Title Insurance Treatment of Zoning-related Regulations and the Alta Zoning Endorsement
Publication year | 2001 |
Pages | 89 |
2001, June, Pg. 89. Title Insurance Treatment of Zoning-Related Regulations and the ALTA Zoning Endorsement
Vol. 30, No. 6, Pg. 89
The Colorado Lawyer
June 2001
Vol. 30, No. 6 [Page 89]
June 2001
Vol. 30, No. 6 [Page 89]
Specialty Law Columns
Real Estate Law Newsletter
Title Insurance Treatment of Zoning-Related Regulations and the ALTA Zoning Endorsement
by Beverly J. Quail, Gwendolyn C. Allen
Real Estate Law Newsletter
Title Insurance Treatment of Zoning-Related Regulations and the ALTA Zoning Endorsement
by Beverly J. Quail, Gwendolyn C. Allen
Risks relating to zoning and other land use regulations
generally are not considered encumbrances or defects on
title. Thus, they are not within the risks covered by title
insurance policies. Further, the standard American Land Title
Association ("ALTA") Title Insurance Policy, the
form of policy generally used in Colorado, expressly excludes
coverage for loss caused by laws, ordinances, or governmental
regulations affecting land use (see appendices).1 Despite
this exclusion, an insured may obtain some degree of
protection for such a loss by purchasing the standard zoning
endorsement for either raw or improved land. However, this
expensive endorsement, which costs approximately 25 percent
of the schedule or basic rate in Colorado, may not afford the
protection expected by most purchasers of such endorsements
This article outlines some of the problems inherent in the
title insurance treatment of zoning and zoning-related
matters, including limitations of the standard zoning
endorsement
The Scope of Coverage
Courts considering the scope of title insurance coverage
generally hold that zoning and zoning-related matters are not
risks within the coverage afforded by title insurance, even
in the absence of an express exclusion for losses relating to
such matters. Title companies argue, and courts generally
agree, that zoning and land use regulations do not create
encumbrances on or defects in title.2 Therefore, they do not
come within the risks covered by title insurance
Courts often point to the distinction between restrictions on
title, which affect marketability of title and are covered by
title insurance, and restrictions on use of the land, which
affect economic marketability and are not covered. The key
difference between the two restrictions appears to be whether
the restriction relates to defects affecting the legally
recognized rights and incidents of ownership or to conditions
affecting the use of the land.3 Courts do not consider land
use regulations to be title matters. An owner or lender
insured by an ALTA Title Policy generally has no right to
coverage relating to the value of the property, the manner in
which it can be used, permit requirements, zoning compliance,
or other land use matters.4
Zoning is Excluded
From Coverage
From Coverage
Out of concern that insureds were making claims against title
companies based on zoning matters, an express exclusion was
developed and added to the ALTA policies to make it clear
that such matters are not covered by title insurance. Thus,
even if it is determined that the insured's land use
matter is a risk that generally should be covered by title
insurance, the insured faces a broadly worded and
consistently enforced exclusion. The standard title insurance
policy excludes all loss or damage arising by reason of law,
ordinance, or regulation that relates to:
(i) the occupancy, use, or enjoyment of the land; (ii) the
character, dimensions or location of any improvement now or
hereafter erected on the land; (iii) a separation in
ownership or a change in the dimensions or area of the land
or any parcel of which the land is or was a part; or (iv)
environmental protection, or the effect of any violation of
these laws, ordinances or governmental regulations, except to
the extent that a notice of the enforcement thereof or a
notice of a defect, lien or encumbrance resulting from a
violation or alleged violation affecting the land has been
recorded in the public records at Date of Policy.5
The standard title insurance policy also excludes loss
arising from any governmental police power that is not
excluded by the above. However, the police power exclusion
does not apply when there is notice of the exercise of police
power or notice of a defect, lien, or encumbrance resulting
from a violation or alleged violation affecting the land.
This is true provided that the notice has been recorded in
the public records as of the date of the policy.6
Although case law interpreting this exclusion is limited
several cases have applied the zoning or police powers
exclusion referenced above. For example, under Aldrich v.
Hawrylo, unrecorded setback requirements fall within the
exclusion.7 Thus, title insurers will not be held liable for
damages resulting from improvements being built in violation
of unrecorded regulations dictating the distance improvements
must be set back from property lines. Likewise, an unrecorded
notice of housing code violations falls within the
exclusion.8 Violations of subdivision regulations also are
excluded from coverage,...
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