Commercial Endorsements

February 2016

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Endorsement Forms

HousekeepingThis PowerPoint is based upon a manual titled The ALTA Commercial Endorsements by Robert S. Bozarth, Senior UnderwritingCounsel for Fidelity National Title Group

The discussion of title insurance coverage in this work is, necessarily, general in nature and is intended only for informationalpurposes. It should not be construed as representing the position of the ALTA or Fidelity National Title Group or any of itssubsidiaries under any particular set of circumstances. The ALTA policies and endorsements speak for themselves. Theirprovisions, not the views of the author, govern the coverages which they provide.

The American Land Title Association®, founded in 1907, is the national trade association and voice of the abstract and titleinsurance industry. All publications of the American Land Title Association®, including ALTA® Policy Forms, Endorsements, andRelated Documents, are copyrighted and are reprinted by specific permission from:American Land Title Association® (ALTA®)1800 M Street, N.W., Suite 300SWashington, DC 20036 5828Phone: 202 296 3671E Mail: service@alta.orgWeb: http://www.alta.orgThe ALTA Copyright applies to all quotes from ALTA forms contained in this paper.

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ALTA Endorsement Forms Preferred

1. Originally focused on residential property (1 thru 8.1)2. Over 40 forms now – most focus on commercial3. Allows all involved to know the exact language of the endorsements4. If modified – must remove ALTA references and numbering

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Purpose – Modify the policy to address specific transactionconcerns

1. Add affirmative coverages2. Clarify coverages in the policy3. Remove potential defenses

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Integration Every ALTA endorsement ends with this integrationparagraph:

This endorsement is issued as part of the policy. Except as it expressly states, it doesnot (i) modify any of the terms and provisions of the policy, (ii) modify any priorendorsements, (iii) extend the Date of Policy, or (iv) increase the Amount ofInsurance. To the extent a provision of the policy or a previous endorsement isinconsistent with an express provision of this endorsement, this endorsementcontrols. Otherwise, this endorsement is subject to all of the terms and provisions ofthe policy and of any prior endorsements.

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Endorsement Forms

Alliance Mortgage Company v. Rothwell

1. Influenced the wording of every endorsement2. Case Fraud scheme involving loans on properties in San Francisco3. Ticor issued endorsement which stated:

“The Company assures the insured that at the date of this policy there is located on said land

4 unit Residence known as 447 Haight Street, # 1, 2, 3, 4, San Francisco, California 94117. The

Company hereby insures the insured against loss which said insured shall sustain in the event

that the assurance herein shall prove to be incorrect."

4. Properties were 1 unit dwellings

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Alliance Mortgage Company v. Rothwell

1. Alliance alleged negligent misrepresentation by Ticor2. Indemnity v. Guarantee

Title policies are indemnities against loss not representations ofcondition of property

Court initially held otherwise – endorsement amounted to aguarantee instead of promise to indemnify

3. Endorsements revised Company insures against loss or damagesustained by the Insured by reason of … the Land not…

4. Difference between indemnifying for loss instead of assuring acondition exists

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Alliance Mortgage Company v. Rothwell

Avoid assuring language:

The Company assures the Insured against loss or damage sustained by reason ofany incorrectness in the assurance that, at Date of Policy:

The Company hereby insures the Insured against loss which said Insured shallsustain in the event that the assurance herein shall prove to be incorrect.

This policy affirmatively insures . . .

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ALTA 17 Series – Access and Entry (17 06, 17.1 06, & 17.2 06)

1. Policy Covered Risk 4 Lack of a right of access to the Land2. Access – Insured can go to and from one public street to a point on

the boundary of the Land without interference of the rights ofanother party

3. Land abuts or appurtenant easement to public road

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ALTA 17 Series – Access and Entry (17 06, 17.1 06, & 17.2 06)

1. Nature, extent, type of access2. Old cases – If the Insured has a right to get to its Land, it has access.

1. Gates v. Chicago Title Insurance Company – access even if waybetween street and boundary is long and dangerous

2. Magna Enterprises, Inc. v. Fidelity National Title Insurance – 2 ½foot barrier in parking lot might make impractical …, but it is not alack of access

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ALTA 17 Series – Access and Entry (17 06, 17.1 06, & 17.2 06)

1. Marriott Financial Services, Inc. v. Capitol Funds, Inc. – Raleigh denieddriveway permits (too close to Crabtree Creek); left Insured with onlypedestrian access

2. Court held mere pedestrian access was not reasonable when Insuredsought vehicular access to use property as fast food restaurant

3. Suggests policy insures reasonable access for planned use –unrealistic and leaves questions about access coverage

4. Coined the terms “pedestrian and vehicular access”

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Endorsement FormsALTA 17 Series – Access and Entry (17 06, 17.1 06, & 17.2 06)1. 17 06 – Insures land abuts public street, Insured has pedestrian and

vehicular access, public street is physically open/publicallymaintained, and can use existing curb cuts. Uses Alliance language.Limited to Date of Policy, so not insuring against interruption orobstruction

2. 17.1 06 – Addresses land that accesses public street by an easement

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ALTA 17 Series – Access and Entry (17 06, 17.1 06, & 17.2 06)

1. 17.2 06 – Utility Access insures against loss if there is no access forthe specified services through an abutting street or an easement.Connecting to the service is the policyholder’s responsibility

2. Insures that there are no gaps between the boundary of the land andthe right of way, or gaps in the right of way itself, or a termination ofthe right of way

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Endorsement Forms

ALTA 3 Series – Zoning (3 06, 3.1 06, & 3.2 06)

1. Provide certain zoning coverages. Not unlimited zoning coverage.2. 3 06 – Zoning classification and list of uses; does not insure current

use complies3. 3.1 06 – Same as 3 06; adds loss if structures and improvements do

not comply with zoning with respect to(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; or(iv) Height of the structure; or(v) Number of parking spaces.

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ALTA 3 Series – Zoning (3 06, 3.1 06, & 3.2 06)

1. 3.2 06 Zoning Land under Development – Same basic coverages as3.1 06, but applies to land that will be developed with newimprovements

2. Previously buyers of vacant land limited to 3 063. Defines Improvements and Plans4. Must be built according to plans5. Technical corrections in section 3 – “existing” and “Date of Policy”

appear to limit coverage. “Date of Policy” has been deleted;“existing” can be deleted

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ALTA 3 Series – Zoning (3 06, 3.1 06, & 3.2 06)

1. Basis for providing coverage – Information on ordinance or resolutionfrom knowledgeable source(s)1. Classifications/maps – land falls clearly within boundaries2. Uses – must match a listed use (do not interpret)3. Restrictions – 5 items relating to structures improvements –

survey indicating compliance4. Land under development – same as above, Plans must include

same elements as accurate survey to address restrictions

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ALTA 3 Series – Zoning (3 06, 3.1 06, & 3.2 06)

1. Recent zoning changes –a. Constitutionality (federal and state),b. Compliance with state laws notice for hearing, open meeting,

quorum of officials, approval by officials, properrecordation/filing, expiration of appeal period

c. Potential attack – compatibility with surrounding property

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Endorsement Forms

ALTA 6 Series – Variable Rate (6 06 & 6.2 06)

1. 6 06 Coverage for the invalidity and unenforceability of lien andloss of priority resulting changes in rate of interest

2. Defines “Changes in rate of interest” limited to those pursuant to aformula in the loan documents secured by the Insured Mortgage –Commercial lenders did not want to disclose formulas of record

3. 6.2 06 adds “interest on Interest” and “the addition of unpaidinterest to the principal balance of the loan”

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ALTA 8.2 06 – Commercial Environmental Protection Lien

1. 8.1 06 (residential) Protection over super priority of clean liensa. No liens filed in public recordsb. Even if lien is filed after Date of Policy, if no exception for state

statutec. Super priority liens contained exemption for residentiald. Not appropriate for commercial

2. 8.2 06 Limited to liens filed at Date of Policy3. Does not insure land is clean

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ALTA 9 Series – Restrictions, Encroachments,Minerals/CCRs/Private Rights

1. Various protections over private property restrictions, building setback lines,encroachments and excepted minerals

2. Initially done in a single endorsement (variations for loan, owners, vacant andimproved land)

3. Nationwide Life Insurance v. Commonwealth Land – Found ambiguity in form(“Unless expressly excepted in Schedule B”)

a. Questionable interpretation of a prior approval of futurebuyer/occupant

b. Exception to declaration of restrictions w/o expressly stating priorapproval restriction was not enough

4. Decided to address matters in separate endorsements

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ALTA 9 Series – REM/CCRs/Private RightsRestrictions, Encroachments, MineralsALTA 9 06 (Loan) andALTA 9.7 06 (Land Under Development LoanALTA 9.10 06 (Current Violations);

Covenants Conditions and RestrictionsALTA 9.1 06 (Owners Unimproved Land),ALTA 9.2 06 (Owners Improved Land),ALTA 9.3 06 (Loan),ALTA 9.8 06 (Owners Land Under Development);

Private RightsALTA 9.6 06 (Private Rights Loan),ALTA 9.6.1 06 (Private Rights – Current Assessments – Loan),ALTA 9.9 06 (Private Rights – Owners).

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ALTA 9 Series – REM/CCRs/Private Rights

1. 9.6 06 Private Rights – Defined as (i) a private charge or assessment; (ii) anoption to purchase; (iii) a right of first refusal; or (iv) a right of prior approvalof a future purchaser or occupant.

2. Recognizing private rights is difficult, so coverage limiteda. Made Insured Mortgage unenforceable, invalid or affected priorityb. If title acquired by lender – must show loss of titlec. Does not insure against unmarketable title

3. 9.6.1 06 – insures lack of priority over a private charge or assessment due andpayable at Date of Policy; does not cover those that become due and payableafter Date of Policy

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ALTA 9 Series – REM/CCRs/Private Rights

1. 9.7 06 & 9.8 06 Land Under Development – allow coverages tobe applied to improvements under development; includesdefinitions of “Future Improvements “ and “Plans”

2. 9.10 06 Current violations – Provides same coverage as a 9 06,but limits the coverage to a violation that has occurred before oron the Date of Policy. 9 06 covers violations either existing at Dateof Policy or in the future

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Endorsement Forms

ALTA 10 Series – Mortgage Assignment

1. ALTA Loan Policy designed to insure owner of indebtedness, evenif not named as Insured in Schedule A. Condition 1(e)(i)(A).

2. Policy does not cover challenge to validity or enforcement ofassignment

3. Solutions:a. Show assignment in Schedule A – Covered Risk 12b. 10 Series endorsement

4. 10 06 Failure to vest title to the Insured Mortgage in theAssignee

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ALTA 10 Series – Mortgage Assignment

1. 10.1 06 adds date down to date of endorsement for priority oflien, notices of federal tax liens, bankruptcy or modifications,releases, reconveyances or discharges of lien of Mortgage

2. Creditors Rights exclusion included3. Datedowns – Owners policies and existing endorsements

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Endorsement Forms

ALTA 11 Series – Mortgage Modifications (11 06, 11.1 06 &11.2 06)

1. Designed to be more efficient than a datedown2. Datedown may involve additional exceptions, higher costs3. 11 06 – Does not change Date of Policy; invalidity,

unenforceability, loss of priority by reason of modification4. 11.1 06 – adds subordinate matters5. 11.2 06 – adds additional amount of insurance6. Contain Creditors’ Rights exclusion

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ALTA 12 – Aggregation

1. Allows multiple policies to be aggregated2. Avoids having to have one policy with multiple parcels (different

counties or states)3. Can shift coverage from one policy to another4. Avoids potential mortgage tax issues5. All policies must be from same insurer6. Amount in schedule A of each policy must be the amount for that

property, not the aggregate amount7. Watch state reinsurance limits

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ALTA 23 06 – Co Insurance

1. Parties often want to spread the risk on high dollar transactions2. Me, Too endorsement designed to give consistent coverage by the

various title insurers – essentially Insured received the same policyfrom each

3. Lead insurer prepares policy; other insurers review and adopt4. 23 06 – serves as a separate but identical policy for each company,

since companies cannot endorse another title insurer’s policy5. Later endorsements must be approved by all co insurers6. Notice of claims must go to all co insurers

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ALTA 13 Series – Leasehold (13 06 & 13.1 06)

1. Old leasehold policies designed offices and shopping centers – lackcoverages that applied the leasehold interests

2. Definitions – Evicted, Leasehold Estate, Personal Property, TenantLeasehold Improvements…

3. Valuation Value shall consist of the value for the Remaining LeaseTerm of the Leasehold Estate and any Tenant LeaseholdImprovements existing on the date of the Eviction. No definedmethod/negotiation between Insured and insurer

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Endorsement Forms

ALTA 13 Series – Leasehold (13 06 & 13.1 06)

1. Additional Items of Lossa. Removing/relocating personal propertyb. Rent – paid or continue to payc. FMV of lease or sublease/damages to sublesseesd. land use, zoning, building permits… costs for replacementpropertye. Cost of improvements not substantially completed, lasssalvage value

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ALTA 14 Series – Future Advances (14 06, 14.1 06, 14.2 06 &14.3 06)

1. ALTA Loan policy does protect the lien of a Mortgage for future advances2. 14 06 – Priority Endorsement – for states that give optional advances the

priority of obligatory advances or priority as of date Mortgage was filed (NC)3. 14.1 06 – Knowledge Endorsement – Excludes coverage if Insured had actual

knowledge of intervening lien4. 14.2 06 – Letter of Credit – Used when Mortgage secures a reimbursement

obligation for a letter of credit or surety bond5. Exclusions for Bankruptcy, real estate taxes/assessments, federal tax lien,

environmental protection lien, usury, and mechanics’ liens (optional)

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ALTA 15 Series – Non Imputation (15 06, 15.1 06 & 15.2 06)

1. Incoming investors, partners…want to shift the risk that notice or knowledgeof existing partners might affect title to title insurer

2. Exclusion 3(b) – not known to the Company, not recorded in the publicrecords at Date of Policy, but known to the Insured Claimant and notdisclosed in writing to the Company by the Insured Claimant prior to the datethe Insured Claimant became an Insured under this policy;

3. Exclusion 3(a) created, suffered, assumed or agreed to by the InsuredClaimant;

4. Exclusion 3(e) resulting in loss or damage which would not have beensustained if the Insured Claimant had paid value for the Insured Mortgage.

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ALTA 15 Series – Non Imputation (15 06, 15.1 06 & 15.2 06)

1. Off record information unrecorded purchase agreement or option2. Deed in current transaction/Recording acts – protection in Race states; may

lose protection in Notice and Race Notice states3. Managing Risk:

a. Description of structure of transaction;b. Affidavits from individuals, partners,… of acquired entityc. Indemnity – review of financials of indemnitord. Written request for endorsement

4. Non Imputations and Datedowns – risk must be analyzed; do not want tocontinue to insure knowledge after investor acquires interest

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ALTA 15 Series – Non Imputation (15 06, 15.1 06 & 15.2 06)

1. 15 06 Full Equity Transfer – Complete change of ownership; usedwith a new policy

2. 15.1 06 Additional Insured – Incoming partner to an entity thathas a policy. Adds the new partner as an Insured to the extent oftheir interest. Datedown questions.

3. 15.2 06 Partial Equity Transfer – Incoming partner obtaining theirown policy

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ALTA 16 Series – Mezzanine Financing (16 06)

1. Mezzanine lender has security interest in entity that holds title toLand Wants protection

2. 16 06 recognizes lender as loss payee under policy3. Title holder is named Insured in policy4. Exclusion 3(a), 3(b) & 3(e) will not be applied against borrower to

defeat recovery by lender

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Endorsement Forms

ALTA 28 Series – Easements (28 06, 28.1 06, 28.2 06 & 28.3 06)

1. Covered Risk 2(c) gives coverage over certain encroachments …disclosed by a survey

2. Encroachment reflected on a survey will be excepted for in Sch B3. Insureds seek affirmative – use ALTA 9 for REM or ALTA 28 Series4. 28 Series gives broader coverage

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ALTA 28 Series – Easements (28 06, 28.1 06, 28.2 06 & 28.3 06)

1. 28 06 – Damage or Enforced removal by exercise of right of use ormaintenance of specific easement

2. 28.1 06 Encroachments – Covers improvements encroaching overboundaries (ALTA 9) and adds encroachment of improvementsonto easements (exceptions can be made)

3. 28.2 06 – same as 28.1, but improvements are specificallydescribed, so parties can negotiate which ones get coverage

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ALTA 28.3 06 Encroachments – Boundaries and Easements –Described Improvements and Land Under Development (4 2 15)

• Actually, despite its name, it is only a Land Under Developmentvariation of the ALTA 28.1 with an expanded definition of“Improvement” and definitions for “Future Improvement” and“Plans.”

• It does not provide for a negotiated definition of “Improvement” asthe ALTA 28.2 06 Described Improvements variation does.

• CAVEAT: ‘Improvement’ includes any road, walkway, parking area,driveway, or curb located on the Land or adjoining land.

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ALTA 36 Series – Energy Projects

ALTA 36 06 Energy Project – Leasehold/Easement – Owner’sALTA 36.1 06 Energy Project – Leasehold/Easement – LoanALTA 36.2 06 Energy Project – Leasehold – Owner’sALTA 36.3 06 Energy Project – Leasehold– LoanALTA 36.4 06 Energy Project – Covenants Conditions and Restrictions – Land UnderDevelopment Owner’sALTA 36.5 06 Energy Project – Covenants Conditions and Restrictions – Land UnderDevelopment LoanALTA 36.6 06 Energy Project – EncroachmentsALTA 36.7 06 Energy Project – Fee Estate – Owner’sALTA 36.8 06 Energy Project – Fee Estate Loan

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ALTA 36 Series – Energy Projects

1. Designed to address needs of energy projects, such as wind farms,solar farms, power plants…

2. Value of integrated whole – Constituent Parcel recognized thevalue of Land as part of an integrated system.

3. Initially based off the ALTA 13 series, but have added versions forfee interests

4. Includes features of 9’s, 13’s, 28’s, and 31’s5. Are combinations of the versions needed?

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ALTA 36 06 – Leasehold – Easement OwnersDefinitions:

1. Constituent Parcel – one of the parcels of Land in Schedule A thatconstitute one integrated project.

2. Electricity Facility equipment and facilities within the definitionthat customer groups asked the title industry to include, but to beincluded an item must, by law, constitute real property. Burden ison Insured.

3. Plans – Land under development endorsement

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ALTA 36 06 – Leasehold Easement OwnersDefinitions:

4. Severable Improvements used to distinguish an item of personalproperty that is attached to the land from an item of personalproperty that is not attached to the land. Title insurers cannotinsure Title to personal property, even if it meets the definition ofSeverable Improvements, but Severable Improvements can beconsidered in the valuation of the Insured’s loss.

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ALTA 36 06 – Leasehold Easement OwnersValuation Provisions:

1. 3(a) Eviction may be from a portion of Land2. 3(b) Computation of loss for an eviction from any Constituent

Parcel shall include loss or damage to the integrated projectcaused by the loss of the Constituent Parcel

3. 3(c) Option to have Leasehold Estate, the Easement Interest andany Electricity Facility valued either whole or separately

4. 3(d) Prohibits duplication of recovery in valuing a loss

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ALTA 36 06 – Leasehold Easement OwnersValuation Provisions – Severable Improvements:

1. 4(a) Adds diminution of value of Severable Improvements to beincluded in calculation of loss

2. 4(b) Excludes ownership/lien matters for Severable Improvementsi. attachment, perfection, priority of security interest..ii. Vesting or ownership of title…iii. Any defect in or lien or encumbrance on the title…iv. Determination of whether any specific property is real or

personal…

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ALTA 36 Series – Variations

1. 36.1 06 – Loan version of 36 06 – Adds definition of “Tenant”2. 36.2 06 & 36.3 06 – Leasehold only Do not include easement definition or

insurance3. 36.4 06 & 36.5 06 – CCRs and Land Under Development – Similar to 9.8 06 &

9.7 06 modified to limit coverage to violation of a covenant to an ElectricityFacility or Severable Improvement (36.4 only)

4. 36.6 06 Encroachments encroachment of an Electricity Facility or aSeverable Improvement either built or to be built according to the Plansidentified in the endorsement onto adjoining property or onto an easementon the Land. No encroachments by adjoining land improvements.

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ALTA 36.7 06 Energy Project – Fee Estate – Owner’s Policy (12 01 14)ALTA 36.8 06 Energy Project – Fee Estate – Loan Policy (12 01 14)

• Fee variants of the ALTA 36 06 and ALTA 36.1 06 for leaseholds andeasements, and the ALTA 36.2 06 and ALTA 36.3 06 for leaseholds.

• Fidelity has issued a proprietary variant insuring all three interests withone endorsement instead of several.

• These endorsements don’t insure that the title includes any of theseinterests, Schedule A does that; so one endorsement that covers allthree can insure any combination of them.

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ALTA 46 06 Option (08 01 15)• insures against loss or damage sustained by the Insured by reason of:

a) A defect in the execution of the option; orb) A right to acquire the Title granted to another in a document

recorded in the Public records at Date of Policy

• The ALTA 46 06 is designed to apply even if options are not recognizedas an interest in land by the recording acts of the state.

• There is no coverage for the ranking of the option in the records or theenforceability of options.

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Others• 29 Series – Interest Rate Swap• 30 Series – Shared Appreciation• 31 06 – Severable Improvements• 32 Series – Construction Loan• 33 Series – Disbursement• 34 06 – Identified Risk• 35 Series – Minerals and other Subsurface Substances• 37 06 – Assignment of Leases and Rents• 38 06 – Mortgage Tax• 40 06 – Tax credit

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ALTA 19.2 06 Contiguity – Specified Parcels Endorsement (04 02 15)“insures against loss or damage sustained by the Insured by reasonof there being any gaps, strips, or gores lying within or between[Parcel A, B, C] of the Land [except as depicted on the survey madeby _______________].”

• The ALTA 19 06 is more precise if you leave off the optionalclause at the end, in brackets.

• If you add the optional clause, you are insuring the accuracy ofthe survey.

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ALTA 45 06 Pari Passu Mortgage – Loan Policy (12 01 14)• insures against loss or damage sustained by the Insured by reason of:

a) the invalidity or unenforceability of the lien of the InsuredMortgage resulting solely from the provisions of a Pari PassuMortgage or Intercreditor Agreement establishing lien priority; or

b) the lack of equal lien priority of the Insured Mortgage to the otherPari Passu Mortgages.

• Subject to exceptions for failing to comply with intercreditoragreement, to foreclose simultaneously and for any provision in theintercreditor agreement as to sharing of foreclosure proceeds.

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