Condominium unit title insurance (page4)
The ALTA Condominium Endorsement Form 4.1 of October 17, 1992 goes even further than insuring priority by substituting a new paragraph four in place of the paragraph four in the ALTA Condominium Endorsement Form 4 as follows: "Any charges or assessments provided for in the condominium statutes and condominium documents due and unpaid at Date of Policy."27
This Form 4.1 language insures that there are no unrecorded common expense liens unpaid as of the date of policy. Without this language an inchoate unpaid lien that existed at the date of the policy, but not filed or recorded until later, would not be covered by the policy as a post-policy lien. Under a statute such as New York Real Property Law section 339-aa, the common charges lien is effective only from and after the filing of a verified notice of the lien in the recording office in which the declaration is filed. Furthermore, the notice of lien must conform to the various requirements set forth in the statute.28
Paragraph five of both Endorsements insures against "[t]he failure of the unit and its common elements to be entitled by law to be assessed for real property taxes as a separate parcel."29
This entitlement to be separately assessed and taxed is an important attribute of being part of a condominium validly formed under a statute that provides for separate taxation. UCA section 1-105, UCIOA section 1-105, N.Y. Real Property Law section 339-Y all contain such provisions.
Paragraph six reads: "Any obligation to remove any improvements which exist at Date of Policy because of any present encroachments or because of any future unintentional encroachment of the common elements upon any unit or of any unit upon the common elements or another unit."30 This is a form of survey coverage assumed by the title insurer without the benefit of a survey; it is usually based upon a similar provision in the applicable condominium documents. In fact, it is not common conveyancing practice to require title surveys of individual condominium units in a multi-unit structure such as an apartment house. If the unit is a separate structure similar to a single family house, or even if it is a structure attached to other units, such as one of a row of houses, a title survey may be available. In those cases, unless the condominium documents or the applicable statute covers the problem, a survey reading should be done before the insurance is issued; otherwise it becomes a pure business risk on the part of the title insurer.
The last numbered paragraph is number seven which states: "The failure of title by reason of a right of first refusal to purchase the unit and its common elements which was exercised or could have been exercised at Date of Policy."31 Many condominium documents contain a right of first refusal in favor of the association (board of managers) as a means of limited control over a sale to a purchaser deemed to be "undesirable." In practice, it is rarely exercised, if for no other reason, because most condominium associations do not maintain a sufficient reserve fund to exercise such an option. In any event, this provision gives the unit purchaser or its mortgagee comfort that either the provision has been complied with or that there was no such provision. The last and unnumbered paragraph of the endorsement is one that should be and usually is boilerplate in all endorsements added to a title policy:
This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly stated, it neither modifies any of the terms and provisions of the policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof.32
It should act as a reminder that the endorsement is only one part of the title policy and that none of the insuring provisions stand alone. Each provision must be read in the context of the entire policy, including the boilerplate exclusions, conditions and stipulations, Schedule B exceptions and any other endorsements.
Some of the protections contained in the Condominium Endorsement are also available to purchasers and lenders of units in a planned unit development ("PUD"). For those, ALTA has adopted its March 27, 1992, standard endorsements 5 and 5.1. These endorsements cover matters similar to those contained in paragraphs three, four, five, and seven of the Forms 4 and 4.1, except that the language of paragraph six in those forms is somewhat modified in paragraph three of the PUD forms to read: "The enforced removal of any existing structure on the land (other than a boundary wall or fence) because it encroaches onto adjoining land or onto any easements."33
Every title insurance policy should contain one of the ALTA Condominium Endorsement forms. It provides additional and important protection for purchasers and lenders. Notwithstanding the various assurances in the title insurance, a purchaser or lender is unwise to rely on title insurance alone without a complete understanding of what is contained in the declaration, bylaws, and any other recorded document that affects the entire project. Whatever is contained in that document will be "excepted" from the title insurance coverage by its inclusion in Schedule B-1 of the title policy. Although the ALTA Condominium Endorsement primarily deals with the most common problems which usually require attention, this does not mean that there is nothing else in the documents for a particular condominium that may not be equally significant. The only way to make such a determination is by a reading and analysis of the documents, preferably by a competent lawyer.
1ALTA Owner's Policy, at IV-9 (October 17,1992) [hereinafter Owner's Policy, at IV-9 (October 17, 1992) (hereinafter Owner's Policy]. See ALTA Loan Policy, at IV-13 (October 17, 1992) [hereinafter Loan Policy].
3 In New York, insuring provision 7 is deleted from the Loan Policy. Instead, a broader form of coverage is added to both the Loan Policy and the Owner's Policy by a New York Endorsement which provides insurance against loss by reason of "[a]ny statutory lien for services, labor or materials furnished prior to the date hereof, and which has now gained or which may hereafter gain priority over the estate or interest of the insured as shown in Schedule A of this policy." Standard New York Endorsement for Use with ALTA Loan Policy, at V-3 (September 1, 1993). 4 Loan Policy, supra note 2, at IV-13.