2021 Changes & Additions to the Commercial Alta Policies & Endorsements

• Publication year: 2022
• Author: Written by Marion A. Aaron and Dena M. Cruz

2021 CHANGES & ADDITIONS TO THE COMMERCIAL ALTA POLICIES & ENDORSEMENTS1

Written by Marion A. Aaron^* and Dena M. Cruz^**

I. INTRODUCTION

In July 2021, ALTA's 2021 Owner's and Loan policies, ALTA's 2021 Commitment for Title Insurance, new endorsement series, and a multitude of amendments to existing endorsements became effective in California.² While the vast majority of the changes to ALTA's 2021 Owner's and Loan policies are technical changes to ALTA's 2006 policies, notable changes include: (1) the addition of an introductory paragraph validating the policy even if it is issued electronically (removing the need for the electronic issuance endorsement); (2) the addition of coverage for defects arising due to remote online notarization or repudiation of an online signature to a recorded document, including mortgages; (3) the enforcement of super-priority PACA-PSA³ liens; (4) a new definition of "State"; and (5) the right of the insured to choose the date of loss for the calculation of the amount of loss under the policies.

The new forms are intended to improve customer experience, speed up delivery of preliminary reports, proformas and policies, improve accuracy in the title exam and escrow process, and address recent legal rulings that have impacted the industry. This article summarizes many of the changes to the ALTA policies and provides a summary of key endorsements that commercial practitioners should be aware of.⁴

II. 2021 ALTA POLICIES: SUBSTANTIVE CHANGES & ADDITIONS

The 2006 policies contained numerous substantive changes that greatly improved the coverage previously provided in earlier policies. While most of the changes in the 2021 policies are technical in nature, the 2021 policies have substantive changes that counsel should be aware of. The following is a list of some of the key changes in the 2021 policies:

A. POLICY JACKET

In light of the current practice of delivering title policies electronically, the ALTA has added a statement on the policy jacket that states that: "[t]his policy, when issued by the Company with a Policy Number

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and the Date of Policy, is valid even if this policy or any endorsement to this policy is issued electronically or lacks any signature." The inclusion of this language renders the ALTA 39- 06 endorsement obsolete when a 2021 policy is issued.

B. COVERED RISKS 1. COVERED RISK 8 (OWNER'S POLICY ("OP") & LOAN POLICY ("LP"): PACA-PSA TRUSTS

New Covered Risk 8 is a welcome addition to the 2021 policies. PACA-PSA trusts create what is akin to super-priority liens that may be imposed on assets purchased or commingled with trust proceeds. PACA imposes a statutory trust on the produce sold as well as the proceeds of those sales. If certain conditions are met, PASA requires that packers who purchase livestock on a cash basis hold such livestock—including meat and other products, accounts receivable, and proceeds derived therefrom—in a trust for the unpaid cash sellers. The purpose of these super-priority statutes is not to favor growers and packers, but instead to benefit all parties and society by ensuring that growers and producers are protected and that lenders or purchasers who acquire property subject to these liens understand the risk in doing so.⁵

Subject to new Exclusion 5 (OP) or new Exclusion 7 (LP), new Covered Risk 8 protects the Insured from these types of claims, but only to the extent of an enforcement action described in an Enforcement Notice (new definition contained in Condition 1.e. (OP) & Condition 1.f. (LP)).

PRACTICE TIP: Should counsel have concerns with Exclusion 7 in the Loan Policy or Exclusion 5 in the Owner's Policy, counsel should request the insurer to issue an endorsement removing the exclusion. For instance, a company issued—Deletion of PACA-PASA Exclusion.

2. COVERED RISK 10 (LP): LACK OF PRIORITY OF THE LIEN OF THE INSURED MORTGAGE & CONDITION 1.I. (LP): DEFINITION OF INDEBTEDNESS

Where Covered Risk 10 of the 2006 ALTA Loan Policy insures against loss or damage resulting from the lack of priority of the lien of the Insured Mortgage upon the Title over any other lien or encumbrance; Covered Risk 10 in the 2021 ALTA Loan Policy has been modified to insure priority of the lien of the Insured Mortgage for certain specifically stated components of Indebtedness as that term is defined in Condition 1.i. of the 2021 ALTA Loan Policy.

Counsel should note that the components of "Indebtedness" set forth in the definition of "Indebtedness" (Condition 1.i.) in the 2021 ALTA Loan policy are more expansive than the items of "Indebtedness" for which there is coverage contained in Covered Risk 10 of the 2021 ALTA Loan Policy. Thus, if a loss falls within Covered Risk 10, counsel will need to refer to the definition of "Indebtedness" in Condition 1.i. to determine the extent of the Insurer's obligations with respect to the amount of loss the Insured has incurred.

Condition 1.i. (Definition of "Indebtedness") in the 2021 ALTA Loan Policy also differs from the definition contained in the 2006 ALTA Loan Policy in that it includes as a component of "Indebtedness," advances made for insurance premiums (Condition 1.i.(g).). The new definition also clarifies that real estate taxes and assessments imposed by a governmental taxing authority are included within advances to assure compliance with law or to protect the validity, enforceability, or priority of the lien of the Insured Mortgage only if incurred before the acquisition of the estate or interest in the Title (Condition 1.i.(h)).

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Components of Indebtedness
COVERED RISK 10	CONDITION 1 (i) Definition of Indebtedness
10. The lack of priority of the lien of the Insured Mortgage upon the Title over any other lien or encumbrance on the Title as security for the following components of the Indebtedness:	Any obligation secured by the Insured Mortgage, including an obligation evidenced by electronic means authorized by law. If that obligation is the payment of a debt, the Indebtedness is: (1) the sum of:
a. the amount of the principal disbursed as of the Date of Policy;	(a) . principal disbursed as of the Date of Policy; (b) . principal disbursed subsequent to the Date of Policy; (c) construction loan advances made subsequent to the Date of Policy for the purpose of financing, in whole or in part, the construction of an improvement to the Land or related to the Land that the Insured was and continues to be obligated to advance at the Date of Policy and at the date of the advance;
b. the interest on the obligation secured by the Insured Mortgage;	(d). interest on the loan;
(not included)	(e). prepayment premiums, exit fees, and other similar fees or penalties allowed by law;
c. the reasonable expense of foreclosure;	(f). expenses of foreclosure and any other costs of enforcement;
d. amounts advanced for insurance premiums by the Insured before the acquisition of the estate or interest in the Title; and	(g). advances for insurance premiums;
e. the following amounts advanced by the Insured before the acquisition of the estate or interest in the Title to protect the priority of the lien of the Insured Mortgage: i. real estate taxes and assessments imposed by a governmental taxing authority; and; ii. regular, periodic assessments by a property owners' association.	(h). advances to assure compliance with law or to protect the validity, enforceability, or priority of the lien of the Insured Mortgage before the acquisition of the estate or interest in the Title; including, but not limited to: (1) . real estate taxes and assessments imposed by a governmental taxing authority, and; (2) . regular, periodic assessments by a property owners' association; and
(not included)	(i). advances to prevent deterioration of improvements before the Insured's acquisition of the Title,

PRACTICE TIP: Consider requesting the insurer issue an endorsement that expands Covered Risk 10 to include all the components of "Indebtedness" set forth in Condition 1.i. (Definition of "Indebtedness"). For instance, the Amendment of Covered Risk 10 (2021 ALTA Loan Policy), issued by some insurers but not formally adopted by the ALTA. Counsel should also consider whether it needs coverage for future advances of principal, variable interest rates, or interest on interest (e.g., ALTA 14 Series).

3. COVERED RISK 9 (OP) & COVERED RISK 13 (LP): CREDITORS' RIGHTS/ COURT-ORDERED ALTERNATIVE REMEDIES

In addition to other non-substantive changes to the provision, Covered Risk 9 (OP) & Covered Risk 13 (LP) in the 2021 policies insure against loss or damage caused by the "invalidity, unenforceability, lack of priority, or avoidance of the lien of the Insured Mortgage upon the Title, or the effect of a court order providing an alternative remedy." The 2006 policies only insure against avoidance of the Title or an interest in the Land because of a court order providing an alternative remedy.

C. EXCLUSIONS FROM COVERAGE 1. EXCLUSION 5 (LP): USURY/ CONSUMER PROTECTION LAWS

Exclusion 5 in the 2021 ALTA Loan Policy deletes the phrase "or any consumer credit protection or truth-in-lending law" and replaces it with new defined term "Consumer Protection Law." The new definition, contained in Condition 1.c., arguably expands Exclusion 5 to include claims not technically defined as a "consumer credit protection law" or a "truth-in-lending law." The new definition includes any loss or damages resulting from "[a]ny law regulating trade, lending, credit, sale, and debt collection practices involving consumers; any consumer financial law; or any other law relating to truth-in-lending, predatory lending, or a borrower's ability to repay a loan." The expansion of this exclusion makes clear that the title industry is not underwriting or insuring the lender's compliance with any state laws designed to prevent abusive lending practices.

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2. EXCLUSION 7 (OP) & EXCLUSION 9 (LP): DISCREPANCIES IN THE INSURED LAND

Maps attached to...