Creditors' Rights Coverage Revisited
Robert P. Lindfors
Title Resources Guaranty Company no longer allows
its issuing agents to delete the Creditors’ Rights exclusion. Issuing agents are
not to issue an endorsement for affirmative coverage for creditors’ rights
issues.
Title Resources Guaranty Company’s direction to
its issuing agents was prompted by the decertification of ALTA 21 and ALTA 21-06
endorsements effective March 8, 2010. These endorsements had provided
affirmative coverage for risks of loss resulting from fraudulent conveyances or
preferential transfers.
The insurance risk arises from the transfer of
real property adjudicated to be fraudulent. For instance, if the grantor
transfers its title intending to deprive or obstruct a mortgagee’s right to
enforce its lien against its loan collateral then the grantor’s deed may be
challenged. ALTA’s Board of Governors and its subscribing members decided
assuring this risk is unacceptable. In this season of financial distress, Title
Resources Guaranty Company will no longer insure the risk of borrowers
transferring their interest to another for no consideration in an effort to
thwart loss of their titles to foreclosure.
Nonetheless, the Creditors’ Rights protections of
the ALTA 2006 policy are still available. Covered Risk 9 of the ALTA 2006
owner’s policy and Covered Risk 13 of the ALTA 2006 lender’s policy protect
insureds from the risk of loss the insured may sustain by avoidance of their
deeds resulting from the overturning of a prior conveyance, fraudulent transfer
or preference. Exclusion no. 4 of the Owners policy and Exclusion no. 6 of the
Lender’s policy cannot be deleted.
So, the limited Creditors’ Rights coverage of the
ALTA 2006 policy is still available. But no further affirmative coverage is
permitted.
This article is
made available with the understanding that it is informational only, and it has
not been prepared to provide specific legal advice that may be relied on by a
reader. The author is under no obligation to update the information in the event
of a change in the law. |
