When a property’s title flaws cause the mortgage lender to suffer financial loss, title insurance shields them. The American Land Title Association (ALTA), which oversees the title insurance business nationwide, issues regular title insurance policies and specific endorsements that broaden coverage and safeguard the lender’s interest when specific title concerns affect real estate.
There are specific title insurance endorsements based on the risks associated with a property to ensure that transactions are adequately covered. Here are some common 2006 ALTA Loan policy endorsements recommended to lenders to acquire in mortgage loan transactions.
- ALTA 3 (Zoning Endorsements): Zoning endorsements offer the property’s zoning designation coverage. They are advised when the property’s intended use will change or when its intended use is in doubt.
- ALTA 4 (Condominium Endorsements) & ALTA 5 (Planned Unit Development Endorsements): These offer protection if a unit and its shared spaces aren’t regarded as secured collateral. They also provide coverage for violations of recent restrictive covenants. For example, when a lender wishes to make sure that a unit and its common components are taxed separately, has worries about common element encroachment, or wants protection from a right of first refusal that would have been invoked at the policy date, condominium endorsements are considered.
- ALTA 6 (Variable Rate Mortgage Endorsements): These offer the lender protection against the insured mortgage’s invalidity, unenforceability, or loss of lien priority. These risks arise when the interest rate changes, when interest is paid on interest, or when the loan’s unpaid principal balance rises due to the addition of unpaid interest following a clause in the insured mortgage.
To read more on several other types of policy endorsements recommended for lenders, click here.
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