By now you’ve probably heard that the American Land Title Association (ALTA) has approved new forms of Commitment, Owner’s Policy, and Loan Policy to be effective July 1, 2021. As a matter of fact, these have been in discussion for a number of years. I recall giving a talk on the proposed changes about 4 years ago the first time when some of the new Policy wording started to trickle out. Hopefully, all of us as title insurance industry professionals and our clients and customers will feel the long wait was worth it.
If you’re a title nerd this is like Christmas! New Policies – yay! 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. So, if you encounter someone in a deal that seems to think they don’t like the new forms, remind them that it was not a unilateral decision.
The changes encompass a number of 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 Insured and Insurer.
Let’s talk about some of the highlights. This will not cover every single word and change in the new forms, but I hope to pass along the things you will find most essential as you host your next title insurance party and need exciting things to discuss (!).
The ALTA 39 Electronic Policy / Signature endorsement will become obsolete. The coverages of that endorsement are now included in the Policy Jacket. That should be one less page for you to have to routinely print off in case you get asked for that a lot, especially in commercial transactions.
The 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 lien and the Policy does not except to that recorded lien. It’s Excluded to the extent it is just a regular PACA/PASA lien and not recorded outside the federal statute creating the inchoate lien. In other words, we have no liability for PACA/PASA Trust liens unless there is actually a recorded document evidencing the lien.
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 explain.
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.
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 Indebtedness (another defined term that experienced a lot of updates).
Perhaps your favorite and mine – Covered Risk 11 on Mechanics Liens – confirms the coverage relates to services and equipment in addition to labor and materials. This is consistent with the ALTA 32 coverages. (my wish was to remove this as a Covered Risk altogether because of the inchoate nature of the risk most times – but that will probably never happen!).
Because the Uniform Voidable Transactions Act refers to a “voidable transfer” instead of “fraudulent transfer” those terms are cut and pasted throughout the 2021 forms.
Have you ever taken exception to a legal description that recites acreage? Probably so. No need to 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.
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.
More typing saved: you won’t have to take a standard exception to illegal covenants anymore because there is a standard exclusion for that now pre-printed in Schedule B. So, even when something is of record and you except to it, you don’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 https://www.alta.org/policy-forms/ .
Take note that while these changes to the forms are effective as of 7/1/2021, it may be much later than that before the new forms are approved for use in Mississippi. Each title insurer has to adopt the form and then you will be notified by your underwriter (and likely the title software provider) when it is time to implement them. For now, make yourself familiar and be ready to use these on day one!