Unavailable Endorsements: State Regulation and Title Company Stubbornness

Written by Matthew B. Gunter, Esq., Attorney, Lightning Docs

A title policy’s coverage only goes so far. To expand coverage lenders often choose to obtain several endorsements to the policy to cover certain issues. These range from the typical endorsements requested on every loan transaction, to the uncommon ones that are specific to a unique issue in the transaction or upon the real estate.

Unfortunately, however, endorsements, while mostly universal, differ in certain states or are completely unavailable. Additionally, title companies differ in their risk tolerance and some are less willing than others to issue certain endorsements depending on the particulars of a transaction – sometimes resulting in outright refusal.

This article will cover some of the most common points related to state-level endorsement differences or a title company’s refusal to issue, and how to deal with them.

Texas Goes Their Own Way

While all states regulate title insurance companies and approve the policies they provide, most share the forms adopted by the American Land Title Association (ALTA), including a wide variety of endorsements. Some states require certain variations on the policy or endorsement language, but Texas stands apart. Texas title policies and endorsements are not on ALTA forms, are organized differently, and the endorsements use their own classification scheme. By and large the coverages are very similar in the title policies, but there are fewer standard endorsements available.

For example, an ALTA 22 (Location) endorsement, one which lenders routinely request for every transaction, is simply not available in Texas. Others such as the ALTA 25 (Same as Survey), ALTA 27 (Usury) are also not available. Some, on the other hand, are available but only through use of a general endorsement (T-3) which can be adapted for many uses, including Assignment of the Deed of Trust (similar to ALTA 10), and Date Down (Similar to ALTA 32,33).

Florida, the Land of the Modification

Like the vast majority of states, Florida generally allows the use of ALTA policy and endorsement forms. However, the policy and many of the endorsements are modified in greater or lesser amounts to the extent that these are generally known as the “Florida Modifications”.  The coverages are very similar, but one must be careful to read the endorsement language to make sure it reaches to the particular issue that is sought to be covered. 

California – Dueling Endorsements

In California, as well as in some other western states, in addition to the ALTA policy and endorsement forms, there is generally a separate form of insurance under the California Land Title Association (CLTA). While California does not have state-level restrictions on available endorsements, a title company may refuse to issue any endorsement based on their own risk tolerance. In this event, if an ALTA policy is issued but a particular ALTA endorsement is giving the title company heartburn, it is possible to ask whether they can issue a similar CLTA endorsement in lieu of the ALTA form. 

Iowa – Title Guaranties

Iowa is the only state that does not allow the issuance of title insurance policies. Instead, attorneys review a title abstract (a comprehensive search) and then issue a title opinion based upon their understanding of the abstract. Additionally, these attorneys may act as agents of a quasi-governmental agency to issue title guaranty certificates which are similar to ALTA policies but contain far fewer covered risks. These guaranty policies also may be issued with many of the same ALTA endorsements, though modified to fit the context of a guaranty rather than an insurance policy. 

Occasionally, a lender may be obligated to obtain an actual title insurance policy instead of a title guaranty certificate. In this case lenders can look to title companies operating in neighboring states that may be able to issue a policy on an Iowa property, depending on their availability.

Title Company Stubbornness

Even when there are no state-level restrictions on endorsement availability, every title company has guidelines for risk tolerance. Additionally, underwriting counsel can make a judgment call on individual transactions.

When a title company refuses to add an endorsement, there are a few options:

1. Ask for specific reason for refusal. This can hopefully grease the wheels for them to change their mind.
2. Ask whether they can issue any similar endorsements. This is particularly useful in California and other western states where CLTA endorsements are available.
3. Some endorsements are used to insure over exceptions to the title policy. You can ask for removal of the related exception in lieu of adding the endorsement.
4. Threaten to switch to a different title company, or actually switch to a different title company. Typically, smaller title companies, and especially newer ones, are more risk-tolerant as they are trying to build market share in a particular state and will be more willing to issue endorsements or delete exceptions.

Concluding Thoughts

There are dozens of standardized endorsements under ALTA, CLTA, and under the Texas system. While Florida famously modifies many of them, other states do as well to greater or lesser degrees. Additionally, individual endorsements may not be available in every state or for certain types of transactions. 

First and foremost, push back. It never hurts to ask, and then ask again. There are usually alternatives and workarounds.

Geraci’s Banking and Finance attorneys have many years of experience guiding lenders through these issues and negotiating directly with title companies. Please reach out with any questions.