The New ATLA Forms
Are Here! - You need to know the differences
between the 1992 and 2006 forms-
October 2007
Nash & Lodge, PLLP
by Stephen J. Nash
Whether you want to better protect your client or whether you are the buyer or lender in the transaction,
you need to know about the new title policies that will begin to filter into the marketplace. There are a number of significant
differences between the old forms and the new. In order to protect yourself or your client you need to understand the differences.
While nobody likes changes, the new forms are better and if you know and understand those changes you will have an advantage
over all those who don’t take the time to learn about and understand the changes.
The title policy forms
are reviewed and approved by the American Land Title Association “ATLA”. The forms currently in use were approved
in 1992, over twenty years ago. In that period of time the real estate world has changed a great deal. The forms have been
updated to better reflect the real estate world today, to provide better protection for the consumer and to be simpler to
use.
The new forms have been approved and are ready for use. They are referred to as the “2006” title
forms. In order to know what forms you are dealing with look at the top left corner of the forms.
One
of the main differences between the two sets of forms is the 1992 coverage starts out narrow and then is expanded by “marking”
the title commitment and the use of endorsements. The 2006 forms start out with much broader coverage that has to be affirmatively
taken away if the title company wants to narrow the coverage. Many of the common endorsements are no longer necessary because
the 2006 coverage already provides that coverage.
The extensive need for endorsements with the 1992 forms created a situation where you might not get the
proper coverage if you did not know enough to ask for the right endorsement. It also created a situation where certain endorsements
created “double negatives”, which created uncertainty as to what was insured. This occurred when you attempted
to eliminate an exclusion by excluding the exclusion on an endorsement.
Over the years, certain situations arose
that did not fit well with the 1992 forms. The real estate world has changed a great deal in the last 15 years. It was unrealistic
to expect that forms created for the 1992 real estate world would smoothly deal with the 2007 real estate world. The 2006
forms provide coverage in situations where an argument existed as to whether it was covered, broaden the coverage to a level
that has become more expected and attempts to clarify terms that were subject to interpretation.
The changes are
numerous and significant. Too numerous and detailed to adequately address in this update. The following are some of the
advantages of the 2006 ATLA forms:
1. added coverage for gap protection;
2. one set of forms for residential, commercial or vacant
lot transactions;
3. added coverage for forgery, fraud, undue influence, duress, incompetency, incapacity or impersonation;
4. added coverage for a power of attorney that is invalid because it expired or was falsified;
5. added coverage
for survey issues (including improvements that encroach from the insured land on to adjoining land);
6. added
coverage for creditors’ rights;
7. the definition of “Amount of Insurance” has been revised to the
advantage of the insured;
8. automatic increase in amount of insurance (10%) in certain instances;
9. the definition
of “Insured” has been expanded (for instance, Insured now includes successors by dissolution, merger,
consolidation,
distribution, reorganization or by conversion to any different form of entity);
10. provides Insured the right to choose
when to have the loss determined — the date the claim is made or the date the claim is settled and paid;
11.
eliminates “last dollar” problem lenders can face under the 1992 forms;
12. eliminates the “Liability
Noncumlative” provision in the 1992 forms that can cause lenders problems;
13. eliminates need to produce policy
as a condition to payment of a loss; and
14. eliminates the requirement for the Insured to file a sworn proof
of loss within 90 days after Insured determines facts giving rise to a claim.
The fact that the 2006 ALTA title forms are better than the 1992 ALTA title forms does not mean that you
can just accept what is given to you or your client. While the coverage starts out broader than the 1992 title forms, the
title company can narrow the coverage back down. You must review the title commitment to see if that is happening. The title
company is probably going to require documentation that they have not required before as a condition of giving the additional
coverage. You need to review the commitment early in the process to see what documents will be needed to get the expanded
coverage without delaying the closing. You also need to review the title commitment to make sure that you are adequately
covered. Even though the 2006 forms provide broader coverage they do not provide coverage for every situation that exists
today or that may develop in the future. You will still need to negotiate endorsements to obtain coverage for those interests
not covered by the standard policy.
The foregoing is not intended to constitute legal advice for any specific circumstance,
but is intended to reflect broadly applicable principles, under Minnesota law, relevant to a typical situation. Each set
of facts and each contract is, or can be unique; the unique facts and specific language of the contract may require a different
legal analysis and may result in a different outcome. Before proceeding in reliance upon this or any other general description
of law, consult with an attorney competent in the field of practice relevant to your situation.
Copyright 2007 Nash & Lodge, PLLP
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