Did you hear the one about the new ALTA Forms?
If you’re in real estate, you’ve purchased title insurance. As the insured under the title policy, you might like to know the American Land Title Association (ALTA) approved new forms of Commitment, Owner’s Policy and Loan Policy that were effective July 1, 2021. Due to the time necessary among all the title insurers and states to adopt these forms (and load them into software and production systems), real implementation took place through 2022. These have been in discussion for a number of years and represent the first wholesale update in 15 years.
If you’re a real estate and title nerd this is like Christmas! But seriously, these policies don’t just churn themselves out. The ALTA Forms Committee has literally worked for years on the language. If there’s one thing I know as a lawyer, it is this: words have meaning. The words of title insurance policies mean something. Every single word was chosen intentionally and after vigorous debate as to its effect on coverages. And this effort was not just among title insiders; mortgage bankers, real estate lawyers, industry partners and associations all had a part to play in arriving at the language in the 2021 forms. Drafting them was not a unilateral decision.
The changes encompass several things: aligning the updated language of the 2016 Commitment to the Policy Forms, moving some exceptions that became commonplace to the jacket as Exclusions, punctuation and grammatical refinements, amendments based on how courts have treated the prior policy language and some fresh coverages and exclusions for both the insured and insurer. Overwhelmingly, the changes are improvements to coverage for the insured. Below are some of the highlights.
The ALTA 39 Electronic Policy/Signature endorsement will become obsolete. The coverages of that endorsement are now included in the Policy Jacket, which should result in one less page for final policies. Electronic issuance (without paper) became commonplace since the last forms were published in 2006. The policies now even state a lack of signature won’t void the coverage (subject, of course, to any state requirement for the same).
The Perishable Agricultural Commodities Act (PACA) exception won’t be a fight anymore. The 7/1/2021 ALTA Policies treat this both as a Covered Risk and an Exception. It’s covered to the extent there is a recorded PACA/PASA (Packers and Stockyard Act) lien, and the policy does not accept that recorded lien. It’s excluded to the extent it is a standard PACA/PASA lien and not recorded outside the federal statute creating the inchoate lien. In other words, the insurer has no liability for PACA/PASA Trust liens unless there is actually a recorded document evidencing the lien. In that case, the insurer will specifically accept the matter. If it gets missed and there is a loss, that will fall on the insurer to resolve.
A new twist on the defined term “insured” will allow coverage under the Owner’s Policy to continue when the land is conveyed to an affiliate, even when money changes hands. Under the 2006 Owner’s Policy definition, the coverage would only continue if there was no consideration paid. This is a benefit to Insureds and one less technicality to haggle over. So, if the affiliate entity receiving the land is a parent, sibling, or child of the grantor entity, it’s covered.
Remote Online Notarization (RON) made it into the new policies just under the wire. This is now part of the Covered Risk 2(a) just as traditional in-person notarization is. RON has become ubiquitous (almost) especially after COVID-19 lockdowns started.
A new defined term is introduced: “Enforcement Notice.” This is a document affecting the Title, recorded in the Public Records at Date of Policy that describes any part of the Land and identifies a violation or enforcement of a law, ordinance, permit or governmental regulation, exercise of a power or enforcement of a PACA-PSA Trust. Basically, it is a lien but governmental in nature. This terminology appears throughout the new policies.
The Loan Policy’s Covered Risk 10 adds a lot of language to basically clarify and confirm for lenders that the coverage is for certain enumerated components of the Indebted- ness (another defined term that experienced a lot of updates).
Perhaps your favorite and mine — Covered Risk 11 on Mechanics Liens — confirms that the coverage relates to services and equipment in addition to labor and materials. This is consistent with the ALTA 32 coverages. There are no other fun tweaks to mechanic’s lien coverage this time around (except that it is still one of the most difficult coverages for title insurers to underwrite).
Because the Uniform Voidable Transactions Act refers to a “voidable transfer” instead of “fraudulent transfer,” those terms are refreshed throughout the 2021 forms.
Have you ever seen an exception to a legal description that recites acreage? Probably so. Not anymore! Exclusion 9 of the Loan Policy and Exclusion 7 of the Owner’s Policy exclude liability for the quantity of area, square footage or acreage described in the land (if any). Hopefully this matter is off the table for good. No specific exception is needed, and the acreage references can remain in Schedule A if preferred by the insured, especially when there is an acreage reference in the deed.
The Transaction Identification Data that has been a part of ALTA Commitments since 2016 is now formatted into Schedule A of the new Policies as well for consistency. It is made clear this information is not insured.
More space saved: you won’t see standard exceptions to illegal covenants anymore because there is a standard exclusion for that now pre-printed in Schedule B. So, even when a document of record is expected to, the policy doesn’t then have to disclaim the parts that violate law (the 2016 Commitment forms already had this feature, in case it sounds familiar).
Several court decisions criticized the Loan Policy following the great recession because the policy does not specify when a loss should be valued. The result was valuing losses when it best suited an Insured, even if the time for valuing made little sense. The 2021 Policy addresses the problem by adding a new condition that gives an Insured a choice of valuing a loss at either the date a notice of claim was received by the Company or the date of a foreclosure sale.
You may find a lot of other interesting things as you review the new forms. ALTA will continue rolling out the forms with discussion in print, online and via video. I’m sure all the underwriters will do the same. For detailed red-line charts showing all the changes from 2006 to 2021, side-by-side with explanatory comments, visit.alta.org/policy-forms.
It is anticipated ALTA will decertify the 2006 policy forms and the 2016 commitment form as soon as December 31, 2022. All states that use ALTA forms for title insurance should be fully ramped up and using the 2021 forms as 2023 begins.
Joe Powell is managing underwriting counsel for the National Commercial Services Southeast operation of Fidelity National Title Group. He has been with the Fidelity family for over 11 years and was in private real estate practice as an agent for Chicago Title Insurance Company prior to joining the company full-time.