Did you read the title insurance policy jacket from your most recent real estate transaction? If so, it may have looked different.
Title insurance policies are a staple of real estate transactions that are used by both owners and lenders to protect against covered property losses, up to a certain coverage amount, stemming from liens, encumbrances, third-party claims of ownership, and other defects pertaining to the insured property.
The risks that are covered by a title policy and, more importantly, the risks that aren’t, are set forth in the policy itself. At the basic level, a title policy form describes the scope of coverage provided by stating the covered risks and exclusions from coverage. The scope of coverage is then reduced by property-specific encumbrances, such as those identified by the title company during the title search, and then increased by any purchased endorsements or extended coverage. The fact that the policy form used sets the initial scope of coverage for a given title policy means that the policy form is critical for understanding the risks being insured against.
Emergence of 2021 ALTA policies in Oregon
The American Land Title Association (ALTA), a national title insurance industry trade association, last year issued 2021 ALTA Owner’s and Loan Policies (collectively referred to as 2021 ALTA policies). They were published in July 2021 as the first set of policy form updates since 2006, but were not available in Oregon until earlier this year.
Oregon is somewhat unique in that title insurance is regulated under state insurance statutes. Oregon’s process for allowing the use of new policy forms, such as the 2021 ALTA policies, generally involves a proposal by the Oregon Title Insurance Rating Organization (OTIRO) that must then be approved by the director of the Department of Consumer and Business Services. Oregon’s current title insurance rates and forms are published by OTIRO in an approved rating manual, and the most recently updated manual became effective on Sept. 7.
The 2021 ALTA policies became available in Oregon on June 24 and are now included in the OTIRO rating manual. Title companies have since begun rolling out the 2021 ALTA policies for Oregon real estate transactions.
Changes resulting from 2021 ALTA policies
The 2021 ALTA policies include various changes ranging from mere formatting to substantive covered risks and exclusions. Although far from comprehensive, the following list summarizes some of the changes:
- New policy authentication language providing for policy validity when the policy, or any endorsement to the policy, is issued electronically or lacks certain signatures. This is a modernization change to recognize the common practice of electronic policy issuance, whereas an authentication endorsement would have previously been required.
- Modification of the definition of “public records” to distinguish those records that are public records for purposes of title insurance policies and other government records that are not construed as within the scope of public records (e.g., matters pertaining to planning, permitting, licensing, public safety, etc.).
- Expansion of the definition of “insured” to include affiliates, co-insured parties who receive the interest of other insureds in the property, and spouses who receive the property in a dissolution of marriage.
- Addition of enforcement of a PACA-PSA Trust (a trust under the federal Perishable Agricultural Commodities Act or the federal Packers and Stockyards Act or a similar state or federal law) as a covered risk, but only if the enforcement is described in an enforcement notice.
- Specification of the components of indebtedness that benefit from priority coverage. Note that any coverage for the priority of future advances remains endorsement based.
- Exclusion from coverage of any discrepancy in the quantity of the area, square footage, or acreage of the land or of any improvement to the land.
- Clarification that state law (defined as the state in which the covered property is located) governs the interpretation, rights, remedies, or enforcement of the policy, provided that federal law will govern to the extent it controls.
The 2021 policy forms were also accompanied by endorsement changes. Endorsements should be carefully reviewed on a case-by-case basis to determine whether they have been revised and can be added to the 2021 policy forms, the 2006 policy forms, or both.
The 2021 ALTA policies are already beginning to be used in Oregon and their use will expand throughout the coming year. As that happens, understanding the changes will become increasingly important. For example, there are already instances of lenders announcing upcoming policies to require the use of the 2021 ALTA policies.
The changes in the new 2021 ALTA policy forms have implications for the scope of coverage provided by title insurance policies. For parties relying on title insurance to account for and allocate risk in real property transactions, the changes are worth taking time to understand.
This column is intended to provide readers with general information and not legal advice. Consult professional counsel for help regarding specific situations.
Column first appeared in the Oregon Daily Journal of Commerce on November 18, 2022.
Ideas & Insights
News and Insights delivered to your inbox