Uniform Title Policies Aid Lenders and Consumers
In the beginning there was no uniformity of policy certificate coverage. Each title company issued its own form of policy, guarantee, or certificate. This created many problems for insureds, particularly lenders who desired the same coverage in all parts of the country and did not want to review each policy from each company to make sure the desired coverage was present.
Since the ALTA membership included most title insurers in business at the time, lenders were able to persuade the association to develop the 1929 lender policy that was responsive to their needs. Over the years an extensive array of additional forms have been developed through the association.
Presently there are six basic ALTA title insurance policies. They are Lender's, Lender's Leasehold, Owner's, Owner's Leasehold, Residential (plain language), and Construction Loan policies. Additionally, a special policy has been designed for use by the United States government in its purchases and condemnations.
Major revisions of the ALTA policy forms are made every few years, usually as a result of either a lender's request, a perceived ambiguity in existing language, or an answer to a court whose decision interpreted a policy in a different manner from that deemed proper within the title industry.
ALTA policy forms provide coverage for the usual or standard type of real estate transaction and can be used in such transactions without a need to change or addition.
However, with the development of the real estate industry, and the increasing complexity of both the conveyancing and the financing in transactions, there are situations not applicable to the ALTA forms. In an effort to help the title industry tailor the ALTA forms so they are even more useful in larger transactions, ALTA has created various endorsements or groups of endorsements for the market.
These ALTA endorsements include, but are not limited to, coverage for zoning, condominiums and planned unit developments, variable rate mortgages, residential environment liens, and special restriction, easement, and mineral problems.
In addition to its regular title policies, ALTA also created short form and master mortgage policies, which have been approved by Federal National Mortgage Association (Fannie Mae) for use in all its residential loan packages.
Although policies and endorsements have received primary attention form ALTA, other forms have been created by the association in response to title industry needs. Principally, these forms have dealt with reinsurance and protection for the insured at closing.
ALTA has developed three types of reinsurance agreements. These agreements have become the accepted agreement used in transactions requiring a spread of risk by a title insurer through the purchase of reinsurance from other insurers.
A closing protection letter has been designed to provide lenders, and in some instances owners, with safeguards against possible mistakes or defalcations by agents of the the title insurer. The closing protection letter is subject to its terms and conditions, which include requiring the recipient of the letter to order title insurance form the agent of the sender, and gives proper instructions concerning how the agent is to handle the transaction and disbursement of funds. Through the closing protection letter, the addressee is protected against damages suffered if the agent fails to follow the specific instructions of the insured for closing the transaction and against incorrect disbursements.
*Copyright ALTA (American Land Title Association)
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