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 extent the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof.

The endorsements adopted 10/22/03 ( which are included in the subject matter of this article) utilized new integration language:

This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements.

Although a little wordier, I believe it is an improvement and clarification of the previous language without substantive change. It was expanded to explain that the endorsement, to the extent expressed, controls if there is a conflict between the endorsement language and the policy language. In early 2004 this language was adopted for all the older ALTA endorsement forms (series 1 through 13 which now bear the revision date of 1-17-04), and all future endorsements will most likely contain the new language.

THE ENDORSEMENTS

I would like to highlight the important changes and distinctions in each of the endorsements we address below. Other provisions in each endorsement, that impact on the coverage provided, are not new or particular to that endorsement, and will not be addressed. They remain essential to an understanding of the extent of coverage, however. I would recommend the reader review each endorsement in its entirety to ascertain the total extent of the coverage afforded the insured.

Series 14. There are three endorsements in the 14 series: 14, 14.1 and 14.2. These are loan policy endorsements that deal with the priority of future advances. The policy, by its terms, does not cover the priority or enforceability of the lien of the insured mortgage with respect to advances made after date of policy. Each underwriter has addressed the needs of its lender customers with its own proprietary form of endorsement. These vary greatly by company and by state, since they are very state law sensitive. ALTA has adopted three versions that have standardized coverage available in the majority of states. The form 14 is for use in those states that give additional advances absolute priority, regardless of any knowledge (actual or constructive) of the lender of claims intervening between the date of the original mortgage and the date of the subsequent advance.

Form 14.1 excludes from coverage advances made after the lender has "knowledge" of an intervening matter. Knowledge is defined in the policy as "actual knowledge, not constructive knowledge or notice." In Virginia, your statutes (VA. CODE § 55-58.2) allow the additional advance to be prior to all intervening matters except those judgments where the creditor has given notice to the lender of the intervening judgment (§ 55-58.2 (3)), and also except purchase money security interests under VA. CODE § 8.9A-317 et. seq. The lender seeking priority needs to ensure that the recorded instrument contains the statement "THIS IS A CREDIT LINE DEED OF TRUST" in capital letters or underscored (§ 55-58.2 (2)). The form 14.1 issued in Virginia reflects these issues in the exceptions to coverage contained in paragraph 4 of the endorsement.

The 14.2 is used specifically for advances made under a letter of credit, which are, in essence, future advances, albeit of a special nature. The letter of credit must be irrevocable and unconditional and provide for obligatory advances even in the face of the bankruptcy filing of the borrower.

Series 15. The three Series 15 endorsements deal with non-imputation coverage. The policy contains Exclusion 3, which bars liability for, among other things, matters created, suffered, assumed or agreed to by the insured, matters known to the insured and not shown of the public record, and matters resulting in loss that would not have been sustained if the insured had paid value for the estate or interest. This means that if you are not a purchaser for value of the interest insured (i.e. a beneficiary of the recording acts in your state) you may not be covered. In addition, if the entity insured has knowledge, including imputed knowledge, of an off-record matter, it is not covered for that matter. A common example: Acme partnership, consisting of A, B, and C, owns Blackacre. A, B, and C sell their partnership interests (personal property) to D, E, and F. No deed is recorded because the real property did not change hands. Acme still owns it. B knows the neighbor is claiming an interest in Blackacre. He does not disclose this to anyone. His knowledge is imputed to the partnership, so the insured is held to have knowledge of the interest. Neighbor sues after the closing, claiming his interest. Acme tenders the claim, which could be denied for two reasons. The insured had knowledge of the off-record matter, and the new partners did not pay value for the interest insured, which was fee title. They did not buy fee title, they bought partnership interests in the entity that owned fee title. If they would have formed a new partnership, and gotten a deed, the recording acts in Virginia would have protected them (as a bona fide purchaser for value without notice) against the claim of the neighbor, since the neighbor's interest was not recorded. The title company would have defended their title subject to the terms and conditions of the policy.

The endorsements waive the defense the title company would have under Exclusion 3 as described above with regard to the knowledge of specific individuals (the outgoing parties). This coverage is considered extra-hazardous risk in the industry since it deals with insuring over non-record matters without the benefit of the recording acts. In addition to requiring affidavits from outgoing partners, managers, employees and/or officers, and indemnities from credit-worthy parties, insurers will assess an additional risk premium. On a practical note, make sure your sellers are required to give the needed affidavits and indemnities as part of the buy-sell agreement, or you will find yourself unable to comply with the underwriting requirements of the title company.

The form of ALTA15 will vary depending on the amount of equity interest conveyed ( full or partial) and the format of the underlying policy (if the policy runs to the entity (most common) or the incoming party). Form 15 is for the full equity transfer and 15.1 is for a partial equity transfer. Both of these forms are attached to a policy in which the fee owning entity is the named insured. Form 15.2 is used when the named insured in the underlying policy is the incoming entity, and the transfer is a partial interest.

Form 16: The Mezzanine Lender endorsement. A mezzanine lender takes, as security, a pledge of personal property, which can be in the form of shares of stock or beneficial interests in entities such as partnerships or LLCs. Since these are not real property assets, they would not be covered by a title policy. What is covered, however, is the title to the real property asset that the entity owns, and the lender is very interested in the quality of that title, since if the lender has to foreclose on the pledge (a Code sale under the UCC) it would end up as owning the entity that owns the property. Accordingly, the lender requires the Owners Policy of title insurance to include this endorsement, which gives it access to the policy coverage. This endorsement contains an assignment of benefits from the insured (i.e., the owner of the realty ) to the lender. Further, it contains an acknowledgment of provisions between the lender and the insurer; it is the only ALTA endorsement that requires the signature of BOTH the owner and the lender on its face.

In addition, it contains non-imputation coverage as previously discussed, since the lender, if it does come into title, would do so by a transfer of personal property interests and not a deed, and therefore would face the same issues that an incoming party would face without the protection of the recording acts. The same underwriting requirements (sufficient affidavits and indemnities) would also apply. The mezzanine endorsement also contains a version of what is commonly referred to as "Fairway" coverage. This is the recognition that the subsequent change in partners (or parties) would not obviate the coverage under the policy.

Series 17. The endorsements in the 17 series deal with specific access. The policy generally insures a "right of access," which has been held to mean a legal right of access. It does not have to be the specific access that the insured wants; it could be by some other, longer, less convenient route. Some courts have held that the "legal" access need not be paved, open, above water, or passable by modern vehicles! The endorsements provide much broader coverage than the policy alone. The form 17 is used to insure that parcels have direct access to a particular street insured; the 17.1 is used when that access is afforded by insured easement. They both provide for vehicular and pedestrian access to and from a specific, open and publicly maintained street via existing curb cuts. A current survey showing such cuts is normally a requirement.

Series 18. The ALTA 18 and 18.1 are referred to as the Tax Parcel Endorsements. These give assurances to the identity and sufficiency of the tax parcel identifiers listed (such as Tax Key Numbers, Tax Parcel Number, Parcel Identification Numbers (P.I.N.), etc). The lender wants to determine that all of the parcel numbers are identified in the policy, that there is no land included within the tax number that is not included in the mortgage description, and that there is no land in mortgage that is included within another number. If any of these situations occurs, such as in new construction or new development, where the current tax descriptions are different than the newly created legal descriptions, these endorsements would not be appropriate, and the lender would seek other alternatives to make sure all the taxes would be paid. The 18 is used when the insured description covers a single tax number. The 18.1 covers multiple numbers and, in addition, is used when one of the parcels in Schedule A of the policy is an insured easement. Additional coverage included in the 18.1 is insurance against loss created by the easement being affected by post policy foreclosure of the taxes on the land under the easement (the servient estate), which, prior to this form being created, was a separate endorsement.

Series 19. This series of endorsements relates to the contiguity of parcels within and without the parameters of the policy. The Form 19 is used when there are several adjacent parcels within the description contained in Schedule A of the policy. The endorsement insures against loss by reason of the parcels not being contiguous, i.e. that there are strips, gaps, or gores of other land between or among the parcels. A survey showing the same to be true is needed in order to issue the coverage. The 19.1, although it has the apparently oxymoronic title "Contiguity-single Parcel," is referring to the contiguity of the single parcel described within the policy to another parcel not contained in the policy. This "other" parcel may be described by reference to another recorded instrument or by specific separate description. This is used most often when an owner of a parcel is purchasing adjacent land and wants to verify that the two parcels are contiguous. A survey of both the old and new parcels is needed or a statement of the surveyor as to the relative contiguity of the individual parcels if separate surveys are used.

Form 20. The First Loss - Multiple Parcel Transactions endorsement, the ALTA 20, is used in multi-site loan policies. An easier way to understand this is to think about its original name, the Contingent Loss endorsement. Under the terms of the policy, in order for a lender to prove a loss, there would have to be a problem that was insured against, a default on the loan, a foreclosure of the security instrument (mortgage or deed of trust), and a monetary loss affecting the value of the collateral that was based on that title problem, not just depreciation of the collateral. If the lender had other collateral, that would have to be taken into account before a loss could be calculated. Every title problem does not result in a loss to the lender - there could be a title loss to the owner, but if the mortgage is paid in full it never affects the lender. Or the loss does not affect the value of the property as collateral for the mortgage, because it never exceeds the equity in the property. This "equity buffer" is part of the risk analysis that allows the issuance of many coverages for loan policies only. Until a loss exceeds the owner's equity, the lender remains unharmed. And if there are multiple pieces of property, the title issue on one parcel may never result in a loss to the lender since there may be enough equity in the other parcels to make up for the reduction in value based upon the title issue on just that one parcel. Without this endorsement, the lender would be forced to accelerate the entire loan and foreclose all parcels to prove any loss. This endorsement waives the requirement to accelerate and foreclose if the title claim is in an amount that affects the value of the total collateral and causes it to drop below the total then outstanding balance on the loan. The underwriter reserves the right to seek restitution from whomever the lender could have looked to, which may include the borrower or a guarantor of the debt. The title company thus agrees to recognize and pay a "contingent loss," contingent on the lender suffering an ultimate title loss. The lender might never suffer a loss, if the loan is paid in full pursuant to its terms.

Form 21. The last of the new endorsements is the Creditors' Rights coverage, adopted 4/19/04. The policies contain a creditors' rights exclusion, which deals with the issue of a possible challenge to the title to the estate or interest insured under bankruptcy or insolvency proceeding. These challenges are usually based upon non-record matters, such as solvency, which are beyond the scope of the title insurer's search and exam. Depending on the structure of the deal, the parties involved, and/or the financial viability of indemnitors, the underwriter may be willing to give coverage. In the past, after analysis and negotiation, the coverage may have been afforded by the issuance of an earlier policy form (ALTA 1970 rev. 1984) that was silent as to this issue, or by the deletion of the exclusion in the current policy forms. Since the position of the industry is that the earlier policy form, in and of itself, did not afford coverage (by virtue of other exclusions) there appeared to be some confusion as to the effect of issuing it to afford coverage. This endorsement is preferable since it clearly delineates the coverage being sought by the insured.

These, in a nutshell, are the newest endorsements adopted by ALTA. I urge you to examine each in its entirety to understand the effect of the coverages afforded thereunder in light of both the endorsement and the underlying policy of which it is a part. I'm sure your underwriter or agent would be happy to make samples of specific Virginia forms available for your perusal.

*Marjorie Ramseyer Bardwell is Vice President and Senior Underwriting Counsel for the Fidelity National Family of Title Insurance Companies, which includes Chicago Title, Ticor Title, Fidelity National Title, Alamo Title, and Security Union Title Insurance Companies. A 1976 graduate of Marquette University Law School and a member of the Wisconsin State Bar, the Illinois State Bar, and the American Bar Association, she has spent over 25 years in the title industry. She is the co-author of EXAMINING AND EVALUATING TITLE TO REAL PROPERTY IN WISCONSIN and BOUNDARY LAW IN WISCONSIN and a frequent speaker on title insurance and real estate related topics. She is currently a member of the Office of the Chief Underwriting Counsel, responsible for general underwriting issues and national underwriting of multi-site, multi-state transactions in the U.S. and Canada, and is located in Chicago. Ms. Bardwell may be reached through Randy Howard at Chicago Title Insurance Company/Southern VA National Commercial Center at (800) 552-2442 or by e-mail to randy.howard@ctt.com.

The discussion of title insurance coverage in this work is, necessarily, general and is intended only for informational purposes. It should not be construed as representing the position of any of the Fidelity National Family of Title Insurers under any particular set of circumstances. The endorsements discussed herein speak for themselves. Their provisions, not the views of the author, govern the coverages which they provide.

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