The standard coverage policy of the American Land Title Association (ALTA) typically only relates to issues that can be discovered by carrying out a public records search. The standard ALTA policy guarantees protection in situations such as where the grantor of the loan cannot complete the transaction, improper record of conveyance instrument, instances of forgery, fraud, incompetency, or misrepresentation concerning the transaction.

As much as the standard ALTA loan policy has several significant coverages for the lender, most lenders still have a massive reservation with the mechanic’s lien exception, which is not shown by the public record and, as such, not covered by the standard ALTA policy. This prompts the majority of lenders to get an ALTA Extended Title Policy to cover for the mechanic’s lien exception.

ALTA policies are typically used in transactions where the parties are willing to take on more risk to save money; this is a scenario that frequently occurs in small transactions, related-party transactions, transactions that do not use institutional lenders, land trusts, or conservation projects with no plans for improvements.

By eliminating most of the Western Regional Exceptions that constrain the ALTA policy, the ALTA Extended policy merely expands the scope of the regular coverage policy to accommodate some situations that are not specified in the public records. A cautious lender will always demand a 2006 ALTA Extended policy without Western Regional Exceptions. However, suppose a title company asks the lender to take ALTA insurance with Western Regional Exceptions. In that case, the lender must now accept countless additional unknown risks that a wise lender would reject.

To read more about the ALTA extended title policy and the benefits to a private lender, click here.

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