By Lillian E. Eyrich

Title insurance is a standard requirement in most real estate transactions and the importance to both lenders and property owners of properly underwritten title insurance is crucial. In this article, Lillian E. Eyrich, a senior associate and title insurance attorney at Steeg Law, provides an overview of some recently revised title insurance endorsements that will impact the sale and purchase of property in the State of Louisiana.

REM and Comprehensive Endorsements Revised

The American Land Title Association (ALTA) has recently revised the title insurance endorsements commonly referred to as “comprehensive endorsements” or “REMendorsements,” in which “REM” is an abbreviation of “Restrictions, Easements and Minerals.” These endorsements are also commonly referred to as “ALTA 9 endorsements” because that is the basic ALTA form number for this series of endorsements, so many people in the real estate industry use the form number as a quick reference.

Title insurance professionals originally started calling these “comprehensive endorsements” because the endorsements provided broad coverage regarding survey issues, such as:

• encroachments onto servitudes or easements by the improvements on the insured property or encroachments onto adjoining property;
• possible violation of building restrictions and setback lines;
• and damage to improvements caused by the use of the surface of the land for exploration of minerals or caused by a third party’s use of its servitudes and easements affecting the property.

Endorsements Affect Lenders and Buyers

Originally, the endorsements were available only in lender’s policies, but commercial buyers wanted similar insurance, so the endorsements were revised to create versions for owner’s policies. Another evolution was that at first the comprehensive endorsements were issued only for property with existing improvements. To respond to customers’ needs, the title insurance companies created versions for unimproved property, to assist buyers and lenders who were preparing for construction projects.

Determining Whether It Is an Appropriate Risk to Issue the Comprehensive Endorsements

As with any title insurance endorsements, title agents and underwriters review the specific property and what affects it to determine whether it is an appropriate risk to issue the comprehensive endorsements. They look at the servitudes and easements, restrictions, rights of first refusal, options to purchase, mineral leases and reservations shown in a title commitment. The agents and underwriters also review the survey to see whether it shows any encroachments, either onto the insured property, onto adjoining property, or onto the servitudes and easements running across the insured property.

There are situations in which a title company is willing to give part of the coverage found in the old comprehensive endorsements, but not all of the coverage. For example, they may be willing to give insurance that there are no unlisted existing violations of the building restrictions, but may not be willing to give insurance against forced removal of a building encroachment onto adjoining land. They may be willing to insure against the risk that the buildings will be damaged by the use of the surface of the land by a third party who has a mineral lease, but may not be willing to give coverage against the possibility that the exercise of an existing right of first refusal or option to purchase would cause a loss of title.

One Size Does Not Fit All – The Case for Separate Endorsements

Because the older versions of the ALTA 9 comprehensive endorsements would have given all of these coverages, the title company would not have issued the endorsement. It was a case of “one size does not fit all” – as applied to title insurance. ALTA decided to separate the coverages into separate endorsements, so that a policy can provide the coverages a title company determines are appropriate for the particular property. This way, an insured party can get some of the insurance found in the old ALTA 9 endorsements even if it cannot obtain all of that insurance.

Different Versions of the Revised Endorsements for Owners and Lenders

As with the prior versions of the endorsements, there are different versions for owners and lenders. ALTA also continued the practice of having endorsements for improved property and vacant property.

The new endorsements go one step further, as there are now versions for land under development, so that if the parties provide detailed architectural plans, a title insurer may be willing to provide coverage that says “if you build in accordance with these specific plans, we take the risk that your future improvements will not violate the existing building restrictions, setback lines, or zoning ordinances, and take the risk that your future improvements will not be damaged by use of the surface of your land for the extraction of minerals.” The Land Under Development endorsements are separated into different categories, so the buyer and lender may be able to procure some, but not all, of this insurance for the construction project.

Buyers and Lenders – What You Need to Know

As the buyer or lender, you will need to review your project to decide which of these endorsements you think are important for you, and then work with your title agent to find out whether they are available in your title policy and what the title insurance premium is for each endorsement, so that you can decide whether the cost of the insurance is appropriate for your project budget. Here are brief descriptions of the various endorsements, but keep in mind that there are details and limitations in each endorsement that you should review carefully when deciding whether an endorsement is appropriate for you.

Owners – Revised Endorsements

“ALTA 9.1 Covenants, Conditions and Restrictions – Unimproved Land” for insurance that there are no unlisted existing violations of existing restrictions and that there are no unlisted recorded notices of environmental violations before you begin construction.

“ALTA 9.2 Covenants, Conditions and Restrictions – Improved Land” for insurance (i) that there are no unlisted existing violations of existing restrictions and that there are no unlisted recorded notices of environmental violations, and (ii) against forced removal of an existing improvement because it violates an existing setback line.

“ALTA 9.8 Covenants, Conditions and Restrictions –Land Under Development” for insurance (i) that there are no unlisted existing violations of existing restrictions and that future improvements (built in accordance with identified building plans) will not violate the existing restrictions, (ii) that there are no unlisted recorded notices of environmental violations, and (iii) against forced removal of an existing or future improvement (built in accordance with identified building plans) because it violates an existing setback line.

“ALTA 9.9 Private Rights” for insurance in the event that enforcement by someone of an existing right of first refusal or option to purchase causes a loss of your title to the property.

“ALTA 28.1 Encroachments – Boundaries and Easements” for insurance against forced removal of any improvement that encroaches onto a servitude or easement if the party exercising the servitude demands the removal, or forced removal of any improvement from the insured property onto adjoining property.

“ALTA 28.2 Encroachments – Boundaries and Easements – Described Improvements” for insurance against forced removal of a specifically listed existing improvement that encroaches onto a servitude or easement if the party exercising the servitude demands the removal, or forced removal of a specifically listed existing improvement from the insured property onto adjoining property.

“ALTA 35 Minerals and Other Subsurface Substances – Buildings” for insurance against forced removal or alteration of any existing building if a third party forces the removal when exercising an existing right to use the surface of the land for the extraction or development of minerals.

“ALTA 35.1 Minerals and Other Subsurface Substances – Improvements” for insurance against forced removal or alteration of any existing improvement if a third party forces the removal when exercising an existing right to use the surface of the land for the extraction or development of minerals.

“ALTA 35.2 Minerals and Other Subsurface Substances – Described Improvements”for insurance against forced removal or alteration of a specifically listed existing improvement if a third party forces the removal when exercising an existing right to use the surface of the land for the extraction or development of minerals.

“ALTA 35.3 Minerals and Other Subsurface Substances – Land Under Development”for insurance against forced removal or alteration of a an existing or future improvement (built in accordance with identified building plans) if a third party forces the removal when exercising an existing right to use the surface of the land for the extraction or development of minerals.

Lenders – Revised Endorsements

“ALTA 9 Restrictions, Encroachments, Minerals” for insurance: (i) in the event the lender suffers a loss of the insured mortgage rights, unenforceability of the insured mortgage rights, or loss of ownership of the property after foreclosure of the insured mortgage, if the loss is caused by violations of existing restrictions, (ii) that there are no unlisted existing violations of existing restrictions, (iii) against forced removal of an existing improvement because it violates an existing setback line, (iv) that there are no unlisted recorded notices of environmental violations, (v) that there are no unlisted encroachments onto the servitudes or easements affecting the property or onto adjoining land, (vi) against forced removal of an existing improvement onto adjoining property or onto an existing servitude or easement affecting the insured property, (vii) against damage to an existing improvement that encroaches onto an existing servitude or easement affecting the insured property if the party exercising its servitude rights damages the improvement, and (viii) against damage to an existing improvement caused by a third party using an existing right to use the surface of the land for the extraction of minerals.

Note: This is very similar to the prior version of the ALTA 9 for the lender, as it includes the encroachments and minerals coverages. It is used for either improved or unimproved property, but does not apply to future improvements. The title company will issue this new ALTA 9 only if they are sure there are no real risks involving encroachments and mineral rights. Otherwise, they will use the separate endorsements for the different categories of insurance, and determine which coverages they are able to issue.

“ALTA 9.3 Covenants, Conditions and Restrictions” for insurance (i) in the event the lender suffers a loss of the insured mortgage rights, unenforceability of the insured mortgage rights, or loss of ownership of the property after foreclosure of the insured mortgage, if the loss is caused by violations of existing restrictions, (ii) that there are no unlisted existing violations of existing restrictions, (iii) against forced removal of an existing improvement because it violates an existing setback line [like the new ALTA 9, the ALTA9.3 is used for improved or unimproved property, but does not apply to future improvements], and (iv) that there are no unlisted recorded notices of environmental violations.

“ALTA 9.6 Private Rights” for insurance in the event that enforcement by someone of an existing right of first refusal or option to purchase results in the unenforceability or lack of priority of the insured mortgage, or causes a loss of ownership of the property following foreclosure of the insured mortgage.

“ALTA 9.7 Covenants, Conditions and Restrictions –Land Under Development” for insurance (i) in the event the lender suffers a loss of the insured mortgage rights, unenforceability of the insured mortgage rights, or loss of ownership of the property after foreclosure of the insured mortgage, if the loss is caused by violations of existing restrictions, (ii) that there are no unlisted existing violations of existing restrictions and that future improvements (built in accordance with identified building plans) will not violate the existing restrictions, (iii) against forced removal of an existing or future improvement (built in accordance with identified building plans) because it violates an existing setback line, (iv) that there are no unlisted recorded notices of environmental violations, (v) that there are no unlisted encroachments by existing improvements onto the servitudes and easements and that future improvements (built in accordance with identified building plans) will not encroach onto the servitudes and easements; (vi) that there are no unlisted encroachments by existing improvements onto adjoining land and that future improvements (built in accordance with identified building plans) will not encroach onto adjoining land; (vii) against damage to an existing improvement or to a future improvement (built in accordance with identified building plans) that encroaches onto an existing servitude or easement affecting the insured property if the party exercising its servitude rights damages the improvement, and (viii) against damage to an existing improvement or to a future improvement (built in accordance with identified building plans) caused by a third party using an existing right to use the surface of the land for the extraction of minerals.

Title companies will also issue the following endorsements in a lender’s policy, described above in the owner’s policy section:

• “ALTA 28.1 Encroachments – Boundaries and Easements”
• “ALTA 28.2 Encroachments – Boundaries and Easements – Described Improvements”
• “ALTA 35 Minerals and Other Subsurface Substances – Buildings”
• “ALTA 35.1 Minerals and Other Subsurface Substances – Improvements”
• “ALTA 35.2 Minerals and Other Subsurface Substances – Described Improvements”
• “ALTA 35.3 Minerals and Other Subsurface Substances – Land Under Development”