When obtaining a title policy, many times it makes sense for the acquirer of the property to obtain coverage beyond what is standard. This could be for a number of reasons, including to provide coverage for having to tear down a building due to an existing easement, or coverage in case the tax parcel(s) listed by the title company in the policy do not match up with the actual property. Sometimes the additional coverage can be like a life preserver; saving a deal that would otherwise fall apart. In each of these cases, the added coverage comes in the form of a title policy endorsement.
A title policy endorsement is a rider to a title policy that is used to expand the coverage under the title policy beyond what is typical. For the most part, title companies charge a premium for each endorsement. The amount of the premium is generally based on the level of risk the title company is taking on with respect to the expanded coverage provided by the endorsement and range from $50.00 to thousands of dollars. More risk means a larger fee. So, when should you spend the money to get an endorsement? The answer is that it depends on the facts and circumstances, such as the location of the property and the type of transaction, and what kind of risk you would be willing to take.
Below is a list of the most common endorsements and what they cover:
Zoning (ALTA Endorsement 3.2-06): This endorsement allows the insured property owner to obtain coverage that the proposed use of the property is authorized under current zoning. Usually, the title insurer will need to be provided with plans and specifications for the proposed project. The endorsement covers the zoning classification regarding use, building site dimension, floor space, setback, height, parking, etc. This endorsement can be very expensive, and is generally not necessary for developers who have re-zoned the property and are intimately familiar with the current zoning of the property.
Variable Rate Mortgage (ALTA Endorsement 6-06): This endorsement is available only for loan policies. The endorsement insures the lender against loss or damage due to the invalidity or unenforceability of provisions in the mortgage that relate to changes in the interest rate. Furthermore, the endorsement protects the lender from a loss of priority of the mortgage due to such interest rate changes. It is very common for a lender to request this endorsement for loans with a variable interest rate.
Restrictions, Encroachments, Minerals (ALTA Endorsement 9-06): This endorsement is for lenders only and covers a wide range of potential risks, including (1) violation of a covenant, condition, limitation or restriction contained in a recording document, (2) forced removal of an improvement or future improvement due to violating a building set back line, and (3) damage to improvements due to encroachment onto an easement located on the property (subject to certain exceptions). It is very common for a lender to request this all inclusive endorsement.
Access and Entry (ALTA Endorsement 17-06): The standard title policy provides coverage that there is legal access to the property. It does not, however, name the specific right of way on which access will be granted. This endorsement allows a specific right of way to be named, which can be important in instances where entrance into a specified portion of the property (i.e., the parking lot or to the front of the building) is important. The endorsement typically requires a survey showing that the right-of-way is physically contiguous to the property and that the owner has the legal right to use that means of access.
Single Tax Parcel (ALTA Endorsement 18-06) and Multiple Tax Parcel (ALTA Endorsement 18.1-06): These endorsements insure that an insured parcel is maintained on the real estate tax records as one tax parcel or as several different tax parcels, as applicable, and that such tax parcels contain no more or less property than the property described in the title policy. This is important in cases when a buyer needs to know that the property it is purchasing has a tax parcel number or numbers, and no other property is covered by that tax parcel.
Contiguity-Multiple Parcels (ALTA Endorsement 19-06): This endorsement insures that two or more insured parcels are contiguous to each other with no gaps or gores along the shared boundary. This is important in instances where the buyer is purchasing two or more separate parcels (perhaps from two different sellers) that have distinct legal descriptions.
Same as Survey (ALTA Endorsement 25-06): This endorsement provides coverage against loss or damage in the event the insured property is not the same as that delineated on a designated survey.
Easement-Damage or Enforced Removal (ALTA Endorsement 28-06): This endorsement provides coverage against losses arising as a result of the rights granted under a specific easement listed in Schedule B of the title policy. This can be helpful under circumstances where it appears, based on a survey or other information, that an easement may interfere with the property. A buyer or lender may find that the protection afforded by this endorsement will allow the transaction to proceed despite what appears to be a problematic easement.
Affirmative Coverage Endorsement (ALTA Endorsement 34-06): This endorsement allows the insurer to provide coverage over an exception listed on Schedule B. Rather than deleting the exception, the insurer instead adds a statement that it will provide coverage as though the exception were not listed. Sometimes, rather than using this endorsement, the insurer will add the affirmative coverage language directly into Schedule B.