Lenders should understand the common title policy endorsements to the industry-standard 2006 ALTA Loan Policy.

Title insurance protects mortgage lenders when defects in a title to a property result in financial loss to the lender.

The 2006 ALTA Loan Policy (2006 ALTA) is considered the standard title insurance policy available for mortgage lenders. The title policy alone is rarely adequate for most real estate transactions. It almost always needs to be expanded through specific title insurance endorsements based on the specific risks related to the property in the loan transaction.

Below is a list of some of the more common title policy endorsements to the 2006 ALTA that mortgage lender clients are generally recommended to obtain.

ALTA 3 Zoning Endorsements
Commonly referred to as the “zoning” endorsement, ALTA 3 provides coverage related to the zoning classification of the property. This endorsement is recommended when the use of the property will be changed or the current use of the property is in question. The specific zoning endorsement that is applicable depends on whether the land is improved, unimproved, or under development.

ALTA 6 Variable Rate Mortgage Endorsements
The types of risks covered under ALTA 6 occur when there are changes in the rate of interest or the interest on interest, or the unpaid principal balance of the loan increases due to the addition of unpaid interest pursuant to a provision under the insured mortgage. ALTA 6 endorsements should be considered:

• When loan programs contain periodic limits or caps on monthly payment increases on the loan.
• To cover any negative amortization aspects of the loan.
• To protect against a loss of priority resulting from a change in interest rate.
• When “interest on interest” is legal in the relevant state.

ALTA 8 Environmental Protection Lien Endorsements
These endorsements provide coverage against the risk of loss or damage resulting from any recorded environmental lien that is not otherwise shown as an exception to title policy. There is a specific endorsement for residential real estate (8.1-06) and one for commercial real estate (8.2-06). This endorsement is very inexpensive and is generally customary to order for all loan transactions.

ALTA 9 Restrictions, Encroachments, and Minerals Endorsements
ALTA 9 is an endorsement that provides coverage for unrecorded covenants, notices, encroachments, or setbacks at the property.

ALTA 10 Assignment Endorsements
ALTA 10 endorsements insure against loss that results when the assignment fails to vest title to any buyer of the loan. These endorsements should be considered when the loan is assigned to a new lender, or when the loan is assumed to confirm that the new party becomes insured under the title policy.

ALTA 11 Mortgage Modification Endorsements
ALTA 11 endorsements are issued when the parties agree to modify a mortgage after origination. These endorsements insure against loss resulting from the terms of a modification agreement rendering a mortgage invalid or unenforceable.

These endorsements also confirm the priority of a modified mortgage and its continuance over any defects, liens, or encumbrances on the title existing at the date of endorsement, including over any liens subordinated at the time of the modification.

ALTA 14 Future Advance Endorsements
ALTA 14 endorsements insure the validity, enforceability, and priority of a mortgage as security for future advances of principal. “Advance” is broadly defined as an advance of principal made after the date of the policy, and it includes protective advances.

These endorsements should be considered when the loan is a revolving line of credit, there are future advances that are obligated under the terms of the loan, or it is highly likely that a lender may need to make protective advances to mitigate a borrower’s failure to pay taxes or keep insurance current.

ALTA 17 Access and Entry Endorsements
ALTA 17 endorsements insure against loss or damage if, as of the date of the policy:

• The land does not provide actual vehicular and pedestrian access to and from a public street, road, or highway (the “Street”),
• The Street is not physically open and publicly maintained, and
• The insured has no right to use existing curb cuts or entries along the Street.

These endorsements should be considered when there is concern about access to the property, or when easements that grant access to the property exist.

ALTA 22 Location Endorsements
When reviewing a title policy, lenders are often surprised the property address is not identified in the policy, only its legal description, which generally bears no resemblance to the street address of the property.

These endorsements insure against loss or damage due to a street address not located on the property, or if the map included with the policy is inaccurate as to the dimensions or location of the property.

These endorsements should be considered when there is confusion about the street address of the subject property, a street address was recently issued, or there is vacant land. This generally arises when there is a discrepancy with a United States postal search for the property or if the title report address conflicts with other information provided during underwriting, such as an appraisal.

ALTA 25 Same as Survey Endorsements
ALTA 25 endorsements provide coverage for loss or damage due to a difference in the land insured in the policy and the land described in a survey. These endorsements should be considered when there are concerns about the makeup of the subject property or there is vacant land. Generally, the lender will be required to obtain an ALTA survey of the property to obtain this endorsement.

ALTA 26 Subdivision Endorsement
The ALTA 26 endorsement should be considered when the land is located in a state or local jurisdiction that limits the ways in which property can be legally subdivided. This endorsement insures the land identified in the policy is separate and lawfully created under the applicable state and local laws.

ALTA 27 Usury Endorsement
The ALTA 27 endorsement covers against loss or damage resulting from the insured mortgage becoming invalid or unenforceable due to the underlying loan violating the usury law of the state where the property is located. Factors that should be considered include high interest rate loans, the type of property securing the loan, whether the state where the property is located has a low usury cap, and the applicable governing laws.

This endorsement is not applicable in the following states: Texas, Idaho, Kansas, Missouri, New Mexico, New York, Pennsylvania, and Florida.

ALTA 32/33 Construction Loan Endorsements
These endorsements are intended for loan policies related to loans with construction loan advances. These endorsements help prevent a lender from losing lien priority when making construction advances to ensure those later advances are not considered junior priority to other junior liens and/or mechanic lien claimants.

While only one endorsement is issued from the ALTA 32 Series, a new ALTA 33 endorsement is issued with every advance of construction funds. It is recommended to forecast how many advances will be required under the loan and order the 33 endorsements in bulk to reduce ongoing costs as the loan funds are distributed.

ALTA 4 Condominium Endorsements
These endorsements provide coverage when a unit and its common areas fail to be considered part of the secured collateral. These endorsements also insure against current restrictive covenant violations.

The condominium endorsements should be considered when a lender:

• Wants to confirm that a unit and its common elements are separately assessed for taxes.
• Has concerns regarding encroachments of common elements.
• Wants protection against a right of first refusal that could have been exercised at the date of the policy.

ALTA 5 Planned Unit Development “PUD” Endorsements
These endorsements provide insurance against present violations of restrictive covenants. The PUD endorsements should be considered when a lender:

• Wants to confirm that a unit and its common elements are separately assessed for taxes.
• Has concerns regarding encroachments of common elements
• Wants protection against a right of first refusal that could have been exercised at the date of the policy.

The is not an exhaustive list of all endorsements available to a title policy. Mortgage lenders would be wise to work with counsel in all their transactions to make sure they are adequately mitigating risks.