The real estate title is one of the most important factors of a real estate transaction. A title is a legal document identifying who owns a specific property. After a seller accepts an offer from a buyer, the title company will perform a title search. A title search involves a thorough search of public records to verify the legal owner of the property and ensure that there are no existing claims against the property that could prevent a sale. While this sounds fairly simple, it can be complex if a search reveals an issue with the title. This is where title insurance and title endorsements come in.
When to Get Title Insurance
Lenders almost always require the buyer to purchase title insurance in a mortgage agreement. Typically, the buyer must purchase a title insurance policy, which protects the lender should an issue arise with a property’s title. It is also recommended that the buyer purchase an owner’s title insurance policy. This will protect the property owner from problems regarding liens, fraud, easements and recording errors that can decrease a property’s value.
What to Know About Title Endorsements
Once the buyer and seller agree on a purchase and secure a title insurance policy, the title company will consider adding title endorsements. Title endorsements are purchased to customize the title insurance policy to better fit the needs of the lenders and property owners in a specific transaction. Title endorsements work by modifying the existing title insurance policy by adding or limiting coverage. There are around 100 different types of title endorsements available for both lenders and buyers, and many lenders require the buyer to purchase specific title endorsements. The cost of a title endorsement can vary from state to state, but the average minimum per policy is around $25.
Below are seven commonly purchased title endorsements:
1. ALTA 3 Zoning Endorsements
ALTA 3 endorsements provide coverage against losses that occur due to a change in the zoning status of a property. Purchasing an ALTA 3 endorsement is recommended if a property may change uses or if the current use of the property is not certain. Different zoning title endorsements are available for land that is improved, unimproved, or under development.
2. ALTA 6 Variable Rate Mortgage Endorsements
This type of title endorsement is issued against the loan policy and protects the lender against variable interest rates. This type of endorsement ensures the lender is covered against any losses that occur due to the invalidity, unenforceability, or loss of priority of the lien of the Insured Mortgage caused by the Insured Mortgage allowing for a variable interest rate.
3. ALTA 8 Environmental Protection Lien Endorsements
ALTA 8 endorsements cover the risk of loss or damage that is a result of a recorded environmental lien. There are different types of ALTA 8 endorsements for residential and commercial properties. This is a common type of title endorsement for all loan transactions and is generally inexpensive.
4. ALTA 9 Restrictions, Encroachments and Minerals Endorsements
These endorsements are popular because they allow a title company to insure the lender against loss or damage that is a result of violations to the deed restrictions, encroachments, or set back lines. This ensures the lender that the property owner hasn’t made any illegal changes.
5. ALTA 11 Mortgage Modification Endorsements
An ALTA 11 title endorsement is issued when the involved parties agree to modify an original mortgage. This insures against a mortgage being rendered invalid or unenforceable due to the terms of a modification agreement. ALTA 11 title endorsements also ensure the priority of a modified mortgage.
6. ALTA 17 Access and Entry Endorsements
Access and Entry title endorsements insure against loss or damage that occurs because the land doesn’t have access for vehicles or pedestrians via a public street, road, or highway; there is a street, but it isn’t open or publicly maintained; or if the insured doesn’t have the right to use existing curb cuts or entries that are nearby. We recommend an ALTA 17 endorsement if there might be trouble accessing the purchased property or if there are easements that grant access to the property.
7. ALTA 28 Damage or Enforced Removal Endorsements
These endorsements protect against damages, enforced removal, or alteration of existing buildings due to the exercise of use or maintenance rights associated with property easements. ALTA 28 endorsements are intended for use on both improved residential and improved commercial properties.
These are only a few of the many title endorsements available to protect lenders and buyers against issues that could arise with a property title. Whether you are purchasing or financing a property, it is important to understand how title endorsements function and to work with a title professional who can help you determine which endorsements to use with your specific purchase.
Landmark Title Assurance Agency has a team of experienced and knowledgeable title professionals that are available to answer questions and help successfully navigate the complex transaction process. If you have questions about title endorsements and which ones are right for your situation, contact us to speak to one of our team members and learn more about Landmark Title and our services.