There are aspects of Title insurance that are distinct from many other lines of insurance- among them the need to pay a premium only once. Other distinguishable aspects include the length of time coverage is afforded and to whom it can extend – which just might surprise you.
Duration of Coverage
As per the terms of the ALTA 2006 Policy, the coverage of the policy shall continue in full force from the effective date of the policy as long as certain conditions are met. These conditions are distinct based on whether the insured is an owner or a lender.
In the case of an Owner, as long as that Insured Owner retains an interest in the land coverage continues, or in the case of a sale if the Insured Owner has liability by reason of warranties in any transfer or conveyance of title. Plain English- if land is conveyed by Warranty Deed the Insured Seller retains coverage in perpetuity as of the effective date of the policy. Please note that coverage under the policy is not extended to the new purchaser. They must purchase their own policy. Arguably, for this reason, a Quit Claim Deed voids any prior title insurance coverage.
In the case of a Lender, the Insured Lender’s coverage survives foreclosure. Coverage in this scenario extends to after acquisition of the Title by the Insured Lender, or after conveyance by the Insured Lender as long as the Insured Lender retains an estate or interest in the Land or holds an obligation secured by a purchase money mortgage, or if there is liability as a result of the property being conveyed by a Warranty Deed. Coverage is not extended to a subsequent purchaser of the Insured Lender’s interest, or a loan given by the Insured Lender to a subsequent purchaser.
Extensions of Coverage
The identity of the Insured under the policy is set forth in Schedule A of the policy. The definition of an “Insured” in the ALTA 2006 Policy extends coverage beyond the initial Insured in certain circumstances.
Some common scenarios that extend coverage beyond the initial Insured Owner are death, changes in entity status and in certain cases, conveyances into an entity or a trust with no consideration. Some common scenarios are set forth below.
1.) If an Insured Owner dies, does coverage extend to those inheriting the property?
Yes, the policy defines an insured as a successor to the Title of the Insured by operation of law, including heirs, devisees, survivors, personal representatives, or next of kin. However, subsequent purchasers are not insured.
2.) If an entity is the Insured Owner, will coverage continue if there is a modification in existence or corporate structure?
Yes, the policy defines an insured as a successor by Dissolution, Merger, Consolidation, Distribution, Reorganization or Conversion to another entity.
3.) If an Insured Owner conveys property into a Trust, will coverage be extended?
Yes- provided there is no consideration given and that the transfer is for estate planning purposes, coverage will be extended.
4.) If an Insured Owner conveys property to their entity, will coverage continue?
Yes, as long as no consideration is given and one of the following criteria is met:
- The stock, shares, memberships, or other equity interests of the grantee are wholly-owned by the named insured;
- The Grantee wholly owns the named insured; or
- The Grantee is wholly owned by an affiliated entity of the named insured, provided that the Grantee and Insured are owned by the same person(s) or entity.
As with the Insured Owner, there are some common scenarios that extend coverage beyond the initial Insured Lender. Some of these scenarios are set forth below.
1.) If an Insured Lender assigns the loan, is the assignee covered by the policy?
Yes, the policy states that the owner of the Indebtedness and each successor in ownership of the Indebtedness is considered an Insured.
2.) Will coverage continue if there is a modification in the Insured Lender’s existence or corporate structure?
Yes, as per the policy, any successors to the Insured Lender by dissolution, merger, consolidation, distribution, or reorganization, will continue to be covered. Also covered are successors to the Insured Lender by its conversion to another type of entity.
3.) Under what circumstances is coverage extended to the grantee of a deed by the Insured Lender?
Coverage is not extended to a grantee who is a bona fide purchaser for value. However, certain conveyances by the lender will extended coverage to the grantee, if the deed is delivered without consideration, and if one of the following circumstances exist:
- If the stock, shares, memberships, or other equity interests of the grantee are wholly-owned by the named Insured;
- If the Grantee wholly owns the named insured; or
- If the Grantee is wholly-owned by an affiliated Entity of the named Insured, provided the affiliated Entity and the named Insured are both wholly-owned by the same person or Entity.
If there is a change in the ownership of an insured property, it is recommended that you contact your title insurance provider. As in many instances, we likely have an endorsement to the policy to insure that the change is indeed covered under the policy.
About the Author:
Barb Dohmen is a Commercial Underwriter in TitleCore National’s Omaha office. Barb is a licensed attorney in Nebraska, as well as a Nebraska Title Insurance Producer. She graduated from Creighton University School of Law in 2015 with a J.D. and an M.S. in Government Organization and Leadership. Barb’s organizational involvement includes the following: Member of the Real Estate Practice Guidelines Section of the Nebraska State Bar Association, where she recently assisted with revision of the Nebraska Title Standards; Nebraska Land Title Association Legislative Committee Member; CREW Omaha Metro Member; Chapter Life Advisor for Alpha Xi Delta at UNO; and completion of a Certificate in Professional and Career Development from the Nebraska Business Development Center at UNO. Barb enjoys spending time with her daughter, Isabelle, and enjoys being active and exploring Omaha in her free time.