Title Insurance Treatment of Zoning-related Regulations and the Alta Zoning Endorsement

Publication year2001
30 Colo.Law. 89
Colorado Lawyer

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]

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

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

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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