by Kevin Hays
The purpose of this article is to provide the general practitioner with an introductory working knowledge of the most commonly used title insurance endorsements, and the reasons why these endorsements are necessary.
Exclusions can be found in the policy jacket of any title policy, explaining which items will not be insured in the policy, including (a) physical condition of the land; (b) building and zoning ordinances, (c) condemnation, (d) title issues caused by fraud or items not disclosed by the Insured, and (e) title issues resulting in no actual loss.
Exceptions will be found in Schedule B of the policy, and include items not to be covered in the policy, unless specifically covered by an Endorsement. The standard exceptions are (a) covenants, deed restrictions and survey exceptions, (b) riparian rights, (c) tax exception, including rollback taxes, (d) mechanic’s liens, (e) exceptions for leases and subordinate liens, (f) rights of parties in possession, (g) easements and encroachments (if no survey), and (h) mineral rights. It is important to understand that an insured may not add an endorsement to a policy granting coverage for an item unless it has already been “excepted” in Schedule B.
Endorsements are attached to the title policy when it is the insurer’s intention to alter or modify the provisions of a policy so that the insured receives greater coverage than existed under the non-endorsed policy. Some endorsements include a nominal fee, others require a fee that is a percentage of the basic rate premium for the policy, and some are free of charge. Each title endorsement is signified by the letter “T” (for Texas endorsement) and the number which corresponds to the specific endorsement.
One of the most commonly used endorsements is the T-19 Endorsement. This is referred to as the “REM” endorsement (Restrictions, Encroachments and Minerals) and may be used for residential or non-residential property. It insures the lender (T-19) or the property owner (T-19.1) against loss by reason of present or future violations of any covenants, conditions and restrictions. The charge for a T-19 Endorsement is 5 percent of the basic rate for residential policies and 10 percent for non-residential properties. If a practitioner is working with out-of-state attorneys, the ALTA (American Land Title Association) counterpart is the ALTA 9.1. There are variations of the T-19 that may be used in certain circumstances (T-19.2, T-19.3), but the discussion of these is beyond the scope of this article.
The T-27 (Assignment of Rents and Leases) Endorsement is found on the Lender’s policy and is only available on non-residential property. It covers defects in the execution of the Assignment document, as well as prior assignments of record that are not specifically excepted in Schedule B. There is no charge for the T-27 endorsement, so commercial real estate practitioners representing lenders should be requesting this endorsement on every transaction. The ALTA counterpart to the T-27 is ALTA 37.
The T-36 (Environmental Lien) Endorsement is issued with a Loan Policy, and it insures the validity of the mortgage lien, and that there is no loss of priority due to certain recorded environmental liens. The premium for this endorsement is $25.00, and practitioners will see this endorsement on virtually every residential transaction closed in Texas, as well as transactions involving apartment complexes. The ALTA counterpart is ALTA 8.1.
The T-23 Access Endorsement is available on both owner and loan policies, and it adds coverage with regard to actual physical access to a street, road or highway, as opposed to a mere right of access found in the policy boilerplate. There is a $100 flat rate premium for the T-23, and the ALTA counterpart is ALTA 17.
The T-3 Survey Deletion Endorsement allows the title company to insure the boundaries of an insured’s property, and any loss to the owner due to boundary conflicts or any loss due to encroaching improvements which are not shown on the survey. It does not insure against matters, conflicts, encroachments, etc. that are found on the survey, and may only be provided if the title company reviews and approves the survey. It protects the buyer and lender against errors made by the surveyor or claims by neighboring owners involving boundaries or encroachments. The cost for this endorsement is generally 5 percent of the base premium and will shorten the Schedule B-2 exception to read “shortages in area.”
For a more comprehensive look at title endorsements or an itemized listing of all endorsements with costs and Rate Rule references, one should contact his or her favorite title company or a local title attorney.
Kevin Hays is a partner in the law firm of Hays & Muncey, PLLC. He may be reached at email@example.com.