Title Insurance Ticking Sound Blows UP: ALTA 21 Creditors' Rights Coverage Ends
Last Tuesday (Feb 2), the ALTA Board of Governors met to review and discuss the creditor rights issue in light of various recent court rulings.
The outcome is no surprise: they voted (unanimously) to withdraw and de-certify the ALTA 21 endorsement (commonly referred to as creditors' rights coverage). This change will be effective on March 8th.
Briefly, this endorsement removes creditors rights issues from coverage of the policy – such as fraudulent preferential transfers.
We've addressed the ALTA 21 as part of your file review process (link)
As you might suspect, money is the root of this decision. The title insurance industry has been experiencing significant losses through this endorsement (although it is not available in all states - for example, it is not available in Texas). Many underwriters had begun to decline to give this endorsement, or were imposing onerous conditions to issuing the endorsement. And it was beginning to increase premium rates.
I agree with ALTA's decision. The financial viability of the company covered by the endorsement is NOT a title record matter that the title insurer can protect itself against through examination. Indeed, it was a business decision or risk, and of a nature that the lender should independently assess and address. Why should a lender depend upon another party to assess the financial viability of a party to a transaction? Isn't the lender ultimately responsible for this underwriting risk? Do we really want lenders to lay-off that assessment to a title company? And if it is duplicate or "belts and suspenders" to the lender's process and assessment, it is an additional cost that we want to load up on to a transaction?
At least one very, very significant lending client of ours sees it the same way: one of the largest apartment lenders will NO longer require the ALTA 21.
- are other lenders taking this same approach?
No doubt, this approach will be adopted by non-ALTA jurisdictions.
Please post your information, questions or comments below.
