line.

Note: This one takes away the traditional argument that title insurance doesn’t insure anything beyond the boundary lines described in Schedule A and that such matters are matters of survey customarily excepted from coverage in Schedule B. However, it’s always been difficult to get insureds (and, sometimes, courts) to understand that distinction anyway, especially when the encroaching structure was the house.

7. Covered Risk #19 introduces the concept of unmarketability to the “encroachment-over-the-lot-line.” situation, but only if the encroachment is the neighbor’s structures onto the insured property and, once again, only if a proposed purchaser, lessee or mortgagee actually does refuse to perform because of the encroachment.

8. Covered Risk #20, 21 and 22. These “forced removal” and “damage to improvements” coverages were already discussed along with other coverages provided even if the matters were excepted in Schedule B. The point here is that, in the past, these coverages were always specifically underwritten as affirmative coverages and only after full evaluation of the risks. Now, the coverages are standard and do not carry some of the limitations we may have built into past affirmative coverage language, such as limiting the coverage so that it only arises in the event a final decision of a court forces the issue.

9. Covered Risk #24 insuring now against Post-Policy supplemental tax assessments is a new concept but not a terribly radical one. While this covered risk relates to subsequent (Post-Policy) supplemental assessments, they must be based on pre-policy construction, changes in ownership or changes in use of the property. In Massachusetts, these will most often arise in special taxation situations, such as those arising under M.G.L. Chapters 61 (forest land), 61A (agricultural & horticultural land) and 61B (recreational land), notices of which will be recorded at the Registry of Deeds. Under these statutes, when a change in use or ownership occurs, the possibility exists for what are referred to as “roll back” or “penalty” taxes (in addition to a right of first refusal, which the subject coverage does not address). These will usually be assessed after the transfer of the property unless dealt with at the time of the transfer. Of course, they should always be dealt with whenever a title insurance policy is issued in a transaction in which these types of taxes may apply but if they are not, coverage now exists under an explicit insuring provision.

10. Covered Risk #25 provides coverage in the event your neighbor, after the Policy Date, building structures (other than boundary walls or fences) which encroach onto the insured property. In my mind this is the most radically new concept of all. Not only does the policy cover the neighbor’s encroachment onto the insured property, but also if (1) it occurs Post Policy, (2) whether or not the neighbor does it based on any claim of a right to do so and (3) without requiring that such right be established either by record evidence or by a court decree. The industry has really gone above and beyond the call of duty on this one.

11. Covered Risk #26 is the general “unmarketability of title” coverage mentioned earlier. The new concept here is defining unmarketability without specific reference to state law as guidance and by merely referring to 48 the ability of someone to refuse to purchase, lease or accept a mortgage on the property without requiring that the person actually do so as with the coverages in Covered Risks 14 and 19.

12. Covered Risk #27 provides specific reference to coverage in the event that a document on which the insured’s title is based turns out to be invalid because it wasn’t properly signed, sealed, acknowledged, delivered or recorded. Under the traditional policy forms, these kinds of issues affecting the validity of a fundamental title document may have been covered by the insuring provisions relating to a “defect” in title, the unmarketability of title or, perhaps, title not being vested as set forth in Schedule A. The new Homeowner’s policy breaks this type of problem out and makes it a specific Covered Risk, thereby eliminating the problem of figuring out which, if any, of the traditional broadly-worded insuring provisions covered such an issue.

13. Covered Risk #28, insuring that the residence with the address shown in Schedule A is located on the insured property, also overturns title insurance tradition in not insuring addresses unless by specific affirmative coverage or by endorsement. This closely relates to Covered Risk #18 but expands the concept by insuring not only that the residence is on the lot, but also the residence with the particular address is on the lot.

Note: It is not clear why this was felt necessary by ALTA in view of the encroachment and forced removal coverages provided elsewhere in the policy. Nor is it clear why, if it was deemed to be that important, this Covered Risk doesn’t include marketability coverage like Covered Risk #19 does when the neighbors house is located on the insured land. e. Deductible Amounts and Limits of Liability.

1. Deductible Amounts and Limits of Liability are a new concept in title insurance. As part of the quid pro quo, so to speak, for the number of extended coverages offered in the new Homeowner’s policy that go beyond traditional title insurance, the industry has borrowed from other forms of insurance and introduced the concepts that certain types of these extended coverage losses will only be compensable if the loss exceeds a certain stated amount for the particular covered risk and then the Company’s liability to pay for the loss will only go up to a certain stated amount.

2. Deductibles and Limits of Liability apply to Risks # 14, 15 16, & 18 and are listed on Schedule A of the Homeowner’s policy. The Deductibles and Limits for these Covered Risks are as follows:

Deductible Amount Maximum Dollar Limit of Liability

Covered Risk 14: 1 % of Policy Amount or $10,000.00 $2,500.00 (whichever is less)

Covered Risk 15: 1 % of Policy Amount or $25,000.00 $5,000.00 (whichever is less) 49 Covered Risk 16: 1 % of Policy Amount or $25,000.00 $5,000.00 (whichever is less)

Covered Risk 18: 1 % of Policy Amount or $ 5,000.00 $2,500.00 (whichever is less)

Depending on your software, these Deductibles and Limits will appear at the top of Schedule A or on an Endorsement form the title insurance company may provide for attachment to the policy in the event that, for the time being, you can only produce the existing policy schedules that don’t have this information pre-printed. f. Improved and Omitted Exclusions from Coverage.

1. The new policies have retained the Governmental Regulation Exclusions discussed earlier with regard to the existing standard policy forms but they have been broken out into three Exclusions: numbers 1, 2 and 3. The new policy takes care to specify that the Exclusions do not limit the related Covered Risks that the industry intended to insure despite the traditional abhorrence against insuring governmental regulatory matters. Thus, for example, Exclusion No. 1, dealing with the traditional land use and environmental issues, specifies that the exclusion does not limit the coverages provided by Covered Risks # 14, 15, 16, 17 or 24. Also, while the new policy (like the old ones) does not define what “notice” means, it does specify that the Governmental Regulatory Exclusions do not apply even as to other covered risks if a notice of violation, enforcement or exercise of condemnation rights appears in the public records at the Date of Policy.

2. A Couple of Noteworthy Issues Regarding the Exclusions. a. The “Created, Allowed or Agreed to” Exclusion (# 4 a) applies whether or not the matter appears in the public records. b. The “known to the insured not disclosed to the company” Exclusion (# 4 b) doesn’t require, additionally, that the insured failed to notify is in writing. c. New Exclusion #6 specifically excludes from coverage the lack of a right to any land outside the area specifically described and referred to in Schedule A as well as a lack of any right in streets, alleys or waterways touching the land. This is more specific than prior ALTA policy forms and is now an exclusion rather than making it part of the definition of “land” as in prior policy forms. At the same time, the policy provides that this Exclusion does not limit the coverages provided in Covered Risks 11 and 18. d. The Creditors Rights Exclusion has been omitted. This is not all that much of an issue because has not seen all that many claims involving the Creditors Rights Exclusion under the existing ALTA policy forms. Even if such an issue arose, it is difficult to conceive of a situation in which the creditors rights issue would arise for an insured but would not also involve a matter otherwise excluded from coverage as a matter “created, assumed or agreed to” by 50 the insured and/or involve a non-record matter of which the insured was aware but of which the insured failed to inform the company. g. Claims.

Claims under a title insurance policy can involve a seminar or conference in itself. Suffice it to say that the claims provisions under the new Homeowner’s Policy are found in the Conditions of the policy starting with “How To Make A Claim” in Conditions Paragraph #3. In the succeeding paragraphs, the Homeowner’s Policy lays out the claims procedure and the responsibilities and rights of both the Company and the insured in a much more logical and understandable fashion than the existing ALTA policy forms. h. Schedule B Exceptions.

1. As in the past, specific adverse title issues found in a title examination will be addressed in Schedule B of the policy as Special Exceptions. If the General (Standard) Exceptions (parties-in-possession, mechanics liens, survey matters) also appear on the Residential Schedule B form, but a note or paragraph will be needed specifying which Covered Risks will not be limited by these General Exceptions. That paragraph or note might look like this:

Covered Risks Not Limited by General Exceptions: The General Exceptions listed on Schedule B of this policy do not limit the coverage provided by the Covered Risks of the policy as follows:

Exception No. 1 does not limit Covered Risks 2 and 19;

Exception No. 2 does not limit Covered Risk 8d (i.e., the words “heretofore or” are deemed to be omitted from the exception);

Exception No. 3 does not limit Covered Risks 14, 15, 16, 18, 19, 20, 21 and 28; and

Exception No. 4 does not limit Covered Risks 8b and 24.

This format is similar to the one used in the policy jacket itself specifying, for example, which covered risks a particular exclusion does not limit. Depending on the policy production software available, that paragraph can either appear on the Residential Schedule B itself or in a separate endorsement to be attached to the policy Schedules you currently use. i. Miscellaneous Items of Interest.

1. As the name would imply, this policy is designed for homeowners. Thus, it is designed only for one-to-four family improved property, including a condominium unit. It is also designed for natural persons, not entities. 51 However, trustees who are natural persons (as opposed to corporate trustees, for example) may also be insureds under this policy. In addition, under Conditions Paragraph 2, “Continuation of Coverage,” the trustee(s) of an estate planning trust to whom an insured transfers title become(s) (an) insured(s) under the policy. Similarly, a previously non-titled spouse to whom the insured property is conveyed pursuant to a divorce becomes an insured. Also, anyone who inherits the insured’s title after death, including as beneficiaries of the insured’s trust, becomes an insured. Finally, as an additional example of the extension of coverages beyond traditional title insurance, the Homeowner’s policy insures the homeowner “forever”, even after transferring title and even if the transfer is not by a warranty deed.

2. Paragraph 9 of the Conditions now contains the automatic inflation provision increasing the original amount of insurance by 10% per year for five years up to 150% of the original amount of insurance.

3. Finally, in order to provide some minimal information regarding the risks associated with the additional coverages provided by the Extended Coverage Policy in any given transaction, the title insurance company will likely request the seller / current owner of the property to sign a longer form affidavit such as the ALTA Homeowner’s Policy of Title Insurance Affidavit form attached hereto as Exhibit BB. There may be times when a particular seller may refuse to sign such a form. In that event, give your underwriting counsel a call to see if there is a way to modify the form to make the seller comfortable enough to sign it or to underwrite the transaction without it. In addition, not all of the provisions of the ALTA form fit local Massachusetts practice so you may see some variations on this form promulgated by the individual companies.

52 APPENDIX OF EXHIBITS PAGE NO. EXHIBIT A - Specimen ALTA 1992 Owner’s Policy w/Schedules………………………….….56 EXHIBIT B - Specimen ALTA 1992 Loan Policy w/Schedules……………………...……..…...67 EXHIBIT C - Owner/Seller Affidavit (Short Form)………………………………………..……80 EXHIBIT D – Owner/Seller Affidavit - Survey Coverage (Long Form)……………………..…81 EXHIBIT E - List of Massachusetts Conveyancers Association Title Standards…………...….82 EXHIBIT F - CLTA 103.7 - Physically Open Street Endorsement…………………………..…84 EXHIBIT G - STG Access Endorsement 2 - Access Over Easement to Public Way)………….85 EXHIBIT H - Secondary Mortgage Market Endorsement…………………………………..….86 EXHIBIT I - Condominium Endorsement (ALTA 4.1)………………………………………...... 87 EXHIBIT J - Variable Rate Mortgage Endorsement (ALTA 6)………………………………...88 EXHIBIT K - Environmental Protection Lien Endorsement (ALTA 8.1)…………………...... 89 EXHIBIT L - ALTA Form 9 - Comprehensive Endorsement…………………………………...90 EXHIBIT M – ALTA List of Endorsement Forms – NOTE: INTENTIONALLY OMITTED EXHIBIT N - -CLTA List of Endorsement Forms - NOTE: INTENTIONALLY OMITTED EXHIBIT O - ALTA Form 3.0 - Zoning Endorsement…………………………………………...92 EXHIBIT P - ALTA Form 3.1 - Zoning Endorsement……………………………………………93 EXHIBIT Q – Sample Surveyors Report Form – NOTE: INTENTIONALLY OMITTED EXHIBIT R - Pending Improvements Endorsement (Owner’s Policy) – NOTE: INTENTIONALLY OMITTED EXHIBIT S - Pending Disbursement Endorsement (Loan Policy) – NOTE: INTENTIONALLY OMITTED EXHIBIT T - Disbursement Endorsement – NOTE: INTENTIONALLY OMITTED EXHIBIT U - Sample Affirmative Coverages For Some Common Situations……………….…94 EXHIBIT V - Sample Mortgage Inspection Plan – NOTE: INTENTIONALLY OMITTED EXHIBIT W - Indemnity and Undertaking Agreement…………………………………………100 EXHIBIT X - Indemnity Letter (Inter-Company)……………………………………………….103 EXHIBIT Y – ALTA Homeowner’s Policy (10/17/98)…………………………………………...105 EXHIBIT Z – ALTA Expanded Coverage Residential Loan Policy (10/13/01) – NOTE: INTENTIONALLY OMITTED EXHIBIT AA – Coverage Comparison Chart…………………………………………………….119 EXHIBIT BB – ALTA Homeowner’s Policy of Title Insurance Affidavit………………………121

53 Exhibit A

ALTA Owner's Policy 1992 POLICY OF TITLE INSURANCE Issued by STEWART TITLE GUARANTY COMPANY

SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULE B AND THE CONDITIONS AND STIPULATIONS, STEWART TITLE GUARANTY COMPANY, a Texas corporation, herein called the Company, insures, as of Date of Policy shown in Schedule A, against loss or damage, not exceeding the Amount of Insurance stated in Schedule A, sustained or incurred by the insured by reason of:

1. Title to the estate or interest described in Schedule A being vested other than as stated therein;

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.

The Company will also pay the costs, attorneys' fees and expenses incurred in defense of the title, as insured, but only to the extent provided in the Conditions and Stipulations.

EXCLUSIONS FROM COVERAGE

The following matters are expressly excluded from the coverage of this policy and the Company will not pay loss or damage, costs, attorneys' fees or expenses which arise by reason of:

1. (a) Any law, ordinance or governmental regulation (including but not limited to building and zoning laws, ordinances, or regulations) restricting, regulating, prohibiting or relating to (i) the occupancy, use, or enjoyment of the land; (ii) the character, dimensions or location of any improvement now or hereafter erected on the land; (iii) a separation in ownership or a change in the dimensions or area of the land or any parcel of which the land is or was a part; or (iv) environmental protection, or the effect of any violation of these laws, ordinances or governmental regulations, except to the extent that a notice of the enforcement thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy.

(b) Any governmental police power not excluded by (a) above, except to the extent that a notice of the exercise thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy.

2. Rights of eminent domain unless notice of the exercise thereof has been recorded in the public records at Date of Policy, but not excluding from coverage any taking which has occurred prior to Date of Policy which would be binding on the rights of a purchaser for value without knowledge.

3. Defects, liens, encumbrances, adverse claims or other matters:

(a) created, suffered, assumed or agreed to by the insured claimant;

(b) not known to the Company, not recorded in the public records at Date of Policy, but known to the insured claimant and not disclosed in writing to the Company by the insured claimant prior to the date the insured claimant became an insured under this policy;

54 (c) resulting in no loss or damage to the insured claimant;

(d) attaching or created subsequent to Date of Policy; or

(e) resulting in loss or damage which would not have been sustained if the insured claimant had paid value for the estate or interest insured by this policy.

4. Any claim, which arises out of the transaction vesting in the Insured the estate or interest insured by this policy, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws, that is based on:

(a) the transaction creating the estate or interest insured by this policy being deemed a fraudulent conveyance or fraudulent transfer; or

(b) the transaction creating the estate or interest insured by this policy being deemed a preferential transfer except where the preferential transfer results from the failure:

(i) to timely record the instrument of transfer; or

(ii) of such recordation to impart notice to a purchaser for value or a judgment or lien creditor.

CONDITIONS AND STIPULATIONS

1. DEFINITION OF TERMS.

The following terms when used in this policy mean:

(a) "insured": the insured named in Schedule A, and, subject to any rights or defenses the Company would have had against the named insured, those who succeed to the interest of the named insured by operation of law as distinguished from purchase including, but not limited to, heirs, distributees, devisees, survivors, personal representatives, next of kin, or corporate or fiduciary successors.

(b) "insured claimant": an insured claiming loss or damage.

(c) "knowledge" or "known": actual knowledge, not constructive knowledge or notice which may be imputed to an insured by reason of the public records as defined in this policy or any other records which impart constructive notice of matters affecting the land.

(d) "land": the land described or referred to in Schedule [A][C], and improvements affixed thereto which by law constitute real property. The term "land" does not include any property beyond the lines of the area described or referred to in Schedule [A][C], nor any right, title, interest, estate or easement in abutting streets, roads, avenues, alleys, lanes, ways or waterways, but nothing herein shall modify or limit the extent to which a right of access to and from the land is insured by this policy.

(e) "mortgage" mortgage, deed of trust, trust deed, or other security instrument.

(f) "public records": records established under state statutes at Date of Policy for the purpose of imparting constructive notice of matters relating to real property to purchasers for value and without knowledge. With respect to Section 1(a)(iv) of the Exclusions From Coverage, "public records" shall also include environmental protection liens filed in the records of the clerk of the United States district court for the district in which the land is located.

(g) "unmarketability of the title": an alleged or apparent matter affecting the title to the land, not excluded or excepted from coverage, which would entitle a purchaser of the estate or interest described in Schedule A to be released from the obligation to purchase by virtue of a contractual condition requiring the delivery of marketable title.

2. CONTINUATION OF INSURANCE AFTER CONVEYANCE OF TITLE. 55 The coverage of this policy shall continue in force as of Date of Policy in favor of an insured only so long as the insured retains an estate or interest in the land, or holds an indebtedness secured by a purchase money mortgage given by a purchaser from the insured, or only so long as the insured shall have liability by reason of covenants of warranty made by the insured in any transfer or conveyance of the estate or interest. This policy shall not continue in force in favor of any purchaser from the insured of either (i) an estate or interest in the land, or (ii) an indebtedness secured by a purchase money mortgage given to the insured.

3. NOTICE OF CLAIM TO BE GIVEN BY INSURED CLAIMANT.

The insured shall notify the Company promptly in writing (i) in case of any litigation as set forth in Section 4(a) below, (ii) in case knowledge shall come to an insured hereunder of any claim of title or interest which is adverse to the title to the estate or interest, as insured, and which might cause loss or damage for which the Company may be liable by virtue of this policy, or (iii) if title to the estate or interest, as insured, is rejected as unmarketable. If prompt notice shall not be given to the Company, then as to the insured all liability of the Company shall terminate with regard to the matter or matters for which prompt notice is required; provided, however, that failure to notify the Company shall in no case prejudice the rights of any insured under this policy unless the Company shall be prejudiced by the failure and then only to the extent of the prejudice.

4. DEFENSE AND PROSECUTION OF ACTIONS; DUTY OF INSURED CLAIMANT TO COOPERATE.

(a) Upon written request by the insured and subject to the options contained in Section 6 of these Conditions and Stipulations, the Company, at its own cost and without unreasonable delay, shall provide for the defense of an insured in litigation in which any third party asserts a claim adverse to the title or interest as insured, but only as to those stated causes of action alleging a defect, lien or encumbrance or other matter insured against by this policy. The Company shall have the right to select counsel of its choice (subject to the right of the insured to object for reasonable cause) to represent the insured as to those stated causes of action and shall not be liable for and will not pay the fees of any other counsel. The Company will not pay any fees, costs or expenses incurred by the insured in the defense of those causes of action which allege matters not insured against by this policy.

(b) The Company shall have the right, at its own cost, to institute and prosecute any action or proceeding or to do any other act which in its opinion may be necessary or desirable to establish the title to the estate or interest, as insured, or to prevent or reduce loss or damage to the insured. The Company may take any appropriate action under the terms of this policy, whether or not it shall be liable hereunder, and shall not thereby concede liability or waive any provision of this policy. If the Company shall exercise its rights under this paragraph, it shall do so diligently.

(c) Whenever the Company shall have brought an action or interposed a defense as required or permitted by the provisions of this policy, the Company may pursue any litigation to final determination by a court of competent jurisdiction and expressly reserves the right, in its sole discretion, to appeal from any adverse judgment or order.

(d) In all cases where this policy permits or requires the Company to prosecute or provide for the defense of any action or proceeding, the insured shall secure to the Company the right to so prosecute or provide defense in the action or proceeding, and all appeals therein, and permit the Company to use, at its option, the name of the insured for this purpose. Whenever requested by the Company, the insured, at the Company's expense, shall give the Company all reasonable aid (i) in any action or proceeding, securing evidence, obtaining witnesses, prosecuting or defending the action or proceeding, or effecting settlement, and (ii) in any other lawful act which in the opinion of the Company may be necessary or desirable to establish the title to the estate or interest as insured. If the Company is prejudiced by the failure of the insured to furnish the required cooperation, the Company's obligations to the insured under the policy shall terminate, including any liability or obligation to defend, prosecute, or continue any litigation, with regard to the matter or matters requiring such cooperation.

5. PROOF OF LOSS OR DAMAGE.

56 In addition to and after the notices required under Section 3 of these Conditions and Stipulations have been provided the Company, a proof of loss or damage signed and sworn to by the insured claimant shall be furnished to the Company within 90 days after the insured claimant shall ascertain the facts giving rise to the loss or damage. The proof of loss or damage shall describe the defect in, or lien or encumbrance on the title, or other matter insured against by this policy which constitutes the basis of loss or damage and shall state, to the extent possible, the basis of calculating the amount of the loss or damage If the Company is prejudiced by the failure of the insured claimant to provide the required proof of loss or damage, the Company's obligations to the insured under the policy shall terminate, including any liability or obligation to defend, prosecute, or continue any litigation, with regard to the matter or matters requiring such proof of loss or damage.

In addition, the insured claimant may reasonably be required to submit to examination under oath by any authorized representative of the Company and shall produce for examination, inspection and copying, at such reasonable times and places as may be designated by any authorized representative of the Company, all records, books, ledgers, checks, correspondence and memoranda, whether bearing a date before or after Date of Policy, which reasonably pertain to the loss or damage. Further, if requested by any authorized representative of the Company, the insured claimant shall grant its permission, in writing, for any authorized representative of the Company to examine, inspect and copy all records, books, ledgers, checks, correspondence and memoranda in the custody or control of a third party, which reasonably pertain to the loss or damage. All information designated as confidential by the insured claimant provided to the Company pursuant to this Section shall not be disclosed to others unless, in the reasonable judgment of the Company, it is necessary in the administration of the claim. Failure of the insured claimant to submit for examination under oath, produce other reasonably requested information or grant permission to secure reasonably necessary information from third parties as required in this paragraph shall terminate any liability of the Company under this policy as to that claim.

6. OPTIONS TO PAY OR OTHERWISE SETTLE CLAIMS; TERMINATION OF LIABILITY.

In case of a claim under this policy, the Company shall have the following additional options:

(a) To Pay or Tender Payment of the Amount of Insurance.

(i) To pay or tender payment of the amount of insurance under this policy together with any costs, attorneys' fees and expenses incurred by the insured claimant, which were authorized by the Company, up to the time of payment or tender of payment and which the Company is obligated to pay.

(ii) Upon the exercise by the Company of this option, all liability and obligations to the insured under this policy, other than to make the payment required, shall terminate, including any liability or obligation to defend, prosecute, or continue any litigation, and the policy shall be surrendered to the Company for cancellation.

(b) To Pay or Otherwise Settle With Parties Other than the Insured or With the Insured Claimant.

(i) to pay or otherwise settle with other parties for or in the name of an insured claimant any claim insured against under this policy, together with any costs, attorneys' fees and expenses incurred by the insured claimant which were authorized by the Company up to the time of payment and which the Company is obligated to pay; or

(ii) to pay or otherwise settle with the insured claimant the loss or damage provided for under this policy, together with any costs, attorneys' fees and expenses incurred by the insured claimant which were authorized by the Company up to the time of payment and which the Company is obligated to pay.

Upon the exercise by the Company of either of the options provided for in paragraphs (b)(i) or (ii), the Company's obligations to the insured under this policy for the claimed loss or damage, other than the payments required to be made, shall terminate, including any liability or obligation to defend, prosecute or continue any litigation.

7. DETERMINATION, EXTENT OF LIABILITY AND COINSURANCE.

57 This policy is a contract of indemnity against actual monetary loss or damage sustained or incurred by the insured claimant who has suffered loss or damage by reason of matters insured against by this policy and only to the extent herein described.

(a) The liability of the Company under this policy shall not exceed the least of:

(i) the Amount of Insurance stated in Schedule A; or,

(ii) the difference between the value of the insured estate or interest as insured and the value of the insured estate or interest subject to the defect, lien or encumbrance insured against by this policy.

(b) In the event the Amount of Insurance stated in Schedule A at the Date of Policy is less than 80 percent of the value of the insured estate or interest or the full consideration paid for the land, whichever is less, or if subsequent to the Date of Policy an improvement is erected on the land which increases the value of the insured estate or interest by at least 20 percent over the Amount of Insurance stated in Schedule A, then this Policy is subject to the following:

(i) where no subsequent improvement has been made, as to any partial loss, the Company shall only pay the loss pro rata in the proportion that the amount of insurance at Date of Policy bears to the total value of the insured estate or interest at Date of Policy; or

(ii) where a subsequent improvement has been made, as to any partial loss, the Company shall only pay the loss pro rata in the proportion that 120 percent of the Amount of Insurance stated in Schedule A bears to the sum of the Amount of Insurance stated in Schedule A and the amount expended for the improvement.

The provisions of this paragraph shall not apply to costs, attorneys' fees and expenses for which the Company is liable under this policy, and shall only apply to that portion of any loss which exceeds, in the aggregate, 10 percent of the Amount of Insurance stated in Schedule A.

(c) The Company will pay only those costs, attorneys' fees and expenses incurred in accordance with Section 4 of these Conditions and Stipulations.

8. APPORTIONMENT.

If the land described in Schedule [A][C] consists of two or more parcels which are not used as a single site, and a loss is established affecting one or more of the parcels but not all, the loss shall be computed and settled on a pro rata basis as if the amount of insurance under this policy was divided pro rata as to the value on Date of Policy of each separate parcel to the whole, exclusive of any improvements made subsequent to Date of Policy, unless a liability or value has otherwise been agreed upon as to each parcel by the Company and the insured at the time of the issuance of this policy and shown by an express statement or by an endorsement attached to this policy.

9. LIMITATION OF LIABILITY.

(a) If the Company establishes the title, or removes the alleged defect, lien or encumbrance, or cures the lack of a right of access to or from the land, or cures the claim of unmarketability of title, all as insured, in a reasonably diligent manner by any method, including litigation and the completion of any appeals therefrom, it shall have fully performed its obligations with respect to that matter and shall not be liable for any loss or damage caused thereby.

(b) In the event of any litigation, including litigation by the Company or with the Company's consent, the Company shall have no liability for loss or damage until there has been a final determination by a court of competent jurisdiction, and disposition of all appeals therefrom, adverse to the title as insured.

(c) The Company shall not be liable for loss or damage to any insured for liability voluntarily assumed by the insured in settling any claim or suit without the prior written consent of the Company.

10. REDUCTION OF INSURANCE; REDUCTION OR TERMINATION OF LIABILITY.

58 All payments under this policy, except payments made for costs, attorneys' fees and expenses, shall reduce the amount of the insurance pro tanto.

11. LIABILITY NON-CUMULATIVE.

It is expressly understood that the amount of insurance under this policy shall be reduced by any amount the Company may pay under any policy insuring a mortgage to which exception is taken in Schedule B or to which the insured has agreed, assumed, or taken subject, or which is hereafter executed by an insured and which is a charge or lien on the estate or interest described or referred to in Schedule A, and the amount so paid shall be deemed a payment under this policy to the insured owner.

12. PAYMENT OF LOSS.

(a) No payment shall be made without producing this policy for endorsement of the payment unless the policy has been lost or destroyed, in which case proof of loss or destruction shall be furnished to the satisfaction of the Company.

(b) When liability and the extent of loss or damage has been definitely fixed in accordance with these Conditions and Stipulations, the loss or damage shall be payable within 30 days thereafter.

13. SUBROGATION UPON PAYMENT OR SETTLEMENT.

(a) The Company's Right of Subrogation.

Whenever the Company shall have settled and paid a claim under this policy, all right of subrogation shall vest in the Company unaffected by any act of the insured claimant.

The Company shall be subrogated to and be entitled to all rights and remedies which the insured claimant would have had against any person or property in respect to the claim had this policy not been issued. If requested by the Company, the insured claimant shall transfer to the Company all rights and remedies against any person or property necessary in order to perfect this right of subrogation. The insured claimant shall permit the Company to sue, compromise or settle in the name of the insured claimant and to use the name of the insured claimant in any transaction or litigation involving these rights or remedies.

If a payment on account of a claim does not fully cover the loss of the insured claimant, the Company shall be subrogated to these rights and remedies in the proportion which the Company's payment bears to the whole amount of the loss.

If loss should result from any act of the insured claimant, as stated above, that act shall not void this policy, but the Company, in that event, shall be required to pay only that part of any losses insured against by this policy which shall exceed the amount, if any, lost to the Company by reason of the impairment by the insured claimant of the Company's right of subrogation.

(b) The Company's Rights Against Non-insured Obligors.

The Company's right of subrogation against non-insured obligors shall exist and shall include, without limitation, the rights of the insured to indemnities, guaranties, other policies of insurance or bonds, notwithstanding any terms or conditions contained in those instruments which provide for subrogation rights by reason of this policy.

14. ARBITRATION.

Unless prohibited by applicable law, either the Company or the insured may demand arbitration pursuant to the Title Insurance Arbitration Rules of the American Arbitration Association. Arbitrable matters may include, but are not limited to, any controversy or claim between the Company and the insured arising out of or relating to this policy, any service of the Company in connection with its issuance or the breach of a policy provision or other obligation. All arbitrable matters when the Amount of Insurance is $1,000,000 or less shall be arbitrated at the option of either the Company or the insured. All arbitrable matters when the Amount of Insurance is in excess of $1,000,000 shall be arbitrated only when agreed to by both the Company and the insured. Arbitration pursuant to this policy and under the Rules in effect on the date the 59 demand for arbitration is made or, at the option of the insured, the Rules in effect at Date of Policy shall be binding upon the parties. The award may include attorneys' fees only if the laws of the state in which the land is located permit a court to award attorneys' fees to a prevailing party. Judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof.

The law of the situs of the land shall apply to an arbitration under the Title Insurance Arbitration Rules.

A copy of the Rules may be obtained from the Company upon request.

15. LIABILITY LIMITED TO THIS POLICY; POLICY ENTIRE CONTRACT.

(a) This policy together with all endorsements, if any, attached hereto by the Company is the entire policy and contract between the insured and the Company. In interpreting any provision of this policy, this policy shall be construed as a whole.

(b) Any claim of loss or damage, whether or not based on negligence, and which arises out of the status of the title to the estate or interest covered hereby or by any action asserting such claim, shall be restricted to this policy.

(c) No amendment of or endorsement to this policy can be made except by a writing endorsed hereon or attached hereto signed by either the President, a Vice President, the Secretary, an Assistant Secretary, or validating officer or authorized signatory of the Company.

16. SEVERABILITY.

In the event any provision of the policy is held invalid or unenforceable under applicable law, the policy shall be deemed not to include that provision and all other provisions shall remain in full force and effect.

17. NOTICES, WHERE SENT.

All notices required to be given the Company and any statement in writing required to be furnished the Company shall include the number of this policy and shall be addressed to the Company at P. O. Box 2029 Houston, TX 77252-2029.

60 Stewart Title Guaranty Company SCHEDULE A OWNER'S POLICY

File No.: 00m0041S

OWNER'S POLICY NUMBER DATE OF POLICY AMOUNT OF INSURANCE O-9993-0000001 8/18/2004 $229,000.00

LOAN POLICY NUMBER DATE OF POLICY AMOUNT OF INSURANCE M-9994-0000002 8/18/2004 $100,000.00

NOTE: A loan policy on the encumbrance described this Schedule has been issued naming as the insured:

AREN’T-WE-THE-GREATEST MORTGAGE CO., INC. d/b/a EVEN-GREATER MORTGAGE CO.

1. Name of Insured:

TODD M. A. LEZZIN and LYNN D. LEZZIN

2. The Estate or interest in the land which is covered by this policy is:

FEE SIMPLE

3. Title to the estate or interest in the land is vested in the insured.

4. The land herein described is encumbered by the following mortgage or deed of trust, and assignments:

Mortgage from TODD M. A. LEZZIN and LYNN D. LEZZIN to AREN’T-WE-THE-GREATEST MORTGAGE CO., INC. d/b/a EVEN-GREATER MORTGAGE CO., dated 8/18/2000, recorded with the BARNSTABLE County Registry of Deeds on 8/18/2000 in Book 14000, Page 03 securing the original principal amount of $100,000.00.

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

See Exhibit “A” attached hereto and made a part hereof.

Address of Property (For identification purposes only):

Street: 68 BIRCH POND DRIVE City: FALMOUTH State: Massachusetts Unit/Lot: Condo/Subdiv:

This policy valid only if Schedule B is attached.

COUNTERSIGNED:

BY______Stewart Title Guaranty Company/Authorized Signatory

61 Stewart Title Guaranty Company SCHEDULE B OWNER’S POLICY

File No.: 00m0041S

OWNER'S POLICY NUMBER O-9993-0000001

LOAN POLICY NUMBER M-9994-0000002

This policy does not insure against loss or damage by reason of the following:

General Exceptions: 1. Rights of present tenants, lessees or parties in possession. 2. Any lien, or right to a lien, for services, labor or materials heretofore or hereafter furnished, imposed by law and not shown by the public records. 3. Discrepancies, conflicts in boundary lines, shortage in area, easements, encroachments, and facts which an accurate survey and inspection of the premises would disclose.

Special Exceptions: THE MORTGAGE, IF ANY, REFERRED TO IN ITEM 4 OF SCHEDULE A. (This exception does NOT apply to Loan Policies)

4. Liens for real estate taxes and assessments, which become due and payable subsequent to the date of this policy, plus unpaid water and sewer charges, if any.

5. IF THE INSURED PREMISES IS A CONDOMINIUM UNIT: A. Covenants, conditions, restrictions, reservations, easements, liens for assessments, options, powers of attorney and limitations on title, created by the laws of the State of the insured premises or set forth in the Master Deed or Declaration of Condominium, in the related By- laws, or in the Declaration of Trust, as duly recorded in the appropriate Land Records Office and as the same may have been lawfully amended, and in any instrument creating the estate or interest insured by this policy.

[ X ] FOR ADDITIONAL EXCEPTIONS, SEE SCHEDULE B ADDENDUM ATTACHED HERETO

General Exceptions numbered 1, 2, & 3 are hereby omitted from the LOAN POLICY. (None are omitted from the Owners Policy unless there is an endorsement attached authorizing specific deletions).

Affirmative insurance language under Special Exceptions of Schedule B does not apply to the Owner’s Policy unless otherwise specified.

Inclusion of a specific survey exception under Special Exceptions of Schedule B does NOT eliminate General Exception 3 in the Owner’s Policy.

NOTE: The policy amount will automatically increase by 10% of the amount shown on Schedule A on each of the first five anniversaries of the policy date shown on Schedule A with respect to policies insuring the title to one-to-four family residential premises or a residential condominium unit. Stewart Title Guaranty Company SCHEDULE B ADDENDUM OWNER’S AND LOAN POLICY

Loan Policy No.: M-9994-0000002 Owner’s Policy No.: O-9993-0000001

6. Easement to Cape & Vineyard Electric Company and New England Telephone & Telegraph Company recorded with said Registry of Deeds in Book 1032, Page 138 and Book 1246, Page 415.

7. Easement for Water Pipe & Maintenance recorded with said Registry of Deeds in Book 1296, Page 639.

8. Road Taking by the Town of Falmouth for access recorded with said Registry of Deeds in Book 2334, Page 84.

9. Rights and claims of tenants in possession under unrecorded leases or as tenants-at-will.

10. Collateral Assignment of Leases and Rents from Todd M.A. Lezzin and Lynn D. Lezzin (“Assignor”) to Aren’t-We-the-Greatest Mortgage Co., Inc., d/b/a Even Greater Mortgage Co., (“Assignee”) dated 8/18/2000, recorded with said Deeds in Book 14000, Page 09. As part of the insured mortgage transaction.

11. Declaration of Homestead by Todd M. A. Lezzin dated 8/17/2000 and recorded on 8/18/2000 with said Registry in Book 14000, Page 02

NOTE: Exceptions 10 and 11 apply to the Owner’s Policy and are not to be considered exceptions on the Loan Policy but rather, as to the Loan Policy, Exceptions 10 and 11 are subordinate matters appearing on Schedule BII of the Loan Policy. EXHIBIT A

File No.: 00m0041S Lenders Policy No.: M-9994-0000002 Owner’s Policy No.: O-9993-0000001

Sample description for Lot on Plan together with metes and bounds:

The land in Falmouth, being Lot 18 on Plan entitled “Definitive Plan of Birch Pond Acres, Lakeside Drive, Falmouth, MA, owned by M. I. Bright Realty Co., Inc., Scale = 1”-60’, February, 1985, revised March 1985, Revised April 1985, the R.T.W. Engineering Co., 6 Elm St., E. Falmouth, MA,” which plan is recorded in the Barnstable County Registry of Deeds in Plan Book 221, Page 48, and being further bounded and described as follows:

Beginning at a point in the northerly sideline of Birch Pond Drive at the Southeasterly corner of Lot 17 on said Plan;

Thence North 03 Deg 07’00” East by said Lot 17, One Hundred Twenty-Eight and 00/100(128.00) feet to a point for a corner:

Thence North 86 Deg 53’00” East by Lot 19 on said Plan, One Hundred Thirty and 00/100(130.00) feet to the Westerly sideline of Lakeside Drive;

Thence South 03 Deg 07’00” East by said Westerly side of Lakeside Drive, Ninety-Eight and 00/100 (98.00) feet;

Thence Southwesterly in the Arc of a curve having a radius of 30.00 feet, a distance of Forty-Seven and 12/100 (47.12) feet to the said Northerly sideline of Birch Pond Drive;

Thence South 86 Deg 53’00” West by said Northerly sideline of Birch Pond Drive, One Hundred and 00/100 (100.00) feet to the point of beginning.

If this Policy had been for a Condominium Unit a Sample Description would be:

The Unit known as Unit No. 303 in the Birch Pond Acres Condominium, a condominium situated in Falmouth Massachusetts, created pursuant to Massachusetts General Laws Chapter 183A and by Master Deed dated August 12, 1986 and recorded on August 21, 1986 with the Barnstable County Registry of Deeds in Book 9719, Page 124 as the same may have been amended, which unit is shown on floor plans recorded with said Master Deed, to which is affixed a verified statement in the form required by Section 9 of said Chapter 183A. Together with the undivided interest appurtenant thereto in the common areas and facilities of the Condominium as described in said Master deed, and together with the rights and easements appurtenant to said unit, exclusive or otherwise, referred to as Master Deed. EXHIBIT B ALTA Loan Policy 1992

POLICY OF TITLE INSURANCE

ISSUED BY STEWART TITLE GUARANTY COMPANY

SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULE B AND THE CONDITIONS AND STIPULATIONS, STEWART TITLE GUARANTY COMPANY, a Texas corporation, herein called the Company, insures, as of Date of Policy shown in Schedule A, against loss or damage, not exceeding the Amount of Insurance stated in Schedule A, sustained or incurred by the insured by reason of:

1. Title to the estate or interest described in Schedule A being vested other than as stated therein;

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;

5. The invalidity or unenforceability of the lien of the insured mortgage upon the title;

6. The priority of any lien or encumbrance over the lien of the insured mortgage;

7. Lack of priority of the lien of the insured mortgage over any statutory lien for services, labor or material:

(a) arising from an improvement or work related to the land which is contracted for or commenced prior to Date of Policy; or

(b) arising from an improvement or work related to the land which is contracted for or commenced subsequent to Date of Policy and which is financed in whole or in part by proceeds of the indebtedness secured by the insured mortgage which at Date of Policy the insured has advanced or is obligated to advance;

8. The invalidity or unenforceability of any assignment of the insured mortgage, provided the assignment is shown in Schedule A, or the failure of the assignment shown in Schedule A to vest title to the insured mortgage in the named insured assignee free and clear of all liens.

The Company will also pay the costs, attorneys' fees and expenses incurred in defense of the title or the lien of the insured mortgage, as insured, but only to the extent provided in the Conditions and Stipulations.

EXCLUSIONS FROM COVERAGE

The following matters are expressly excluded from the coverage of this policy and the Company will not pay loss or damage, costs, attorneys' fees or expenses which arise by reason of:

1. (a) Any law, ordinance or governmental regulation (including but not limited to building and zoning laws, ordinances, or regulations) restricting, regulating, prohibiting or relating to (i) the occupancy, use, or enjoyment of the land; (ii) the character, dimensions or location of any improvement now or hereafter erected on the land; (iii) a separation in ownership or a change in the dimensions or area of the land or any parcel of which the land is or was a part; or (iv) environmental protection, or the effect of any violation of these laws, ordinances or governmental regulations, except to the extent that a notice of the enforcement thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy.

(b) Any governmental police power not excluded by (a) above, except to the extent that a notice of the exercise thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy.

2. Rights of eminent domain unless notice of the exercise thereof has been recorded in the public records at Date of Policy, but not excluding from coverage any taking which has occurred prior to Date of Policy which would be binding on the rights of a purchaser for value without knowledge.

3. Defects, liens, encumbrances, adverse claims or other matters:

(a) created, suffered, assumed or agreed to by the insured claimant;

(b) not known to the Company, not recorded in the public records at Date of Policy, but known to the insured claimant and not disclosed in writing to the Company by the insured claimant prior to the date the insured claimant became an insured under this policy;

(c) resulting in no loss or damage to the insured claimant;

(d) attaching or created subsequent to Date of Policy (except to the extent that this policy insures the priority of the lien of the insured mortgage over any statutory lien for services, labor or material); or

(e) resulting in loss or damage which would not have been sustained if the insured claimant had paid value for the insured mortgage.

4. Unenforceability of the lien of the insured mortgage because of the inability or failure of the insured at Date of Policy, or the inability or failure of any subsequent owner of the indebtedness, to comply with applicable doing business laws of the state in which the land is situated.

5. Invalidity or unenforceability of the lien of the insured mortgage, or claim thereof, which 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.

6. Any statutory lien for services, labor or materials (or the claim of priority of any statutory lien for services, labor or materials over the lien of the insured mortgage) arising from an improvement or work related to the land which is contracted for and commenced subsequent to Date of Policy and is not financed in whole or in part by proceeds of the indebtedness secured by the insured mortgage which at Date of Policy the insured has advanced or is obligated to advance.

7. Any claim, which arises out of the transaction creating the interest of the mortgagee insured by this policy, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws, that is based on:

(a) the transaction creating the interest of the insured mortgagee being deemed a fraudulent conveyance or fraudulent transfer; or

(b) the subordination of the interest of the insured mortgagee as a result of the application of the doctrine of equitable subordination; or

(c) the transaction creating the interest of the insured mortgagee being deemed a preferential transfer except where the preferential transfer results from the failure:

(i) to timely record the instrument of transfer; or

(ii) of such recordation to impart notice to a purchaser for value or a judgment or lien creditor.

CONDITIONS AND STIPULATIONS 1. DEFINITION OF TERMS.

The following terms when used in this policy mean:

(a) “insured”: the insured named in Schedule A. The term “insured” also includes

(i) the owner of the indebtedness secured by the insured mortgage and each successor in ownership of the indebtedness except a successor who is an obligor under the provision of Section 12(c) of these Conditions and Stipulations (reserving, however, all rights and defenses as to any successor that the Company 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, adverse claim or other matter insured against by this policy as affecting title to the estate or interest in the land):

(ii) any governmental agency or governmental instrumentality which is an insurer or guarantor under an insurance contract or guaranty insuring or guaranteeing the indebtedness secured by the insured mortgage, or any part thereof, whether named as an insured herein or not;

(iii) the parties designated in Section 2(a) of these Conditions and Stipulations.

(b) “insured claimant”: an insured claiming loss or damage.

(c) “knowledge” or “known”: actual knowledge, not constructive knowledge or notice which may be imputed to an insured by reason of the public records as defined in this policy or any other records which impart constructive notice of matters affecting the land.

(d) “land”: the land described or referred to in Schedule [A][C], and improvements affixed thereto which by law constitute real property. The term “land” does not include any property beyond the lines of the area described or referred to in Schedule [A][C], nor any right, title, interest, estate or easement in abutting streets, roads, avenues, alleys, lanes, ways or waterways, but nothing herein shall modify or limit the extent to which a right of access to and from the land is insured by this policy.

(e) “mortgage”: mortgage, deed of trust, trust deed, or other security instrument.

(f) “public records”: records established under state statutes at Date of Policy for the purpose of imparting constructive notice of matters relating to real property to purchasers for value and without knowledge. With respect to Section 1(a)(iv) of the Exclusions From Coverage, “public records” shall also include environmental protection liens filed in the records of the clerk of the United States district court for the district in which the land is located.

(g) “unmarketability of the title”: an alleged or apparent matter affecting the title to the land, not excluded or excepted from coverage, which would entitle a purchaser of the estate or interest described in Schedule A or the insured mortgage to be released from the obligation to purchase by virtue of a contractual condition requiring the delivery of marketable title.

2. CONTINUATION OF INSURANCE.

(a) After Acquisition of Title. The coverage of this policy shall continue in force as of Date of Policy in favor of (i) an insured who acquires all or any part of the estate or interest in the land by foreclosure, trustee's sale, conveyance in lieu of foreclosure, or other legal manner which discharges the lien of the insured mortgage; (ii) a transferee of the estate or interest so acquired from an insured corporation, provided the transferee is the parent or wholly-owned subsidiary of the insured corporation, and their corporate successors by operation of law and not by purchase, subject to any rights or defenses the Company may have against any predecessor insureds; and (iii) any governmental agency or governmental instrumentality which acquires all or any part of the estate or interest pursuant to a contract of insurance or guaranty insuring or guaranteeing the indebtedness secured by the insured mortgage.

(b) After Conveyance of Title. The coverage of this policy shall continue in force as of Date of policy in favor of an insured only so long as the insured retains an estate or interest in the land, or holds an indebtedness secured by a purchase money mortgage given by a purchaser from the insured, or only so long as the insured shall have liability by reason of covenants of warranty made by the insured in any transfer or conveyance of the estate or interest. This policy shall not continue in force in favor of any purchaser from the insured of either (i) an estate or interest in the land, or (ii) an indebtedness secured by a purchase money mortgage given to the insured.

(c) Amount of Insurance. The amount of insurance after the acquisition or after the conveyance shall in neither event exceed the least of:

(i) the Amount of Insurance stated in Schedule A;

(ii) the amount of the principal of the indebtedness secured by the insured mortgage as of Date of Policy, interest thereon, expenses of foreclosure, amounts advanced pursuant to the insured mortgage to assure compliance with laws or to protect the lien of the insured mortgage prior to the time of acquisition of the estate or interest in the land and secured thereby and reasonable amounts expended to prevent deterioration of improvements, but reduced by the amount of all payments made; or

(iii) the amount paid by any governmental agency or governmental instrumentality, if the agency or instrumentality is the insured claimant, in the acquisition of the estate or interest in satisfaction of its insurance contract or guaranty.

3. NOTICE OF CLAIM TO BE GIVEN BY INSURED CLAIMANT.

The insured shall notify the Company promptly in writing (i) in case of any litigation as set forth in Section 4(a) below, (ii) in case knowledge shall come to an insured hereunder of any claim of title or interest which is adverse to the title to the estate or interest or the lien of the insured mortgage, as insured, and which might cause loss or damage for which the Company may be liable by virtue of this policy, or (iii) if title to the estate or interest or the lien of the insured mortgage, as insured, is rejected as unmarketable. If prompt notice shall not be given to the Company, then as to the insured all liability of the Company shall terminate with regard to the matter or matters for which prompt notice is required; provided, however, that failure to notify the Company shall in no case prejudice the rights of any insured under this policy unless the Company shall be prejudiced by the failure and then only to the extent of the prejudice.

4. DEFENSE AND PROSECUTION OF ACTIONS; DUTY OF INSURED CLAIMANT TO COOPERATE.

(a) Upon written request by the insured and subject to the options contained in Section 6 of these Conditions and Stipulations, the Company, at its own cost and without unreasonable delay, shall provide for the defense of an insured in litigation in which any third party asserts a claim adverse to the title or interest as insured, but only as to those stated causes of action alleging a defect, lien or encumbrance or other matter insured against by this policy. The Company shall have the right to select counsel of its choice (subject to the right of the insured to object for reasonable cause) to represent the insured as to those stated causes of action and shall not be liable for and will not pay the fees of any other counsel. The Company will not pay any fees, costs or expenses incurred by the insured in the defense of those causes of action which allege matters not insured against by this policy.

(b) The Company shall have the right, at its own cost, to institute and prosecute any action or proceeding or to do any other act which in its opinion may be necessary or desirable to establish the title to the estate or interest or the lien of the insured mortgage, as insured, or to prevent or reduce loss or damage to the insured. The Company may take any appropriate action under the terms of this policy, whether or not it shall be liable hereunder, and shall not thereby concede liability or waive any provision of this policy. If the Company shall exercise its rights under this paragraph, it shall do so diligently.

(c) Whenever the Company shall have brought an action or interposed a defense as required or permitted by the provisions of this policy, the Company may pursue any litigation to final determination by a court of competent jurisdiction and expressly reserves the right, in its sole discretion, to appeal from any adverse judgment or order.

(d) In all cases where this policy permits or requires the Company to prosecute or provide for the defense of any action or proceeding, the insured shall secure to the Company the right to so prosecute or provide defense in the action or proceeding, and all appeals therein, and permit the Company to use, at its option, the name of the insured for this purpose. Whenever requested by the Company, the insured, at the Company's expense, shall give the Company all reasonable aid (i) in any action or proceeding, securing evidence, obtaining witnesses, prosecuting or defending the action or proceeding, or effecting settlement, and (ii) in any other lawful act which in the opinion of the Company may be necessary or desirable to establish the title to the estate or interest or the lien of the insured mortgage, as insured. If the Company is prejudiced by the failure of the insured to furnish the required cooperation, the Company's obligations to the insured under the policy shall terminate, including any liability or obligation to defend, prosecute, or continue any litigation, with regard to the matter or matters requiring such cooperation.

5. PROOF OF LOSS OR DAMAGE.

In addition to and after the notices required under Section 3 of these Conditions and Stipulations have been provided the Company, a proof of loss or damage signed and sworn to by the insured claimant shall be furnished to the Company within 90 days after the insured claimant shall ascertain the facts giving rise to the loss or damage. The proof of loss or damage shall describe the defect in, or lien or encumbrance on the title, or other matter insured against by this policy which constitutes the basis of loss or damage and shall state, to the extent possible, the basis of calculating the amount of the loss or damage. If the Company is prejudiced by the failure of the insured claimant to provide the required proof of loss or damage, the Company's obligations to the insured under the policy shall terminate, including any liability or obligation to defend, prosecute, or continue any litigation, with regard to the matter or matters requiring such proof of loss or damage.

In addition, the insured claimant may reasonably be required to submit to examination under oath by any authorized representative of the Company and shall produce for examination, inspection and copying, at such reasonable times and places as may be designated by any authorized representative of the Company, all records, books, ledgers, checks, correspondence and memoranda, whether bearing a date before or after Date of Policy, which reasonably pertain to the loss or damage. Further, if requested by any authorized representative of the Company, the insured claimant shall grant its permission, in writing, for any authorized representative of the Company to examine, inspect and copy all records, books, ledgers, checks, correspondence and memoranda in the custody or control of a third party, which reasonably pertain to the loss or damage. All information designated as confidential by the insured claimant provided to the Company pursuant to this Section shall not be disclosed to others unless, in the reasonable judgment of the Company, it is necessary in the administration of the claim. Failure of the insured claimant to submit for examination under oath, produce other reasonably requested information or grant permission to secure reasonably necessary information from third parties as required in this paragraph, unless prohibited by law or governmental regulation, shall terminate any liability of the Company under this policy as to that claim.

6. OPTIONS TO PAY OR OTHERWISE SETTLE CLAIMS; TERMINATION OF LIABILITY.

In case of a claim under this policy, the Company shall have the following additional options:

(a) To Pay or Tender Payment of the Amount of Insurance or to Purchase the Indebtedness.

(i) to pay or tender payment of the amount of insurance under this policy together with any costs, attorneys' fees and expenses incurred by the insured claimant, which were authorized by the Company, up to the time of payment or tender of payment and which the Company is obligated to pay; or

(ii) to purchase the indebtedness secured by the insured mortgage for the amount owing thereon together with any costs, attorneys' fees and expenses incurred by the insured claimant which were authorized by the Company up to the time of purchase and which the Company is obligated to pay.

If the Company offers to purchase the indebtedness as herein provided, the owner of the indebtedness shall transfer, assign, and convey the indebtedness and the insured mortgage, together with any collateral security, to the Company upon payment therefor.

Upon the exercise by the Company of either of the options provided for in paragraph a(i) or (ii), all liability and obligations to the insured under this policy, other than to make the payment required in those paragraphs, shall terminate, including any liability or obligation to defend, prosecute, or continue any litigation, and the policy shall be surrendered to the Company for cancellation.

(b) To Pay or Otherwise Settle With Parties Other than the Insured or With the Insured Claimant. (i) to pay or otherwise settle with other parties for or in the name of an insured claimant any claim insured against under this policy, together with any costs, attorneys' fees and expenses incurred by the insured claimant which were authorized by the Company up to the time of payment and which the Company is obligated to pay; or

(ii) to pay or otherwise settle with the insured claimant the loss or damage provided for under this policy, together with any costs, attorneys' fees and expenses incurred by the insured claimant which were authorized by the Company up to the time of payment and which the Company is obligated to pay.

Upon the exercise by the Company of either of the options provided for in paragraphs b(i) or (ii), the Company's obligations to the insured under this policy for the claimed loss or damage, other than the payments required to be made, shall terminate, including any liability or obligation to defend, prosecute or continue any litigation.

7. DETERMINATION AND EXTENT OF LIABILITY.

This policy is a contract of indemnity against actual monetary loss or damage sustained or incurred by the insured claimant who has suffered loss or damage by reason of matters insured against by this policy and only to the extent herein described.

(a) The liability of the Company under this policy shall not exceed the least of:

(i) the Amount of Insurance stated in Schedule A, or, if applicable, the amount of insurance as defined in Section 2(c) of these Conditions and Stipulations;

(ii) the amount of the unpaid principal indebtedness secured by the insured mortgage as limited or provided under Section 8 of these Conditions and Stipulations or as reduced under Section 9 of these Conditions and Stipulations, at the time the loss or damage insured against by this policy occurs, together with interest thereon; or

(iii) the difference between the value of the insured estate or interest as insured and the value of the insured estate or interest subject to the defect, lien or encumbrance insured against by this policy.

(b) In the event the insured has acquired the estate or interest in the manner described in Section 2(a) of these Conditions and Stipulations or has conveyed the title, then the liability of the Company shall continue as set forth in Section 7(a) of these Conditions and Stipulations.

(c) The Company will pay only those costs, attorneys' fees and expenses incurred in accordance with Section 4 of these Conditions and Stipulations.

8. LIMITATION OF LIABILITY.

(a) If the Company establishes the title, or removes the alleged defect, lien or encumbrance, or cures the lack of a right of access to or from the land, or cures the claim of unmarketability of title, or otherwise establishes the lien of the insured mortgage, all as insured, in a reasonably diligent manner by any method, including litigation and the completion of any appeals therefrom, it shall have fully performed its obligations with respect to that matter and shall not be liable for any loss or damage caused thereby.

(b) In the event of any litigation, including litigation by the Company or with the Company's consent, the Company shall have no liability for loss or damage until there has been a final determination by a court of competent jurisdiction, and disposition of all appeals therefrom, adverse to the title or to the lien of the insured mortgage, as insured.

(c) The Company shall not be liable for loss or damage to any insured for liability voluntarily assumed by the insured in settling any claim or suit without the prior written consent of the Company.

(d) The Company shall not be liable for: (i) any indebtedness created subsequent to Date of Policy except for advances made to protect the lien of the insured mortgage and secured thereby and reasonable amounts expended to prevent deterioration of improvements; or (ii) construction loan advances made subsequent to Date of Policy, except 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 which at Date of Policy were secured by the insured mortgage and which the insured was and continued to be obligated to advance at and after Date of Policy.

9. REDUCTION OF INSURANCE; REDUCTION OR TERMINATION OF LIABILITY.

(a) All payments under this policy, except payments made for costs, attorneys' fees and expenses, shall reduce the amount of the insurance pro tanto. However, any payments made prior to the acquisition of title to the estate or interest as provided in Section 2(a) of these Conditions and Stipulations shall not reduce pro tanto the amount of the insurance afforded under this policy except to the extent that the payments reduce the amount of the indebtedness secured by the insured mortgage.

(b) Payment in part by any person of the principal of the indebtedness, or any other obligation secured by the insured mortgage, or any voluntary partial satisfaction or release of the insured mortgage, to the extent of the payment, satisfaction or release, shall reduce the amount of insurance pro tanto. The amount of insurance may thereafter be increased by accruing interest and advances made to protect the lien of the insured mortgage and secured thereby, with interest thereon, provided in no event shall the amount of insurance be greater than the Amount of Insurance stated in Schedule A.

(c) Payment in full by any person or the voluntary satisfaction or release of the insured mortgage shall terminate all liability of the Company except as provided in Section 2(a) of these Conditions and Stipulations.

10. LIABILITY NON-CUMULATIVE.

If the insured acquires title to the estate or interest in satisfaction of the indebtedness secured by the insured mortgage, or any part thereof, it is expressly understood that the amount of insurance under this policy shall be reduced by any amount the Company may pay under any policy insuring a mortgage to which exception is taken in Schedule B or to which the insured has agreed, assumed, or taken subject, or which is hereafter executed by an insured and which is a charge or lien on the estate or interest described or referred to in Schedule A, and the amount so paid shall be deemed a payment under this policy.

11. PAYMENT OF LOSS.

(a) No payment shall be made without producing this policy for endorsement of the payment unless the policy has been lost or destroyed, in which case proof of loss or destruction shall be furnished to the satisfaction of the Company.

(b) When liability and the extent of loss or damage has been definitely fixed in accordance with these Conditions and Stipulations, the loss or damage shall be payable within 30 days thereafter.

12. SUBROGATION UPON PAYMENT OR SETTLEMENT.

(a) The Company's Right of Subrogation.

Whenever the Company shall have settled and paid a claim under this policy, all right of subrogation shall vest in the Company unaffected by any act of the insured claimant.

The Company shall be subrogated to and be entitled to all rights and remedies which the insured claimant would have had against any person or property in respect to the claim had this policy not been issued. If requested by the Company, the insured claimant shall transfer to the Company all rights and remedies against any person or property necessary in order to perfect this right of subrogation. The insured claimant shall permit the Company to sue, compromise or settle in the name of the insured claimant and to use the name of the insured claimant in any transaction or litigation involving these rights or remedies.

If a payment on account of a claim does not fully cover the loss of the insured claimant, the Company shall be subrogated to all rights and remedies of the insured claimant after the insured claimant shall have recovered its principal, interest, and costs of collection.

(b) The Insured's Rights and Limitations. Notwithstanding the foregoing, the owner of the indebtedness secured by the insured mortgage, provided the priority of the lien of the insured mortgage or its enforceability is not affected, may release or substitute the personal liability of any debtor or guarantor, or extend or otherwise modify the terms of payment, or release a portion of the estate or interest from the lien of the insured mortgage, or release any collateral security for the indebtedness.

When the permitted acts of the insured claimant occur and the insured has knowledge of any claim of title or interest adverse to the title to the estate or interest or the priority or enforceability of the lien of the insured mortgage, as insured, the Company shall be required to pay only that part of any losses insured against by this policy which shall exceed the amount, if any, lost to the Company by reason of the impairment by the insured claimant of the Company's right of subrogation.

(c) The Company's Rights Against Non-insured Obligors.

The Company's right of subrogation against non-insured obligors shall exist and shall include, without limitation, the rights of the insured to indemnities, guaranties, other policies of insurance or bonds, notwithstanding any terms or conditions contained in those instruments which provide for subrogation rights by reason of this policy.

The Company's right of subrogation shall not be avoided by acquisition of the insured mortgage by an obligor (except an obligor described in Section 1(a)(ii) of these Conditions and Stipulations) who acquires the insured mortgage as a result of an indemnity, guarantee, other policy of insurance, or bond and the obligor will not be an insured under this policy, notwithstanding Section 1(a)(i) of these Conditions and Stipulations.

13. ARBITRATION.

Unless prohibited by applicable law, either the Company or the insured may demand arbitration pursuant to the Title Insurance Arbitration Rules of the American Arbitration Association. Arbitrable matters may include, but are not limited to, any controversy or claim between the Company and the insured arising out of or relating to this policy, any service of the Company in connection with its issuance or the breach of a policy provision or other obligation. All arbitrable matters when the Amount of Insurance is $1,000,000 or less shall be arbitrated at the option of either the Company or the insured. All arbitrable matters when the Amount of Insurance is in excess of $1,000,000 shall be arbitrated only when agreed to by both the Company and the insured. Arbitration pursuant to this policy and under the Rules in effect on the date the demand for arbitration is made or, at the option of the insured, the Rules in effect at Date of Policy shall be binding upon the parties. The award may include attorneys' fees only if the laws of the state in which the land is located permit a court to award attorneys' fees to a prevailing party. Judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof.

The law of the situs of the land shall apply to an arbitration under the Title Insurance Arbitration Rules.

A copy of the Rules may be obtained from the Company upon request.

14. LIABILITY LIMITED TO THIS POLICY; POLICY ENTIRE CONTRACT.

(a) This policy together with all endorsements, if any, attached hereto by the Company is the entire policy and contract between the insured and the Company. In interpreting any provision of this policy, this policy shall be construed as a whole.

(b) Any claim of loss or damage, whether or not based on negligence, and which arises out of the status of the lien of the insured mortgage or of the title to the estate or interest covered hereby or by any action asserting such claim, shall be restricted to this policy.

(c) No amendment of or endorsement to this policy can be made except by a writing endorsed hereon or attached hereto signed by either the President, a Vice President, the Secretary, an Assistant Secretary, or validating officer or authorized signatory of the Company.

15. SEVERABILITY. In the event any provision of this policy is held invalid or unenforceable under applicable law, the policy shall be deemed not to include the provision and all other provisions shall remain in full force and effect.

16. NOTICES, WHERE SENT.

All notices required to be given the Company and any statement in writing required to be furnished the Company shall include the number of this policy and shall be addressed to the Company at P. O. Box 2029 Houston, TX 77252-2029. Stewart Title Guaranty Company SCHEDULE A LOAN POLICY

File No.: 00m0041S

OWNER'S POLICY NUMBER DATE OF POLICY AMOUNT OF INSURANCE O-9993-0000001 8/18/2004 $229,000.00

LOAN POLICY NUMBER DATE OF POLICY AMOUNT OF INSURANCE M-9994-0000002 8/18/2004 $100,000.00

1. Name of Insured:

AREN’T-WE-THE-GREATEST MORTGAGE CO., INC. d/b/a EVEN-GREATER MORTGAGE CO., Its successors and/or assigns as their interest may appear.

2. Title to the estate or interest in the land is vested in:

TODD M. A. LEZZIN and LYNN D. LEZZIN

3. The Estate or interest in the land which is covered by this policy is:

FEE SIMPLE

4. The insured mortgage and assignments thereof, if any, are described as follows:

Mortgage from TODD M. A. LEZZIN and LYNN D. LEZZIN to AREN’T-WE-THE-GREATEST MORTGAGE CO., INC. d/b/a EVEN-GREATER MORTGAGE CO., dated 8/18/2000, recorded with the BARNSTABLE County Registry of Deeds on 8/18/2000 in Book 14000, Page 03 securing the original principal amount of $100,000.00.

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

See Exhibit “A” attached hereto and made a part hereof.

NOTE: THE EXHIBIT A TO THE LOAN POLICY WILL GENERALLY BE THE SAME AS THE ONE USED FOR THE OWNER’S POLICY.

Address of Property (For identification purposes only):

Street: 68 BIRCH POND DRIVE City: FALMOUTH State: Massachusetts Unit/Lot: Condo/Subdiv:

This policy valid only if Schedule B is attached.

COUNTERSIGNED:

BY______Stewart Title Guaranty Company/Authorized Signatory Stewart Title Guaranty Company SCHEDULE B LOAN POLICY

File No.: 00m0041S

LOAN POLICY NUMBER M-9994-0000002 OWNER’S POLICY NUMBER O-9993-0000001

This policy does not insure against loss or damage by reason of the following:

General Exceptions: 1. Rights of present tenants, lessees or parties in possession. 2. Any lien, or right to a lien, for services, labor or materials heretofore or hereafter furnished, imposed by law and not shown by the public records. 3. Discrepancies, conflicts in boundary lines, shortage in area, easements, encroachments, and facts which an accurate survey and inspection of the premises would disclose.

Special Exceptions: THE MORTGAGE, IF ANY, REFERRED TO IN ITEM 4 OF SCHEDULE A. (This exception does NOT apply to Loan Policies)

4. Liens for real estate taxes and assessments, which become due and payable subsequent to the date of this policy, plus unpaid water and sewer charges, if any.

5. IF THE INSURED PREMISES IS A CONDOMINIUM UNIT: A. Covenants, conditions, restrictions, reservations, easements, liens for assessments, options, powers of attorney and limitations on title, created by the laws of the State of the insured premises or set forth in the Master Deed or Declaration of Condominium, in the related By- laws, or in the Declaration of Trust, as duly recorded in the appropriate Land Records Office and as the same may have been lawfully amended, and in any instrument creating the estate or interest insured by this policy.

[ X ] FOR ADDITIONAL EXCEPTIONS, SEE SCHEDULE B ADDENDUM ATTACHED HERETO

General Exceptions numbered 1, 2, & 3 are hereby omitted from the LOAN POLICY. (None are omitted from the Owners Policy unless there is an endorsement attached authorizing specific deletions).

[ X ] SURVEY AFFIDAVIT

The following coverage, as listed, is hereby given with respect to this Loan Policy to the same extent as if the Endorsement listed were attached to said policy:

[ ] ALTA 4.1 Condominium Endorsement (Massachusetts) [ ] ALTA 5.1 Planned Unit Development Endorsement [ ] ALTA 6.0 Variable Rate Mortgage Endorsement [ ] ALTA 6.2 Variable Rate Mortgage - Negative Amortization Endorsement [X] ALTA 8.1 Environmental Protection Lien Endorsement [This endorsement is hereby completed by adding to the end of paragraph (b) thereof: CT, MA. RI, VT-NONE; NH - "RSA 147B"; ME-MRSA TITLE 38, CHAPTER 13B, SECTION 1361, ET SEQ.] [X] STG FORM E-9970 Secondary Mortgage Market Endorsement Stewart Title Guaranty Company SCHEDULE B ADDENDUM OWNER’S AND LOAN POLICY

Loan Policy No.: M-9994-0000002 Owner’s Policy No.: O-9993-0000001

6. Easement to Cape & Vineyard Electric Company and New England Telephone & Telegraph Company recorded with said Registry of Deeds in Book 1032, Page 138 and Book 1246, Page 415.

7. Easement for Water Pipe & Maintenance recorded with said Registry of Deeds in Book 1296, Page 639.

8. Road Taking by the Town of Falmouth for access recorded with said Registry of Deeds in Book 2334, Page 84.

9. Rights and claims of tenants in possession under unrecorded leases or as tenants-at-will.

10. Collateral Assignment of Leases and Rents from Todd M.A. Lezzin and Lynn D. Lezzin (“Assignor”) to Aren’t-We-the-Greatest Mortgage Co., Inc., d/b/a Even Greater Mortgage Co., (“Assignee”) dated 8/18/2000, recorded with said Deeds in Book 14000, Page 09. As part of the insured mortgage transaction.

11. Declaration of Homestead by Todd M. A. Lezzin dated 8/17/2000 and recorded on 8/18/2000 with said Registry in Book 14000, Page 02

NOTE: Exceptions 10 and 11 apply to the Owner’s Policy and are not to be considered exceptions on the Loan Policy but rather, as to the Loan Policy, Exceptions 10 and 11 are subordinate matters appearing on Schedule BII of the Loan Policy.

76 Stewart Title Guaranty Company SCHEDULE B - PART II LOAN POLICY ONLY

File No.: 00m0041S Loan Policy No.: M-9994-0000002

In addition to the matters set forth in Part I of this Schedule, the title to the estate or interest in the land described or referred to in Schedule A is subject to the following matters, if any be shown, but the Company insures that these matters are subordinate to the lien or charge of the insured mortgage upon the estate or interest:

1. Collateral Assignment of Leases and Rents from Todd M.A. Lezzin and Lynn D. Lezzin (“Assignor”) to Aren’t-We-the-Greatest Mortgage Co., Inc., d/b/a Even Greater Mortgage Co., (“Assignee”) dated 8/18/2000, recorded with said Deeds in Book 14000, Page 09. As part of the insured mortgage transaction.

2. Declaration of Homestead by Todd M. A. Lezzin dated 8/17/2000 and recorded on 8/18/2000 with said Registry in Book 14000, Page 02

77 EXHIBIT C

OWNER/SELLER AFFIDAVIT

I/We, ______being first duly sworn, hereby depose and say as follows:

1. That I am/we are the owner(s) of certain premises located at ______, ______, ______County, Massachusetts.

2. That within the last 120 days, including the date hereof, no person, firm or corporation has furnished any labor, services or materials in connection with the construction or repair of any buildings, fixtures or improvements on the herein described premises, except (if work has been performed or materials furnished within the last 120 days, please explain fully and state whether payment for same has been made in full): ______

3. That there are no present tenants, lessees or other parties in possession or who have a right to possession of said premises, except (if none, state “NONE”) ______

4. That I/We have examined a certain survey/plot plan entitled “______” made by , Surveyor, dated ______; that no exterior alterations or additions have been made to the buildings shown on said survey/plot plan; that no additional buildings or other improvements have been constructed on said premises since that date of said survey/plot plan, and that said survey/plot plan reflects the current status of the premises. NOTE: WHEN CURRENT SURVEY IS PROVIDED OR IF DELETION OF LOAN POLICY SURVEY EXCEPTION IS NOT DESIRED, THIS PARAGRAPH NEED NOT BE COMPLETED.

5. That I/we have no knowledge of any taxes or special assessments which are not shown as existing liens by the public records other than as shown in a current Municipal Lien Certificate or as reflected on the HUD-1 Settlement Statement.

6. That I/we have no knowledge of, nor have I/we created, any violations of any covenants, restrictions agreements, conditions or zoning ordinances affecting said premises.

7. That all bills which could become liens pursuant to M.G.L. A. Chapter 551 of the Acts of 1980 (Municipal Lighting Plants-Real Estate Liens), if any, have been paid.

8. That I/we make this Affidavit for the purposes of inducing a purchase, lease and/or mortgage on said premises, and for the purposes of inducing Stewart Title Guaranty Company to issue a policy (policies) of title insurance insuring same and I/we hereby agree to indemnify and hold harmless the Title Insurance Company from any loss resulting from any misrepresentation of the statements contained herein.

______

______

Subscribed and sworn to before me, this ______day of ______, 20___ .

______Notary Public/Commissioner of the Superior Court

78 EXHIBIT D

OWNER/SELLER AFFIDAVIT - SURVEY COVERAGE

I/We______being first duly sworn, depose and say as follows:

1. That I am/we are the owner(s) of certain premises situated at the following address:

______(“the Property”).

2. I/we have owned the property now being sold or mortgaged by me/us continuously for _____ years last past, and my/our enjoyment thereof has been peaceable and undisturbed and the title to said property has never been disputed or questioned to my/our knowledge, nor do I/we know of any facts by reason of which the title to, or possession of, said property might be disputed or questioned, or by reason of which any claim to any of said property might be asserted adversely against me/us.

3. That within the last one hundred and twenty (120) days, no person or business entity has furnished any labor, services or materials in connection with the construction or repair of any buildings or improvements on the Property except (if none, state “none”): ______

4. That there are no tenants, lessees or other parties in possession of the Property except (if none, state “none”) ______.

5. That during the time of ownership of the premises above described, I/we have conveyed no portion of the premises nor done any act or allowed any act to be done which has changed or could change the boundaries of the Property.

6. That I/we have not allowed, nor do I/we have knowledge of, any encroachments onto the Property by any adjoining land owners nor have I/we created, allowed or maintained any encroachments upon any property of adjoining land owners.

7. That I/we have not allowed, nor do I/we have knowledge of, any easements, rights of way, continuous driveway usage, drain, sewer, water, gas or oil pipelines or any other rights of use of or passage over the Property by any other persons or entities.

8. That I/we have no knowledge of any old highways, abandoned roads, lanes, cemetery or family burial grounds, springs, streams, rivers, ponds, or lakes bordering or running through the Property.

9. That I/we have no knowledge of any taxes or special assessments which are not shown as existing liens by the public records other than as shown in the current Municipal Lien Certificate and/or as reflected in the Closing Settlement Statement.

10. That I/we have not created and have no knowledge of any violation of any covenants, restrictions, agreements, conditions or zoning ordinances affecting said premises.

11. That I/we make this Affidavit for the purpose of inducing a purchase or lease of said premises, and/or for the purpose of inducing the granting of a mortgage on said premises, and for the purpose of inducing STEWART TITLE GUARANTY COMPANY, in reliance upon this Affidavit, to issue a policy or policies of title insurance covering the Property and I/we hold harmless and indemnify Stewart Title Guaranty Company for loss or damage incurred due to any misrepresentation made in this affidavit. ______

Subscribed and sworn to before me, this ______day of ______, 20 ___

______Notary Public

79 EXHIBIT E

LIST OF TITLE STANDARDS

Promulgated by

REAL ESTATE BAR ASSOCIATION FOR MASSACHUSETTS (REBA)

(AS OF OCTOBER, 2005) Number Title

1. Period of Search 2. Old Age Assistance Liens 3. Federal Estate Tax Liens 4. Tax Titles 5. Water Liens 6. Junior Lienors as Parties to Proceedings under the Soldiers’ and Sailors Civil Relief Act 7. Mortgage Foreclosure Not Complying with the Soldiers and Sailors Relief Act 8. A Corporation as a Party to Proceedings under the Soldiers and Sailors Relief Acts 9. Massachusetts Business Trusts and the Rule Against Perpetuities 10. Executor’s Power of Sale 11. Corporate Transfers 12. Foreign Corporations 13. Massachusetts Inheritance Tax Liens 14. Missing Probates 15. Partition by Sale 16. Acknowledgments 17. Corporate Tax Liens 18. Municipal Liens 19. Municipal Lien Certificates 20. Levy of Execution by Sale 21. Scriveners’ Errors 22. Municipal Betterments 23. Self-Dealing by Fiduciaries 24. Massachusetts Estate Tax Liens 25. Mortgage Discharges 26. Limited Partnerships Transfers 27. Title References and Descriptions 28. Release of Right of Redemption after Foreclosure in Respect of a Federal Tax Lien 29 Dissolution of Lis Pendens 30. Bankruptcy Transfers 31. Notice of Pendency of Bankruptcy 32. Unadministered Bankruptcy Interests 33. Transfers by Trustees

80 LIST OF TITLE STANDARDS

Promulgated by

REAL ESTATE BAR ASSOCIATION FOR MASSACHUSETTS (REBA)

(AS OF OCTOBER, 2005)

(continued)

34. Powers of Attorney 35. Notice of Foreclosure Sale 36. Probate Inventories 37. General Partnership Transfers (Previously Recorded Conveyances) 38. Attachments of Trust Property 39. Exercise of Power of Appointment 40. Transfer by Devisees 41. List of Heirs 42. Mortgage Transactions: Discharges, Attachments and Partial Releases 43. Assignment of Leases Reversions 44. General Partnership Transfers(Current Transactions) 45. Transfers of Trusts 46. Delayed Recording 47. Seizure on Execution 48. Mortgage Foreclosures Under Power of Attorney 49. Dissolution of Attachments 50. Pretermitted Issue 51. Transfers Involving the Commonwealth 52. Extension of Restrictions 53. Indefinite References: Trusts 54. Federal Tax Liens (Recorded) 55. Massachusetts Tax Liens (Recorded) 56. Mortgage Foreclosures After December 31, 1990 57. Private Restrictions 58. Out of Order Recording of Mortgage Discharges and Assignments 59. Limited Liability Company Transfers 60. Limited Liability Partnership Transfers 61. Massachusetts Estate Tax Liens With Respect to Transfers for Inadequate Consideration 62. Mechanic’s Lien For Personal Labor Only 63. Mechanic’s Lien For Contractor’s Labor or Labor and Materials 64. Mechanic’s Lien For Subcontractor’s Labor or Labor and Materials 65. Undischarged Confirmatory Mortgages and Collateral Assignments of Rent / Leases 66. Transfers By Non-Profit Corporations 67. Orders in Equitable Proceedings 68. Trustees Certificates Under M.G.L. c. 184, §35 69. Certificates Pursuant to M.G.L. c. 183A, § 6D 70. Condominiums: First Unit Deed Fails to Include Attached Unit Plan or Includes Defective Unit Plan or Certification

81 EXHIBIT F

CLTA 103.7 - Physically Open Street Endorsement

ENDORSEMENT

Attached to Policy No. ______

Issued By

STEWART TITLE GUARANTY COMPANY (Herein Called “The Company”)

The Company hereby insures the insured against loss or damage which the insured shall sustain by reason of the failure of the land to abut upon a physically open street known as ______(insert name of street).

This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly stated, it neither modifies any of the terms and provisions of the policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof.

Stewart Title Guaranty Company

By: SPECIMEN Date: ______Authorized Signatory

82 EXHIBIT G

STG Access Endorsement 2 (Access Over Easement to Public Way)

ACCESS OVER EASEMENT ENDORSEMENT

Attached to Policy No.

Issued by

STEWART TITLE GUARANTY COMPANY (Hereinafter referred to as “The Company”)

The Company hereby insures against loss or damage which the insured shall sustain if the easement(s) referred to in the Schedule A Description as appurtenant to the insured property [Parcel ] do(es) not provide owner of the estate or interest insured by this policy with a right of ingress and egress to and from a public street known as .

This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly stated, it neither modifies any of the terms and provisions of the policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof.

STEWART TITLE GUARANTY COMPANY

By SPECIMEN Date: SPECIMEN Authorized Signatory

83 EXHIBIT H

Stewart Title Guaranty Company

SECONDARY MORTGAGE MARKET ENDORSEMENT

NOTE: This endorsement should be issued only for policies insuring premises used or to be used primarily for 1 - 4 family residential purposes.

Attached to and made a part of Stewart Title Guaranty Company Loan Policy No. ______, from which policy, Schedule B exceptions numbered 1 - 3 are deleted.

This policy insures against loss or damage resulting from:

1. Easement(s), if any, set forth in Schedule B, which adversely affect the use and enjoyment of the Premises for residential purposes. This policy insures that the existing improvements do not encroach upon said easements and/or do not interfere with the use and benefits of same.

2. Present violations of covenants, conditions and restrictions, if any, set forth in Schedule B. The policy further insures that future violations will not result in a forfeiture or reversion of title.

3. Liens for taxes, water and sewer use charges, and other municipal liens, if any, which are due and payable as of the date of this policy.

This endorsement, when countersigned by an authorized signatory, is made a part of the policy and is subject to all the terms and provisions thereof and of any prior endorsements thereto.

Except to the extent expressly stated, it neither modifies any of the terms and provisions of the policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof.

Signed and sealed this ______day of ______, 20___.

COUNTERSIGNED:

BY: SPECIMEN Stewart Title Guaranty Company/Authorized Signatory

84 EXHIBIT I

ALTA Form 4.1 – Condominium Endorsement

CONDOMINIUM ENDORSEMENT

Attached to Policy No.:______Issued by Stewart Title Guaranty Company

The Company hereby insures against loss or damage by reason of:

(1) The failure of the unit identified in Schedule A and its common elements to be part of a condominium within the meaning of the condominium statutes of the jurisdiction in which the unit and its common elements are located. (2) The failure of the documents required by said condominium statutes to comply with the requirements of said statutes to the extent that such failure affects the title to the unit and its common elements. (3) Present violations of any restrictive covenants which restrict the use of the unit and its common elements and which are contained in the condominium documents, except violations relating to environmental protection unless a notice of a violation thereof has been recorded or filed in the public records and is not excepted in Schedule B. Said restrictive covenants do not contain any provisions which will cause a forfeiture or reversion of title. (4) The priority of any lien for charges and assessments at Date of Policy provided for in the condominium statutes and condominium documents over the lien of any insured mortgage identified in Schedule A. (5) The failure of the unit and its common elements to be entitled by law to be assessed for real property taxes as a separate parcel. (6) Any obligation to remove any improvements which exist at date of policy because of any present encroachments or because of any future unintentional encroachment of the common elements upon any unit or of any unit upon the common elements or another unit. (7) The failure of title by reason of a right of first refusal to purchase the unit and its common elements which was exercised or could have been exercised at date of policy.

This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto, except that the insurance afforded by this endorsement is not subject to Section 3(d) of the Exclusions From Coverage. Except to the extent expressly stated, it neither modifies any of the terms and provisions of the policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof.

This endorsement shall not be valid or binding until countersigned by an authorized signatory as designated below.

Signed and sealed this ______day of ______, 20____.

COUNTERSIGNED:

BY: ______Stewart Title Guaranty Company/Authorized Signatory

85 EXHIBIT J

ALTA Form 6 – Variable Rate Mortgage Endorsement Stewart Title Guaranty Company VARIABLE RATE MORTGAGE ENDORSEMENT

Attached to and made a part of Stewart Title Guaranty Company Loan Policy No. ______

The Company hereby insures the owner of the indebtedness secured by the insured mortgage against loss or damage sustained by reason of:

1. The invalidity or unenforceability of the lien of the insured mortgage resulting from the provisions therein which provide for changes in the rate of interest.

2. Loss of priority of the lien of the insured mortgage as security for the unpaid principal balance of the loan, together with interest as changed in accordance with the provisions of the insured mortgage, which loss of priority is caused by the changes in the rate of interest.

"Changes in the rate of interest," as used in this endorsement, shall mean only those changes in the rate of interest calculated pursuant to the formula provided in the insured mortgage at Date of Policy.

This endorsement does not insure against loss or damage based upon (a) usury, or (b) any consumer credit protection or truth in lending law.

This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto, except that the insurance afforded by this endorsement is not subject to Section 3(d) of the Exclusions From Coverage. Except to the extent expressly stated, it neither modifies any of the terms and provisions of the policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof.

This endorsement shall not be valid or binding until countersigned by an authorized signatory as designated below.

Signed and sealed this ______day of ______, 20 ___ .

COUNTERSIGNED:

BY: ______Stewart Title Guaranty Company/Authorized Signatory

86 EXHIBIT K

ALTA Form 8.1 – Environmental Lien Endorsement

ENVIRONMENTAL PROTECTION LIEN ENDORSEMENT

Stewart Title Guaranty Company

Attached to and made a part of Stewart Title Guaranty Company Loan Policy No. ______

The insurance afforded by this endorsement is only effective if the land is used or is to be used primarily for residential purposes.

The Company insures the insured against loss or damage sustained by reason of lack of priority of the lien of the insured mortgage over:

(a) any environmental protection lien which, at Date of Policy, is recorded in those records established under state statutes at Date of Policy for the purpose of imparting constructive notice of matters relating to real property to purchasers for value and without knowledge, or filed in the records of the clerk of the United States district court for the district in which the land is located, except as set forth in Schedule B; or

(b) any environmental protection lien provided for by any state statute in effect at Date of Policy, except environmental protection liens provided for by the following state statutes:

NONE

This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto, except that the insurance afforded by this endorsement is not subject to Section 3(d) of the Exclusions From Coverage. Except to the extent expressly stated, it neither modifies any of the terms and provisions of the policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof.

This endorsement shall not be valid or binding until countersigned by an authorized signatory as designated below.

Signed and sealed this ______, day of ______, 20______.

COUNTERSIGNED:

BY: ______Stewart Title Guaranty Company/Authorized Signatory

87 EXHIBIT L

ALTA Restrictions, Encroachments, Minerals Endorsement Form 9 (10/17/98) “COMPREHENSIVE” ENDORSEMENT Attached to No. ______Issued By STEWART TITLE GUARANTY COMPANY

The Company insures the owner of the indebtedness secured by the insured mortgage against loss or damage sustained by reason of: 1. The existence at Date of Policy of any of the following:

(a) Covenants, conditions or restrictions under which the lien of the mortgage referred to in Schedule A can be divested, subordinated or extinguished, or its validity, priority or enforceability impaired.

(b) Unless expressly excepted in Schedule B:

(1) Present violations on the land of any enforceable covenants, conditions or restrictions, and any existing improvements on the land which violate any building setback lines shown on a plat of subdivision recorded or filed in the public records.

(2) Any instrument referred to in Schedule B as containing covenants, conditions or restrictions on the land which, in addition, (i) establishes an easement on the land; (ii) provides a lien for liquidated damages; (iii) provides for a private charge or assessment; (iv) provides for an option to purchase, a right of first refusal or the prior approval of a future purchaser or occupant.

(3) Any encroachment of existing improvements located on the land onto adjoining land, or any encroachment onto the land of existing improvements located on adjoining land.

(4) Any encroachment of existing improvements located on the land onto that portion of the land subject to any easement excepted in Schedule B.

(5) Any notices of violation of covenants, conditions and restrictions relating to environmental protection recorded or filed in the public records.

2. Any future violation on the land of any existing covenants, conditions or restrictions occurring prior to the acquisition of title to the estate or interest in the land by the Insured, provided the violation results in:

(a) Invalidity, loss of priority, or unenforceability of the lien of the insured mortgage; or

(b) loss of title to the estate or interest in the land if the Insured shall acquire title in satisfaction of the indebtedness secured by the insured mortgage.

3. Damage to existing improvements, including lawns, shrubbery or trees:

(a) which are located on or encroach upon that portion of the land subject to any easement excepted in Schedule B, which damage results from the exercise of the right to maintain the easement for the purpose for which it was granted or reserved;

Page 1 of 2

88 (b) resulting from the future exercise of any right to use the surface of the land for the extraction or development of minerals excepted from the description of the land or excepted in Schedule B.

4. Any final court order or judgment requiring the removal from any land adjoining the land of any encroachment excepted in Schedule B.

5. Any final court order or judgment denying the right to maintain any existing improvements on the land because of any violation of covenants, conditions or restrictions or building setback lines shown on a plat of subdivision recorded or filed in the public records.

Wherever in this endorsement the words “covenants, conditions or restrictions” appear, they shall not be deemed to refer to or include the terms, covenants, conditions or limitations contained in an instrument creating a lease.

As used in paragraphs 1(b)(1) and 5, the words “covenants, conditions or restrictions” shall not be deemed to refer to or include any covenants, conditions or restrictions relating to environmental protection.

This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and any prior endorsements thereto. Except to the extent expressly stated, it neither modifies any of the terms and provisions of the policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof.

STEWART TITLE GUARANTY COMPANY

By ______Date: ______Authorized Signatory

Page 2 of 2

89 EXHIBIT O

ALTA Zoning Endorsement (10/17/98) 3

ENDORSEMENT

Attached to Policy No. ______

Issued By

STEWART TITLE GUARANTY COMPANY

The Company insures the insured against loss or damage sustained in the event that, at Date of Policy:

1. According to applicable zoning ordinances and amendments thereto, the land is not classified Zone ______.

2. The following use or uses are not allowed under that classification: ______

There shall be no liability under this endorsement based on:

(a) Lack of compliance with any conditions, restrictions, or requirements contained in the zoning ordinances and amendments thereto mentioned above, including but not limited to the failure to secure necessary consents or authorizations as a prerequisite to the use or uses.

(b) The invalidity of the ordinances and amendments thereto mentioned above until after a final decree of a court of competent jurisdiction adjudicating the invalidity, the effect of which is to prohibit the use or uses.

(c) The refusal of any person to purchase, lease or lend money on the estate or interest covered by this policy.

This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly stated, it neither modifies any of the terms and provisions of the policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof.

STEWART TITLE GUARANTY COMPANY

By ______Date: ______Authorized Signatory

90 EXHIBIT P

ALTA Zoning-Completed Structure Endorsement (10/17/98) 3.1

ENDORSEMENT

Attached to Policy No. ______Issued By STEWART TITLE GUARANTY COMPANY

1. The Company hereby insures the insured against loss or damage sustained in the event that, at Date of Policy:

(a). According to applicable zoning ordinances and amendments thereto, the land is not classified Zone ______.

(b). The following use or uses are not allowed under that classification: ______

and there shall be no liability under this paragraph 1(b) if the use or uses are not allowed as the result of any lack of compliance with any conditions, restrictions, or requirements contained in the zoning ordinances and amendments thereto mentioned above, including but not limited to the failure to secure necessary consents or authorizations as a prerequisite to the use or uses.

2. The Company further insures the insured against loss or damage arising from a final decree of a court of competent jurisdiction

(a) prohibiting the use of the land, with any structure presently located thereon, as insured in paragraph 1(b); or

(b) requiring the removal or alteration of the structure

on the basis that, at Date of Policy, the ordinances and amendments thereto have been violated with respect to any of the following matters:

(i) Area, width or depth of the land as a building site for the structure; (ii) Floor space area of the structure; (iii) Setback of the structure from the property lines of the land; (iv) Height of the structure; or, (v) Number of parking spaces.

There shall be no liability under this endorsement based on: (a) The invalidity of the ordinances and amendments thereto mentioned above until after a final decree of a court of competent jurisdiction adjudicating the invalidity, the effect of which is to prohibit the use or uses. (b) The refusal of any person to purchase, lease or lend money on the estate or interest covered by this policy.

This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly stated, it neither modifies any of the terms and provisions of the policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof.

STEWART TITLE GUARANTY COMPANY

By ______Date: ______Authorized Signatory

91 EXHIBIT U

SAMPLE AFFIRMATIVE COVERAGES FOR SOME COMMON SITUATIONS

PLEASE NOTE: THE FOLLOWING AFFIRMATIVE COVERAGES MAY IMPOSE SIGNIFICANT ADDITIONAL RISK ON THE COMPANY. YOU MUST ALWAYS SEEK APPROVAL FROM LOCAL STEWART TITLE UNDERWRITING COUNSEL BEFORE PROVIDING ANY AFFIRMATIVE COVERAGE TO AN INSURED.

I. AFFIRMATIVE COVERAGE MODIFIERS AND EXPANDERS

A. Disclaimer of Marketability of Title Coverage

This policy DOES NOT insure against loss or damage incurred by reason of the unmarketability of title (e.g., the failure of any person or entity to purchase, lease, lend money or accept an assignment of a mortgage) due to the existence of the excepted matter.

B. Limited Marketability of Title Coverage

This policy includes insurance against loss or damage by reason of the unmarketability of title on account of the excepted matter, provided, however, that the willingness of any title insurance Company licensed to transact business in the Commonwealth of Massachusetts (including this Company) to insure title to the land described herein, with substantially the same affirmative coverage over the excepted matter, at regular title insurance rates, shall be conclusive evidence of the marketability of said title with respect to the excepted matter.

C. Future Insurance Agreement

The Company agrees to issue policies of title insurance in the form of this policy, including the affirmative insurance provided with respect to the above exceptions, to subsequent [purchasers and/or] mortgagees of the insured premises, subject to (a) matters arising subsequent to the date of this policy, (b) payment of applicable premium at regular rates (c) the availability of reinsurance for any policy amount in excess of the Company’s primary retention limit at the time of issuance of said future policies, and (d) the absence of any law or insurance regulation prohibiting the issuance of policies in the form of this policy and provided that the Company shall not be obligated to issue subsequent policies in excess of the amount of this policy in the event that claims or objections to title with respect to the matters insured in this policy are being asserted at the time such future policies are requested.

92 II. SOME COMMON AFFIRMATIVE COVERAGE SITUATIONS

A. Access - Lack of Express (Granted) Right of Access to Insured Premises

There is no recorded express grant of an easement or right of way over ______(Street) (Road) or any other roads or ways shown on the plan referred to in the description of the insured property. The right of access insured by this policy only relates to the use of ______(Street) (Road) for access to ______(Street) (Road), and said right of access arises by operation of law (prescription, implication, estoppel or necessity), there being no record of an express grant to the current owner(s) of a right of way over ______(Street) (Road). This policy does not insure against a person refusing to accept title to, or a conveyance or mortgage of, the insured premises because of the lack of a recorded express grant of a right of access over ______(Street) (Road), but this policy does insure against loss or damage incurred by the insured as a result of a final decision of a court of competent jurisdiction resulting from an action brought by someone other than the insured and finding that the insured property does not have any legal right of access over ______(Street) (Road) to get to ______(Street) (Road), whether by prescription, implication, estoppel, necessity or otherwise, and permanently enjoining the use of ______(Street) (Road) by the insured for purposes of access to the insured property.

Optional Limitation of Liability Paragraph: For purposes of this coverage, however, loss or damage shall not include legal fees or any other expenses or costs incurred in defending such action but shall only include such actual costs or expenses reasonably incurred by the insured (as a necessary consequence of an adverse decision and a permanent injunction as aforesaid) in acquiring or creating an alternative means of access to (that portion of) the insured premises now served by the access in question. This coverage shall be null and void in the event that (1) the insured does not diligently defend against an action as above-described, (2) a settlement resulting in, or having the effect of, an adverse decision as above-described is entered into by the insured without the written consent of the Company, and/or (3) the insured initiates a court action or other process involving the access in question without the written consent of the Company.

B. Forced Removal Coverage - Encroachment into Easement Area

This policy insures the insured lender, however, against actual expenses and costs incurred by the lender in moving or removing the offending structure(s) in the event that the lender is forced to do so by reason of an order of a court of competent jurisdiction resulting from an action brought by any persons determined by said action to be legally entitled to the benefit of said easement.

C. Forced Removal Coverage - Encroachment into Zoning Set-back Area

1. Open Ended

93 This policy affirmatively insures against loss or damage occasioned by the forced removal or alteration of the offending structure resulting from the enforcement of the zoning set-back requirements by the local zoning enforcement authority against the insured.

2. Actual Out-of-Pocket Loss

This policy insures the insured lender against actual monetary loss expended by the lender to move or remove the encroaching shed in the event of an order from the local zoning enforcement authority directed to the lender and compelling said movement or removal of the shed because of said zoning setback violation.

D. Forced Removal Coverage - Encroachment into Private Restriction Set-back Area

1. Final Court Decision

This policy insures the insured lender, however, against actual expenses and costs incurred by the lender in moving or removing the offending structure in the event that the lender is forced to do so by reason of a decision of a court of competent jurisdiction resulting from an action brought by any persons determined by said action to be legally entitled to enforce the aforesaid restrictions against the insured premises or against the owners thereof.

2. Final Court Decision Not Required

This policy insures the insured lender, however, against loss or damage incurred by reason of the forced removal or alteration of the offending structure resulting from an action brought by any persons determined by said action to be legally entitled to enforce the aforesaid restrictions against the insured premises or against the owners thereof.

E. Forced Removal - Encroachment Over Lot Line

1. Onto Land Owned By A City

This policy insures the insured lender against actual expenses incurred by it in removing that portion of the building which encroaches as described above; provided, however, that such removal is required by an official action taken or brought by [the city of ______or any of its duly authorized officers or agencies having jurisdiction over the street in question] affirmatively seeking to compel the removal of the encroachment.

(Optional Provision Limiting Fees and Costs of Defense) The loss payable under this affirmative coverage shall not include legal fees or any other expenses or costs incurred in defending such action but shall only include such actual costs or expenses reasonably incurred by the insured in removing such portion of the building as may be ordered by the city, a duly authorized officer or agency thereof or a court of competent jurisdiction in the event that the insured’s borrowers fail to do so.

2. Onto Land Of Private Owner

94 This policy insures the insured lender against actual expenses incurred by it in removing that portion of the building which encroaches as described above; provided, however, that such removal is required by a final decision of a court of competent jurisdiction resulting from an action brought by [the adjoining landowner] affirmatively seeking to compel the removal of the encroachment and, provided further, that any such action is diligently defended by the mortgagor and/or the insured.

(Optional Provision Limiting Fees and Costs of Defense) The loss payable under this affirmative coverage shall not include legal fees or any other expenses or costs incurred in defending such action but shall only include such actual costs or expenses reasonably incurred by the insured in removing such portion of the building as may be ordered by the court. This coverage shall be null and void in the event that (1) the mortgagor and/or the insured does not diligently defend against an action as above-described, (2) a settlement resulting in, or having the effect of, an adverse decision as above-described is entered into by the mortgagor and/or the insured without the written consent of the Company, and/or (3) the mortgagor and/or the insured initiates a court action or other process involving the encroachment without the written consent of the Company.

F. Missing Interest

Subject to missing interest in Lot No. ___ shown on a plan entitled ______recorded with ______County Registry of Deeds in Plan Book ____, Plan No. ______which interest appears to be vested in ______or her heirs, devisees or legal representatives by virtue of a deed dated ______and recorded with said Registry in Book _____, Page _____.

NOTE: This policy affirmatively insures, however, against actual loss incurred by the insured by reason of a final decision (including all appeals) of a court of competent jurisdiction in favor of ______or persons claiming by, through or under her, which divests the insured of title to that portion of the insured premises described above.

G. Old Undischarged Mortgage

1. Enforcement By Foreclosure Coverage

This policy affirmatively insures the insured lender, however, against loss or damage occasioned by the enforcement of the lien of the excepted mortgage against the insured premises by means of a regularly conducted foreclosure sale, which results in the subordination of the insured mortgage and in the exhaustion of the equity in the insured premises leaving insufficient value to result in a bid high enough to generate sufficient proceeds to pay off all outstanding indebtedness under the insured mortgage.

2. Recognition of Pay-off and Enforcement Coverage

95 Based on documentary evidence presented to the Company (copies of which are attached hereto) showing that the excepted mortgage has been paid off, this policy affirmatively insures the insured lender that such mortgage has been paid and further insures the insured lender against loss or damage occasioned by the enforcement or attempted enforcement of the lien of the excepted mortgage against the insured premises.

3. Simplified Enforcement Coverage

This policy, however, affirmatively insures the insured lender against loss or damage arising from the enforcement or attempted enforcement of the above mortgage against the insured property.

H. Restrictions with Reversionary Provisions

Subject to restrictions as set forth in an instrument dated ______and recorded with ______County Registry of Deeds in Book _____, Page _____.

NOTE: This policy affirmatively insures, however, against loss or damage incurred by the insured by reason of the enforcement of the reversionary provisions contained in the aforesaid restrictions by ______or persons claiming by, through or under him.

I. Survey / Description Discrepancy –Background Information to Support Coverage

This policy does not insure, however, the exact location of the rear (easterly) lot line(s) of the insured property and does not insure title to the rear portion of the property (roughly 1/4 to 1/3 of the property) beyond the demarcation line between upland property and the area delineated as “REMAINS OF OLD CRANBERRY BOG” on a Certified Plot Plan prepared for______, dated______, prepared by______Land Surveying, ______, MA. The historical description in the chain of title does not appear to extend this far into the property but rather the historical description calls for the northerly boundary of the insured property to run easterly from Route _____ only 20 rods, or 330 feet, which would only take the property line back to the point between the 123.81-foot leg of the northerly boundary line and the 143.32-foot leg of the boundary line as shown on said plan. The historical description then runs southerly 6 rods (approx. 99 feet) and then southwesterly 13 rods (approx. 214.5 feet). The last bound would cross the southerly boundary of the insured property at a point approximately 340 feet easterly of Route _____ more or less, depending on the precise angle of that leg and the preceding 99-foot leg. Thus, the historical description might only account for roughly 340 feet of the southerly bound (running easterly from Route ____ ), maybe more, maybe less, but does not appear to support a 513.97-foot bound as shown on said plan. Thus, the Company does not insure the location of the rear (easterly) property line(s) or the precise location and length of the southerly property line nor the title to the land lying easterly thereof. The Company does insure, however, that the improvements shown on said plan (to wit: the building, paved parking area, swimming pool, the fence surrounding the swimming pool and the retaining wall) are located within the property lines established by the historical description and are insured as part of the insured property.

K. Unaffirmed Low Value Tax Title

96 1. Final Decision Coverage

This policy insures the insured against loss or damage sustained or incurred by reason of the entry of any court order which constitutes a final determination and divests the insured if its estate or lien (as described in Schedule A hereof) by reason of the assertion of claims of right of redemption by those who may appear of record entitled to so claim or their heirs, devisees or legal representatives.

2. Assertion of Rights or Claims Coverage

This policy affirmatively insures, however, against loss or damage incurred by the insured by reason of assertion or attempted assertion of claims of right of redemption under said low value tax taking by those who may appear of record entitled to so claim or their heirs, devisees or legal representatives.

3. Loss of Title / Zoning Compliance For Remaining Portion of Property Coverage

Lack of clear record title to [here describe the lot or portion of the property affected by the tax title issue ] because of a certain tax taking from ______by the Town of ______by instrument dated ______, recorded with said Registry in Book ______, Page _____.

NOTE: Whereas, the above Exception relates to the title to a portion of the insured premises upon which the improvements (dwelling and garage) DO NOT sit; and, whereas, the area of insured premises already is below the minimum zoning requirements for the District in which the insured premises are located, but the Company is informed that the insured premises, nonetheless, is grandfathered as a nonconforming lot; and, whereas, the Company has received an Indemnity and Undertaking Agreement from the Sellers and/or their agents agreeing to cure the title defect that exists as described above; NOW, THEREFORE, the Company agrees that this policy shall affirmatively insure the insured lender that (1) the title to the portion of the insured premises upon which the improvements sit and which is unaffected by the Excepted Matter is a good record and marketable title, excepting only such matters as otherwise appear in this Schedule B, and, (2) in the event of destruction of the improvements located on the insured premises by fire or other catastrophe covered by hazard insurance, the reconstruction of the improvements will not be prohibited by reason of any increased zoning nonconformity which may result from any failure to be able to establish clear record title to the portion of the property affected by the Excepted Matter.

97 EXHIBIT W

INDEMNITY AND UNDERTAKING AGREEMENT by and between

______of ______(hereafter called Indemnitor) and STEWART TITLE GUARANTY COMPANY, with a local office at 99 Summer Street, Boston, MA 02110 (the Company),

WHEREAS, the Indemnitor has requested the Company to issue its loan/owners policy(s) of title insurance insuring an interest in or title to the real estate commonly known as: . and

WHEREAS, the Company is unwilling to issue such policy(s) unless exception is made for the following matters (hereafter referred to as the Exception):

and WHEREAS, the Indemnitor has offered to indemnify the Company, as inducement to the Company, if the Company will insure against loss or damage which may result from the Exception,

NOW, THEREFORE, to induce the Company to issue its loan/owners policy(s) insuring an interest in or title to the real estate referred to above, which policy(s) will, in consideration of this Agreement and at the request of the Indemnitor, insure the named insureds against loss or damage which may result from the Exception and/or

Indemnitor hereby indemnifies and agrees to hold the Company harmless from all liability, loss or damage of any nature, including attorneys' fees and expenses sustained or incurred in enforcing this Agreement, which the Company may sustain or incur resulting from the issuance of its loan/owners policy(s) of title insurance which insure the named insureds in such policy(s) against loss or damage that may result from the Exception and/or

98 Indemnitor further agrees to:

To secure Indemnitor's obligations hereunder, Indemnitor shall deliver to the company or the Company's policy issuing Agent, , the sum of $ to be held in escrow until such time as Indemnitor's obligations hereunder have been fully discharged. Upon any failure of Indemnitor to perform as required in this Agreement, the escrowed funds may be applied by the Company directly to the payment of any loss, damage, expenses, attorneys' fees or any other sums paid or incurred by the Company to clear the title of the Excepted matter or to otherwise enforce this Agreement. To the extent that the Escrowed Funds are inadequate to fully reimburse the Company, Indemnitor shall remain liable for the balance due to the Company.

The obligations of Indemnitor under this Agreement shall continue until the liability of the Company under the policy(s) issued in reliance upon it has been fully discharged and/or the Exception has been cured.

Notwithstanding anything in this Agreement which may be construed to the contrary, Indemnitor agrees that the Company shall not have to pay, incur, or sustain monetary loss in any amount respecting the performance of this Agreement before being entitled to call upon Indemnitor to perform as set forth herein.

If the Company shall sustain or incur loss or damage because Indemnitor fails to perform as may be required under this Agreement, the Indemnitor shall become indebted to the Company in an amount equal to the loss and loss expense sustained or incurred by the Company and agrees to repay the Company that amount on demand, together with interest thereon at the rate of 12% per annum from the date of demand.

If the indemnitor fails to promptly to take such steps as in the opinion of the Company are necessary to resolve the matters set forth herein as the Exception, the Company is authorized in its own discretion to take whatever steps, including but not limited to the commencement of legal action or payment of money, that it determines necessary or advisable to resolve said matters and Indemnitor shall be liable to the company for all funds (including all costs, attorneys' fees and other expenses) expended by the Company for such purposes.

99 The liability of Indemnitor under this Agreement is direct and primary and is not conditioned or contingent upon prior pursuit of any remedies by the Company except demand for performance upon the Indemnitor. Indemnitor shall be liable for and shall pay promptly to the Company all costs, expenses and attorneys fees incurred by the Company in enforcing this Agreement.

Written notice shall be deemed to have been duly served on Indemnitor if delivered at or sent by Registered or Certified Mail to the address shown herein.

Executed as a sealed instrument this day of , 20___ .

INDEMNITOR(S)

______(Seal)

______(Seal)

Address: ______

______

Telephone: ______

The Commonwealth of Massachusetts

ss. , 20___

Then personally appeared the above named, and acknowledged the foregoing instrument to be free act and deed.

Before me, ______Notary Public My commission exp.:

100 EXHIBIT X

VIA FAX & REGULAR MAIL

______, 20____

______, Esq.

And ______Title Insurance Company

RE: Property: ______, MA (the “Property”) Owners: STGC Policy No.: ______, dated ______, in the amount of $______Policy Issuing Agent: STGC File No.:

Dear Attorney ______:

Whereas, you propose to close a sale/refinance transaction and issue owners and/or lender’s title insurance on the above-described property;

And whereas your search and examination of the property has indicated that there is/are no discharge(s)/release(s) of record for the following Instrument(s)/Mortgage(s):

Mortgage from______to ______recorded with ______Registry of Deeds on ______, _____ in Book ______, Page ______(the “Mortgage’); assigned to ______in Book ______, Page ______(“the Excepted Matter”).

And whereas the above-referenced policy contained no exception for the Instruments/Mortgages or the lack of a discharge/release of same;

Now, therefore, Stewart Title Guaranty Company (hereinafter “the Company”) hereby indemnifies you and your title insurance company against any loss or damage arising under the policy(s) you are issuing for the current transaction by reason of the lack of a recorded discharge for the Mortgage, including unmarketability of the title as a result thereof, as well by reason of any demand, claim, action, suit or proceeding that may be brought to enforce the Instruments/Mortgages against the .proposed insured(s) and/or the property, including, attorneys fees, costs incurred in defending against any such action.

101 ______, Esq.

______Title Insurance Company ______, 20 ___ Page 2

This indemnity is given by Company subject to the following conditions:

1. The liability of Company hereunder shall not exceed the face amount of insurance stated in the above-referenced Policy.

2. This indemnity does not cover any other defect, lien, or encumbrance affecting title to the Property, whether “of record” or “off the record”, known now, or discovered at some date subsequent hereto.

3. The Company shall be notified within ten (10) business days of any claim with respect to the Excepted Matter(s) made to you or your title insurance company under the policy(s) to be issued or of any demand, claim, action, suit or proceeding of which you or your title insurance company become aware involving the Excepted Matter(s).

The Company will undertake to obtain and record a proper discharge of the Mortgage, at which time the obligations hereunder will terminate. In event that a discharge of the Mortgage is discovered of record despite it’s not appearing in your title examination, the Company will provide you with the appropriate recording information, whereupon the Company’s obligations hereunder will like wise terminate.

Please let me know if you have any further questions regarding this matter.

Sincerely,

STEWART TITLE GUARANTY COMPANY

By: ______

102 EXHIBIT Y

ALTA Homeowner's Policy of Title Insurance 1998 STEWART TITLE GUARANTY COMPANY HOMEOWNER'S POLICY OF TITLE INSURANCE FOR A ONE-TO-FOUR FAMILY RESIDENCE OWNER'S INFORMATION SHEET

Your Title Insurance Policy is a legal contract between You and Us.

It applies only to a one-to-four family residence and only if each insured named in Schedule A is a Natural Person. If the Land described in Schedule A of the Policy is not an improved residential lot on which there is located a one-to-four family residence, or if each insured named in Schedule A is not a Natural Person, contact Us immediately.

The Policy insures You against actual loss resulting from certain Covered Risks. These Covered Risks are listed beginning on page ___ of the Policy. The Policy is limited by:

 Provisions of Schedule A

 Exceptions in Schedule B

 Our Duty to Defend against Legal Actions On Page _____

 Exclusions on page ______

 Conditions on pages ______and ______.

You should keep the Policy even if You transfer your title to the land.

If you want to make a claim, see paragraph 3 under Conditions on page ______.

You do not owe any more premiums for the Policy.

This sheet is not Your insurance Policy. It is only a brief outline of some of the important Policy features. The Policy explains in detail Your rights and obligations and Our rights and obligations. Since the Policy -- and not this sheet -- is the legal document, YOU SHOULD READ THE POLICY VERY CAREFULLY.

If you have any questions about Your Policy, contact: Stewart Title Guaranty Company P.O. Box 2029 Houston TX 77252-2029 1-800-729-1902

103 STEWART TITLE GUARANTY COMPANY HOMEOWNER'S POLICY OF TITLE INSURANCE FOR A ONE-TO-FOUR FAMILY RESIDENCE TABLE OF CONTENTS OWNER'S COVERAGE PAGE____ COVERED RISKS____ OUR DUTY TO DEFEND AGAINST LEGAL ACTIONS____ SCHEDULE A____ Policy Number, [Premium], Date [and Time] and Amount Deductible Amounts and Maximum Dollar Limits of Liability Street Address of the Land 1. Name of Insured 2. Interest in Land Covered 3. Description of the Land SCHEDULE B EXCEPTIONS____ EXCLUSIONS____ CONDITIONS: 1. Definitions____ 2. Continuation of Coverage____ 3. How to Make a Claim____ 4. Our Choices When We Learn of a Claim____ 5. Handling a Claim or Legal Action____ 6. Limitation of Our Liability____ 7. Transfer of Your Rights to Us____ 8. Entire Contract____ 9. Increased Policy Amount____ 10. Severability____ 11. Arbitration____

104 STEWART TITLE GUARANTY COMPANY

HOMEOWNER'S POLICY OF TITLE INSURANCE

FOR A ONE-TO-FOUR FAMILY RESIDENCE

OWNER'S COVERAGE STATEMENT

This Policy insures You against actual loss, including any costs, attorneys' fees and expenses provided under this Policy, resulting form the Covered Risks set forth below, if the Land is an improved residential lot on which there is located a one-to-four family residence and each insured named in Schedule A is a Natural Person.

Your insurance is effective on the Policy Date. This Policy covers Your actual loss from any risk described under Covered Risks if the event creating the risk exists on the Policy Date or, to the extent expressly stated, after the Policy Date.

Your insurance is limited by all of the following:

 The Policy Amount shown in Schedule A

 For Covered Risk 14, 15, 16 and 18, Your Deductible Amount and Our Maximum Dollar Limit of Liability shown in Schedule A

Exceptions in Schedule B

 Our Duty To Defend Against Legal Actions

Exclusions on page ___

Conditions on page ____ and _____

COVERED RISKS

The Covered Risks are:

1. Someone else owns an interest in Your Title.

2. Someone else has rights affecting Your Title arising out of leases, contracts, or options.

3. Someone else claims to have rights affecting Your Title arising out of forgery or impersonation.

4. Someone else has an easement on the Land.

5. Someone else has a right to limit Your use of the Land.

6. Your Title is defective.

7. Any of Covered Risks 1 through 6 occurring after the Policy Date.

8. Someone else has a lien on Your Title, including: a. Mortgage;

b. judgment, state or federal tax lien, or special assessment;

105 c. charge by a homeowner's or condominium association; or

d. lien, occurring before or after the Policy Date, for labor and material furnished before the Policy Date. 9. Someone else has an encumbrance on Your Title.

10. Someone else claims to have rights affecting Your Title arising out of fraud, duress, incompetency or incapacity.

11. You do not have both actual vehicular and pedestrian access to and from the land, based upon a legal right.

12. You are forced to correct or remove an existing violation of any covenant, condition or restriction affecting the Land, even if the covenant, condition or restriction is excepted in Schedule B.

13. Your Title is lost or taken because of a violation of any covenant, condition or restriction, which occurred before You acquired Your Title, even if the covenant, condition or restriction is excepted in Schedule B.

14. Because of an existing violation of a subdivision law or regulation affecting the Land: a. You are unable to obtain a building permit;

b. You are required to correct or remove the violation; or

c. someone else has a legal right to, and does, refuse to perform a contract to purchase the Land, lease it or make a Mortgage loan on it. The amount of your insurance for this Covered Risk is subject to Your Deductible Amount and Our Maximum Dollar Limit of Liability shown in Schedule A.

15. You are forced to remove or remedy Your existing structures, or any part of them - other than boundary walls or fences - because any portion was built without obtaining a building permit from the proper government office. The amount of Your insurance for this Covered Risk is subject to Your Deductible Amount and Our Maximum Dollar Limit of Liability shown in Schedule A.

16. You are forced to remove or remedy Your existing structures, or any part of them, because they violate an existing zoning law or zoning regulation. If You are required to remedy any portion of Your existing structures, the amount of Your insurance for this Covered Risk subject to Your Deductible Amount and Our Maximum Dollar Limit of Liability shown in Schedule A.

17. You cannot use the Land because use as a single-family residence violates an existing zoning law or zoning regulation.

18. You are forced to remove Your existing structures because they encroach onto Your neighbor's land. If the encroaching structures are boundary walls or fences, the amount of Your insurance for this Covered Risk is subject to Your Deductible Amount and Our Maximum Dollar Limit of Liability shown in Schedule A.

19. Someone else has a legal right to, and does, refuse to perform a contract to purchase the Land, lease it or make a Mortgage loan on it because Your neighbor's existing structures encroach onto the Land.

20. You are forced to remove Your existing structures which encroach onto an easement or over a building set-back line, even if the easement or building set back line is excepted in Schedule B.

106 21. Your existing structures are damaged because of the exercise of a right to maintain or use any easement affecting the Land, even if the easement is excepted in Schedule B.

22. Your existing improvements (or a replacement or modification made to them after the Policy Date), including lawns, shrubbery or trees, are damaged because of the future exercise of a right to use the surface of the Land for the extraction or development of minerals, water or any other substance, even if those rights are excepted or reserved from the description of the Land or excepted in Schedule B.

23. Someone else tries to enforce a discriminatory covenant, condition or restriction that they claim affects Your Title which is based upon race, color, religion, sex, handicap, familial status, or national origin.

24. A taxing authority assesses supplemental real estate taxes not previously assessed against the Land for any period before the Policy Date because of construction or a change of ownership or use that occurred before the Policy Date.

25. Your neighbor builds any structures after the Policy Date - other than boundary walls or fences - which encroach onto the Land.

26. Your Title is unmarketable, which allows someone else to refuse to perform a contract to purchase the Land, lease it or make a Mortgage loan on it.

27.A document upon which Your Title is based is invalid because it was not properly signed, sealed, acknowledged, delivered or recorded.

28. The residence with the address shown in Schedule A is not located on the Land at the Policy Date.

[29. The map, if any, attached to this Policy does not show the correct location of the Land according to the public records.]

OUR DUTY TO DEFEND AGAINST LEGAL ACTIONS

We will defend Your Title in any legal action only as to that part of the action which is based on a Covered Risk and which is not excepted or excluded form coverage in this Policy. We will pay the costs, attorneys' fees, and expenses We incur in that defense.

We will not pay for any part of the legal action which is not based on a Covered Risk or which is excepted or excluded from coverage in this Policy.

We can end Our duty to defend Your Title under paragraph 4 of the Conditions.

This Policy is not complete without Schedules A and B.

STEWART TITLE GUARANTY COMPANY

BY: ______

107 ALTA HOMEOWNER'S POLICY OF TITLE INSURANCE (6/98) Stewart Title Guaranty Company

SCHEDULE A

Policy No. ______

Policy Amount: $______Premium: $______

Deductible Amounts and Maximum Dollar Limits of Liability For Covered Risk 14,15, 16, and 18:

Your Deductible Amount Our Maximum Dollar Limit of Liability

Covered Risk 14: 1 % of Policy Amount or $2,500.00 $10,000.00 (whichever is less) Covered Risk 15: 1 % of Policy Amount or $5,000.00 $25,000.00 (whichever is less) Covered Risk 16: 1 % of Policy Amount or $5,000.00 $25,000.00 (whichever is less) Covered Risk 18: 1 % of Policy Amount or $2,500.00 $ 5,000.00 (whichever is less)

1. Name of insured:

2. Your interest in the Land covered by this Policy is: FEE SIMPLE

3. Title to the estate or interest in the land is vested in the insured.

4. The land herein described is encumbered by the following mortgage or deed of trust and assignments thereof, if any:

and the mortgages or deeds of trust, if any, shown in Schedule B hereof.

5. Street address of the land: ______

The land referred to in this policy is described as follows:

See Exhibit A, attached.

[Note: Prepare Exhibit A as with prior forms of policies – in general, only describe the land itself – no area, no appurtenances unless specifically intended to be insured, no encumbrances (they belong on Schedule B), no title references, etc.]

108 STEWART TITLE GUARANTY COMPANY

HOMEOWNER'S POLICY OF TITLE INSURANCE

FOR A ONE-TO-FOUR FAMILY RESIDENCE

SCHEDULE B

EXCEPTIONS

In addition to the Exclusions, You are not insured against loss, costs, attorneys' fees, and expenses resulting from:

109 Stewart Title Guaranty Company SIMULTANEOUS HOMEOWNER'S POLICY & LOAN POLICY SCHEDULE B

File No.:

HOMEOWNER'S POLICY NUMBER: ______

LOAN POLICY NUMBER: ______

This policy does not insure against loss or damage by reason of the following:

General Exceptions: 1. Rights of present tenants, lessees or parties in possession. 2. Any lien, or right to a lien, for services, labor or materials heretofore or hereafter furnished, imposed by law and not shown by the public records. 3. Discrepancies, conflicts in boundary lines, shortage in area, easements, encroachments, and facts which an accurate survey and inspection of the premises would disclose.

Special Exceptions: THE MORTGAGE, IF ANY, REFERRED TO IN ITEM 4 OF SCHEDULE A. (This exception does NOT apply to Loan Policies)

4. Liens for real estate taxes and assessments, which become due and payable subsequent to the date of this policy, plus unpaid water and sewer charges, if any.

5. IF THE INSURED PREMISES IS A CONDOMINIUM UNIT:

A. Covenants, conditions, restrictions, reservations, easements, liens for assessments, options, powers of attorney and limitations on title, created by the laws of the State of the insured premises or set forth in the Master Deed or Declaration of Condominium, in the related By-laws, or in the Declaration of Trust, as duly recorded in the appropriate Land Records Office and as the same may have been lawfully amended, and in any instrument creating the estate or interest insured by this policy.

[ ] FOR ADDITIONAL EXCEPTIONS, SEE SCHEDULE B ADDENDUM ATTACHED HERETO

General Exceptions numbered N/A are hereby omitted from the LOAN POLICY. (None are omitted from the Owners Policy unless there is an endorsement attached authorizing specific deletions).

Affirmative insurance language under Special Exceptions of Schedule B does not apply to the Owner's Policy unless otherwise specified.

Inclusion of a specific survey exception under Special Exceptions of Schedule B does NOT eliminate General Exception 3 in the Owner's Policy.

Covered Risks Not Limited by General Exceptions: If this Schedule B is attached to an ALTA Homeowners Policy (10/17/98) ("Homeowners Policy"), the General Exceptions listed above do not limit the coverage provided by the Covered Risks of the policy as follows: Exception No. 1 does not limit Covered Risks 2 and 19; Exception No. 2 does not limit Covered Risk 8d (i.e., the words “heretofore or” are deemed to be omitted from the exception); Exception No. 3 does not limit Covered Risks 14, 15, 16, 18, 19, 20, 21 and 28; and Exception No. 4 does not limit Covered Risks 8b and 24.

110 EXCLUSIONS

In addition to the Exceptions in Schedule B, You are not insured against loss, costs, attorneys' fees, and expenses resulting from:

1. Governmental police power, and the existence or violation of any law or government regulation. This includes ordinances, laws and regulations concerning: a. building b. zoning c. land use d. improvements on the land e. land division f. environmental protection

This exclusion does not apply to violations or the enforcement of these matters if notice of the violation or enforcement appears in the Public Records at the Policy Date.

This Exclusion does not limit the coverage described in Covered Risk 14, 15, 16, 17 or 24.

2. The failure of Your existing structures, or any part of them, to be constructed in accordance with applicable building codes. This Exclusion does not apply to violations of building codes if notice of the violation appears in the Public Records at the Policy Date.

3. The right to take the Land by condemning it, unless: a. a notice of exercising the right appears in the Public Records at the Policy Date; or b. the taking happened before the Policy Date and is binding on You if You bought the Land without Knowing of the taking 4. Risks: a. that are created, allowed, or agreed to by You, whether or not they appear in the Public Records; b. that are Known to You at the Policy Date, but not to Us, unless they appear in the Public Records at the Policy Date; c. that result in no loss to You; or d. that first occur after the Policy Date ? this does not limit the coverage described in Covered Risk 7, 8d, 22, 23, 24 or 25. 5. Failure to pay value for Your Title.

6. Lack of a right: a. to any land outside the area specifically described and referred to in paragraph 3 of Schedule A; and b. in streets, alleys, or waterways that touch the land. This Exclusion does not limit the coverage described in Covered Risk 11 or 18.

111 STEWART TITLE GUARANTY COMPANY

HOMEOWNER'S POLICY OF TITLE INSURANCE

FOR A ONE-TO-FOUR FAMILY RESIDENCE

CONDITIONS

1. DEFINITIONS: a. Easement ? the right of someone else to use the Land for a special purpose.

b. Known ? things about which You have actual knowledge. The words ?Know? and ?Knowing? have the same meaning as Known.

c. Land ? the land or condominium unit described in paragraph 3 of Schedule A and any improvements on the Land which are real property.

d. Mortgage ? a mortgage, deed of trust, trust deed or other security instrument.

e. Natural Person ? a human being, not a commercial or legal organization or entity. Natural person includes a trustee of a Trust even if the trustee is not a human being.

f. Policy Date ? the date and time shown in Schedule A. If the insured named in Schedule A first acquires the interest shown in Schedule A by an instrument recorded in the Public Records later than the date and time shown in Schedule A, the Policy Date is the date and time the instrument is recorded.

g. Public Records ? records that give constructive notice of matters affecting Your Title, according to the state statutes where the Land is located.

h. Title ? the ownership of Your interest in the Land, as shown in Schedule A.

i. Trust ? a living trust established by a human being for estate planning.

j. We/Our/Us - Stewart Title Guaranty Company.

k. You/Your ? the insured named in Schedule A and also those identified in paragraph 2.b. of these Conditions. 2. CONTINUATION OF COVERAGE: a. This policy insures You forever, even after You no longer have Your Title. You cannot assign this Policy to anyone else. b. This Policy also insures: (1) anyone who inherits Your Title because of Your death;

(2) Your spouse who receives Your Title because of dissolution of Your Marriage;

(3) the trustee or successor trustee of a Trust to whom You transfer Your Title after the Policy Date; or,

(4) the beneficiaries of Your Trust upon Your Death.

112 c. We may assert against the insureds identified in paragraph 2.b. any rights and defenses that we have against any previous insured under this Policy. 3. HOW TO MAKE A CLAIM a. Prompt Notice Of Your Claim (1) as soon as you know of anything that might be covered by this policy, you must notify us promptly in writing.

(2) Send you notice to Stewart Title Guaranty Company, P.O. Box 2029, Houston, TX 77252- 2029, Attention: Claims Department. Please include the Policy number shown in Schedule A, and the county and state where the Land is located. Please enclose a copy of Your policy, if available.

(3) If You do not give Us prompt notice, Your coverage will be reduced or ended, but only to the extent Your failure affects Our ability to resolve the claim or defend You. b. Proof Of Your loss

(1) We may require You to give Us a written statement signed by You describing Your loss which includes: (a) the basis of Your claim;

(b) the Covered Risks which resulted in Your loss;

(c) the dollar amount of Your loss; and

(d) the method You used to compute the amount of Your loss. (2) We may require You to make available to Us records, checks, letters, contracts, insurance policies and other papers which relate to Your claim. We may make copies of these papers.

(3) We may require You to answer questions about Your claim under oath.

(4) If you fail or refuse to give Us a statement of loss, answer Our questions under oath, or make available to Us the papers We request, Your coverage will be reduced or ended, but only to the extent Your failure or refusal affects Our ability to resolve the claim or defend You.

4. OUR CHOICES WHEN WE LEARN OF A CLAIM a. After We receive Your notice, or otherwise learn, of a claim that is covered by this Policy, our choices include one or more of the following: (1) Pay the claim

(2) Negotiate a settlement

(3) Bring or defend a legal action related to the claim

(4) Pay you the amount required by this Policy

(5) End the coverage of this Policy for the claim by paying You Your actual loss resulting form the Covered Risk, and those costs, attorneys' fees and expenses incurred up to that time which We are obligated to pay.

113 (6) End the coverage described in Covered Risk 14, 15, 16 or 18 by paying You the amount of Your insurance then in force for the particular Covered Risk, and those costs, attorneys' fees and expenses incurred up to that time which We are obligated to pay.

(7) End all coverage of this Policy by paying You the Policy Amount then in force, and all those costs, attorneys fees and expenses incurred up to that time which We are obligated to pay.

(8) Take other appropriate action. b. When We choose the options in paragraph 4.a. (5), (6) or (7), all Our obligations for the claim end, including Our obligation to defend, or continue to defend, any legal action. c. Even if We do not think that the Policy covers the claim, We may choose one or more of the options above. By doing so, We do not give up any rights.

5. HANDLING A CLAIM OR LEGAL ACTION a. You must cooperate with Us in handling any claim or legal action and give Us all relevant information. b. If You fail or refuse to cooperate with Us, Your coverage will be reduced or ended, but only to the extent Your failure or refusal affects Our ability to resolve the claim or defend You. c. We are required to repay You only for those settlement costs, attorneys' fees and expenses that We approve in advance. d. We have the right to choose the attorney when We bring or defend a legal action on Your behalf. We can appeal any decision to the highest level. We do not have to pay Your claim until the legal action is finally decided. e. Whether or not We agree there is coverage, We can bring or defend a legal action, or take other appropriate action under this Policy. By doing so, We do not give up any rights.

6. LIMITATION OF OUR LIABILITY a. After subtracting Your Deductible Amount if it applies, We will pay no more than the least of: (1) Your actual loss;

(2) Our Maximum Dollar Limit of Liability then in force for the particular Covered Risk, for claims covered only under Covered Risk 14, 15, 16 or 18; or

(3) The Policy Amount then in force; and any costs, attorneys' fees and expenses which We are obligated to pay under this Policy. b. (1) If We remove the cause of the claim with reasonable diligence after receiving notice of it, all Our obligations for the claim end, including any obligation for loss You had while We were removing the cause of the claim. (2) Regardless of 6.b. (1) above, if You cannot use the Land because of a claim covered by this Policy:

(a) You may rent a reasonable equivalent substitute residence and We will repay You for the actual rent You pay, until the earlier of: (1) the cause of the claim is removed; or

114 (2) We pay You the amount required by this Policy. If Your claim is covered only under Covered Risk 14,15,16 or 18, that payment is the amount of Your insurance then in force for the particular Covered Risk.

(b) We will pay reasonable costs You pay to relocate any personal property You have the right to remove from the Land, including transportation of that personal property for up to twenty-five (25) miles from the Land, and repair of any damage to that personal property because of the relocation. The amount we will pay You under this paragraph is limited to the value of the personal property before You relocate it. c. All payments We make under this Policy reduce the Policy Amount, except for costs, attorneys' fees and expenses. All payments We make for claims which are covered only under Covered Risk 14, 15, 16 or 18 also reduce Our Maximum Dollar Limit of Liability for the particular Covered Risk, except for costs, attorneys' fees and expenses. d. If We issue, or have issued, a Policy to the owner of a Mortgage on Your Title and We have not given You any coverage against the Mortgage, then: (1) We have the right to pay any amount due You under this Policy to the owner of the Mortgage to reduce the amount of the Mortgage, and any amount paid shall be treated as a payment to You under this Policy, including under paragraph 4.a. of these Conditions;

(2) Any amount paid to the owner of the Mortgage shall be subtracted from the Policy Amount of this Policy; and

(3) If Your claim is covered only under Covered Risk 14, 15, 16 or 18, any amount paid to the owner of the Mortgage shall also be subtracted from Our Maximum Dollar Limit of Liability for the particular Covered Risk. e. If You do anything to affect any right of recovery You may have against someone else, We can subtract from Our liability the amount by which You reduced the value of that right.

7. TRANSFER OF YOUR RIGHTS TO US a. When We settle Your claim, We have all the rights You have against any person or property related to the claim. You must transfer these rights to Us when We ask, and You must not do anything to affect these rights. You must let us use Your name in enforcing these rights. b. We will not be liable to You if We do not pursue these rights or if We do not recover any amount that might be recoverable. c. We will pay any money We collect from enforcing these rights in the following order: (1) to Us for the costs, attorneys' fees and expenses We paid to enforce these rights;

(2) to You for Your loss that You have not already collected;

(3) to Us for any money We paid out under this Policy on account of Your claim; and

(4) to You whatever is left d. If You have rights under contracts (such as indemnities, guaranties, bonds or other policies of insurance) to recover all or part of Your loss, then We have all of those rights, even if those contracts provide that those obligated have all of Your rights under this Policy.

8. ENTIRE CONTRACT

This Policy, with any endorsements, is the entire contract between You and Us. To determine the meaning of any part of this Policy, You must read the entire Policy. Any changes to this Policy must

115 be agreed to in writing by Us. Any claim You make against Us must be made under this Policy and is subject to its terms.

9. INCREASED POLICY AMOUNT

The Policy Amount will increase by ten percent (10%) of the Policy Amount shown in Schedule A each year for the first five years following the policy date shown in Schedule A, up to one hundred fifty percent (150%) of the Policy Amount shown in Schedule A. The increase each year will happen on the anniversary of the policy date shown in Schedule A.

10. SEVERABILITY

If any part of this Policy is held to be legally unenforceable, both You and We can still enforce the rest of this policy.

11. ARBITRATION a. If permitted in the state where the Land is located You or We may demand arbitration. b. The arbitration shall be binding on both You and Us. The arbitration shall decide any matter in dispute between You and Us. c. The arbitration award may be entered as a judgment in the proper court. d. The arbitration shall be under the Title Insurance Arbitration Rules of the American Arbitration Association. You may choose current Rules or Rules in existence on Policy Date. e. The law used in the arbitration is the law of the place where the Land is located. f. You can get a copy of the Rules from Us

116 STEWART TITLE GUARANTY COMPANY

ALTA HOMEOWNER’S POLICY AND ALTA STANDARD OWNER’S POLICY

The ALTA Homeowner's Policy, available only for one-to-four family residential improved property, expands many of the coverages provided in an ALTA Standard Owner’s Policy. It also includes a number of additional coverages previously unavailable.

COVERAGE COMPARISON SUMMARY* *Note: CR = Covered Risks; Con = Policy Conditions. See policies for complete provisions.

COVERAGE Standard Homeowner's Owner’s (Assumes compliance with Stewart Title's underwriting requirements for issuance Policy of the applicable policy.) Policy Basic Coverage: Third party claims an ownership interest in the title Yes Yes (CR 1) Defects, liens or encumbrances on the title Yes Yes (CR 8, 9) Unmarketability of the title Yes Yes (CR 26) Lack of a right of access to and from the land: Legal access Yes Yes (CR 11) Vehicular and pedestrian access based upon a legal right No Yes (CR 11) Extended Coverage: Rights or claims of parties in possession arising out of leases, contracts or options No Yes (CR 2) not shown by the public records Unrecorded easements No Yes (CR 4) Encroachments, overlaps, and boundary line disputes No Yes (CR 18, 20, 25) Mechanics' liens No Yes (CR 8d) Existing liens for municipal taxes which are not shown by the public records Yes Yes (CR 8) Existing liens for municipal assessments which are not shown by the public records Yes Yes (CR 8 b&c) Recorded easements, covenants, conditions or restrictions not excepted in the policy Yes Yes (CR 4,5) Forgery, impersonation, fraud, duress, incompetency or incapacity Yes Yes (CR 3,10) Improperly executed documents Yes Yes (CR 27) Defective recording of documents Yes Yes (CR 27) Someone refuses to purchase, lease or make a mortgage on the property because: Violation of a subdivision law or regulation (subject to Applicable Deductible Amount No Yes (CR 14c) and Maximum Dollar Limit) Encroachment of a neighbor's structures onto the land No Yes (CR 19) Gap Coverage (extending coverage from the closing to the recording of the deed) No Yes (Con 1f) Damage to existing structures because: Exercise of the right to use any easement affecting the land, even if excepted in the No Yes (CR 21 ) policy Exercise of the right to use the surface of the land for the extraction or development No Yes (CR 22) of minerals, water or any other substance, even if excepted in the policy Continuation of coverage to: Anyone who inherits the property from you Yes Yes (Con 2b1) The trustee of a post-policy estate-planning trust No Yes (Con 2b3)

117 COVERAGE Standard Homeowner's Owner’s (Assumes compliance with Stewart Title's underwriting requirements for issuance Policy of the applicable policy.) Policy The beneficiaries of a post-policy estate-planning trust upon the insured's death No Yes (Con 2b4) Automatic increase in policy amount (not linked to inflation) Yes Yes Post policy matters: Forgery affecting the title No Yes (CR 7, 3) Impersonation affecting the title No Yes (CR 7, 3) Ownership interest affecting the title No Yes (CR 7, 1) Easements or limitations on use of the land No Yes (CR 7, 4, 5) Encroachment of neighbor's structures (other than boundary walls or fences) onto No Yes (CR 25) the land Loss of title resulting from a violation of covenant, condition or restriction, even if the No Yes (CR 13) covenant, condition or restriction is excepted in the policy Forced correction or removal of existing structures because: Violation of any covenant, condition or restriction, even if the covenant, condition or No Yes (CR 12) restriction is excepted in the policy Violation of a subdivision law or regulation (subject to Applicable Deductible Amount No Yes (CR 14b) and Maximum Dollar Limit) Built without obtaining a building permit, excluding boundary walls and fences No Yes (CR 15) (subject to Applicable Deductible Amount and Maximum Dollar Limit) Violation of existing zoning law or zoning regulation (subject to Applicable Deductible No Yes (CR 16) Amount and Maximum Dollar Limit) Encroachment onto neighbor's land (subject to Applicable Deductible Amount and No Yes (CR 18) Maximum Dollar Limit) Encroachment into an easement, even if excepted in the policy No Yes (CR 20) Encroachment into a building setback line, even if excepted in the policy No Yes (CR 20) Loss of use as a single-family residence because of a violation of an existing zoning law No Yes (CR 17) or zoning regulation: Substitute residence rental expenses and expenses of relocation, if you cannot use the No Yes (Con 6b2) land because of a claim covered by the policy Supplemental taxes not previously assessed for any period prior to policy date because No Yes (CR 24) of construction or change of ownership or use prior to policy date You are unable to obtain a building permit because of a violation of a subdivision law or No Yes (CR 14a) regulation (subject to Applicable Deductible Amount and Maximum Dollar Limit) The residence is not located at the address stated in the policy No Yes (CR 28)

Both policies contain exclusions, exceptions, and conditions which might limit or affect these coverages. If you have questions regarding the issuance of the Homeowner’s Policy or its coverages, please call the Legal Department at Stewart Title Guaranty Company, 99 Summer Street, Boston, Massachusetts 02110 - (800) 628-2988.

118 EXHIBIT BB ALTA Homeowner’s Policy of Title Insurance/Expanded Coverage Loan Policy Affidavit 2001

Before me, the undersigned authority, on this day personally appeared ______(“Sellers”), personally known by me to be the persons who names are subscribed hereto, who being by me first duly sworn, on their oaths stated the following to be true and correct:

1. We are the owners of the land and buildings commonly known as ______. 2. There are no liens against the land and no judgments or tax liens against us, except those shown as being paid on the HUD 1 Settlement Statement. (if there are additional liens, Sellers must add after this paragraph 2). 3. All taxes and assessments by a taxing authority are paid through ______. There have been no special tax assessments granted on the land. 4. All assessments by the homeowners’ association for the subdivision/condominium are paid current and outstanding assessments are not yet payable. 5. There have been no improvements added to the land or construction on the land within the last year. 6. There are no pending repairs or improvements to the street(s) adjacent to the land. 7. The land has a single family house/condominium on it and no separate building, garage or apartment is used as a second residence. 8. Any improvements we added to the land were authorized by a building permit. 9. We are not aware, and have not been told, that the improvements on the land violate any building permit, zoning, restrictions or covenants. 10. We are not aware, and have not been told, that the improvements on the land encroach over any building lines, easements or property lines. 11. We are not aware, and have not been told, that the improvements by our neighbors encroach over our property lines. 12. The land has actual pedestrian and vehicular access based on a legal right of access to the land. 13. We indemnify and hold harmless Stewart Title Guaranty Company from any loss, liability, costs, expenses and attorneys’ fees incurred because of any errors or incorrectness of this affidavit and because of any defects, liens, encumbrances or other matters currently affecting or that may affect the title to the land before the recordation of our deed or mortgage. Date: ______AND ______(Sellers)

State of ______, County of ______Sworn to and subscribed before me the undersigned authority on this the ______day of ______by ______and ______. ______Notary Public My commission expires ______

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