Thursday, December 20, 2007

Condominium unit title insurance (page2)

While paragraph one of the Condominium Endorsement deals with the unit not being part of a statutory condominium, paragraph two deals with the adverse effect on title to the unit if some of the required statutory documents do not comply with all of the statutory requirements. Usually, the basic statutory condominium documents are the declaration, by-laws, and plans.

Many of the condominium statutes require that the declaration or other documents either contain certain provisions or conform to standards set forth in the statute. For instance, UCA section 2-105 sets forth fourteen necessary contents of the declaration of a condominium.13 With respect to "Flexible Condominiums" and "Leasehold Condominiums,"14 both of which are impermissible in many states,15 there are additional statutory requirements in sections 2-106 and 2-107. In the states that have adopted the UCIOA, its section 2-105 also contains fourteen requirements.16 Similarly, there frequently are other requirements, such as the "Allocation of Common Element Interests, Votes, and Common Expense Liabilities"17 and the requirements as to "Plats and Plans."18

Each state has its own requirements as set forth in its own act.19 Even those states that have adopted the UCA or UCIOA frequently have some variations from the uniform act.20 A title insurance policy containing a Condominium Endorsement provides valuable protection with respect to the compliance of the condominium regime and the various documents with the applicable statute.

Paragraph three of the ALTA Endorsement Form 4 was amended as of March 27, 1992 to exclude some environmental protection coverage (as underlined below), so that it now insures against loss or damage sustained by reason of:

Present violations of any restrictive covenants which restrict the use of the unit and its common elements and which are contained in the condominium documents, except violations relating to environmental protection unless a notice of a violation thereof has been recorded or filed in the public records and is not excepted in Schedule B. The restrictive covenants do not contain any provisions which will cause a forfeiture or reversion of title.21

This additional insuring provision can be significant. It is quite common for one or more of the "condominium documents" to create restrictions, although it would be highly unusual for a violation to cause a forfeiture or reversion of title. It is not clear whether this protection would apply to a set of restrictions affecting all or part of the condominium recorded by a developer as a separate document, as distinguished from the declaration, bylaws, plats, and plans that are "required" by the applicable condominium statute.

A careful reading of this coverage prompts additional questions. Although most condominiums are of residential units only, the ALTA Condominium Endorsement could also conceivably be utilized for non-residential units. Insurance against violation of a use restriction is normally avoided by a title underwriter, if for no other reason than the difficulty in ascertaining the type of use. The proliferation of home computers, for example, has increased the number of businesses being run out of people's homes. Thus, questions may also arise as to whether local zoning regulations regarding use, or some other standard, would apply to an "in home" business or professional use.

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