Insurance & Environmental Risks

In earlier postings, we’ve covered:

These are all good steps.

But they overlook an equally important step:

The second day of seminars, at the annual meeting of the American College of Mortgage Attorneys, had two key take-aways for me.  The first nugget focuses on the Dodd-Frank financial law.

The second nugget (below) is much more practical.  Inspired by comments made by Jim Allen during a panel presentation (he’s with the Miller

As noted in my posting this morning [link], the ALTA Board of Governors voted to withdraw and de-certify the use of the ALT 21endorsement form.  It removes creditors rights issues from certain title insurance policies.

So, what is the next step?

The title companies seize the opportunity, and stop issuing it.  (You’re not surprised.)

Here’s the

Last Tuesday (Feb 2), the ALTA Board of Governors met to review and discuss the creditor rights issue in light of various recent court rulings.

The outcome is no surprise: they voted (unanimously) to withdraw and de-certify the ALTA 21 endorsement (commonly referred to as creditors’ rights coverage).  This change will be effective on March

As many readers that follow the insurance industry know, the National Association of Insurance Commissioners ("NAIC") met this last summer and went through a series of sometimes heated discussions over what modifications should be made to NAIC Risk-Based Capital rules. Specifically, the current NAIC mortgage loan portfolio quality measure known as the "Mortgage Experience Adjustment

This is the second part of a two-part series laying out a quick checklist covering title insurance issuesand highlighting topics that should be investigated.  This is an important and often overlooked topic.

  1. Was UCC insurance obtained (covering attachment, perfection and priority of lender’s security interest in personal property)?  Here are the types of

No surprise at this statement:  When the real estate mortgage nears the ditch, the lien priority of the loan and the status of the title (such as easements, deed restrictions, access rights and lien priority) all come under scrutiny.

One important point of inquiry is the title policy covering the loan.  An “audit” or review

Insurance issues often are overlooked in the context of a workout or a foreclosure. (Recall our other posting covering title insurance.) So, here’s another topic from our "ticking sound" series covering insurance issues…

Chances are that foreclosed property is empty property.  No one is present to lock the doors, keep the heat on or make repairs.  The likelihood of broken pipes, vandalism or even the arrival of scavengers whose aim is to remove the copper pipes from the building goes up.  Sometimes it goes way up.

For lenders and servicers, vacant property is at least an annoyance.  For property insurers, it is a reason to terminate coverage.  The insurer’s justification is “increase in hazard,” shorthand for any change in conditions in an insured premises that increases the likelihood of an insured loss simply by its existence.  Just as public policy would not allow an insured to make an insurance claim on premises it had destroyed by fire, so too public policy does not permit coverage where the insured – in this case, the borrower – accomplishes the same end by allowing the premises to deteriorate.  Courts routinely  enforce “increase of hazard” as grounds for denying coverage. See, e.g., Washington Mutual Bank, F.A. v. Allstate Ins. Co., 48 A.D. 3d 554, 852 N.Y.S. 2d 201 (2d Dept. 2008).

So what does a lender/servicer do to avoid losing coverage for “increase of hazard?”  There are two approaches, and smart lenders and servicers should use them both.


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