Explaining ALTA Homeowner & Enhanced Policy Coverage
Chris Burti, Vice President and Senior Legal Council

The ALTA Homeowner Policy, may be one of the least understood, and perhaps the most under-valued policies available in North Carolina. This article is intended to aid attorneys in advising their clients about what title insurance coverage best meets their needs and to help home buyers understand its availability and increased benefits. Clients typically prefer having options and when presented with a choice, will often select the financial products best for the protection of their investments. We no longer live in a one size fits all era of title insurance and have not since the Enhanced Policy was first introduced.

For those wondering about the Homeowner/Enhanced Policy, they were created for certain types of residential properties and contain coverages not offered in standard title policies. Many of these coverages protect against post-policy Matters (although deductibles apply). Many of which also cover certain survey issues without requiring a survey. The ALTA Homeowner's Policy of Title Insurance and ALTA Expanded Coverage Residential Loan Policy are available for qualifying improved one-to-four family residences at the applicable Rate plus an additional 20% of the Regular Rates.

There are three types of Enhanced policies available in NC:

ALTA Homeowner's Policy for 1-to-4 Family Residences;
ALTA Expanded Coverage Residential Loan Policy for 1-to-4 Family Residences (the 'loan policy' equivalent of the Homeowners);
ALTA Short Form Expanded Coverage Residential Loan Policy (just like its name, it's the short form version of the Expanded Coverage Loan Policy)

We will only be discussing the ALTA Homeowner's Policy for 1-to-4 Family Residences in this Article.

An Enhanced Policy can be issued:

• When the property involved is 1 to 4 Residential,
• An actual residence exists on the Land to be insured,
• The buyer/borrowers are natural persons (although it can be a trustee of a trust for natural person),
• Manufactured/modular homes are included (normal underwriting still applies).

An Enhanced Policy can NOT be issued:

• For commercial transactions
• For ongoing, planned, construction.
• New construction is fine as long as we can show it’s been completed. (Even within last 120 days, but it must be correctly underwritten.)
• For vacant land or land with only partially completed improvements
• Whenever the purchaser/borrower will be an entity.
• When standard underwriting reveals encroachments, clouds on title, or adverse possession/prescriptive issues. (In other words, you can’t use an Enhanced Policy to provide something that is already an issue in an existing Standard Policy.)

It is most likely that significant portion of your residential closing files do not have issues needing to be addressed with an underwriter. Those files will most likely qualify for Enhanced coverage. Everything else should be put on a Standard Policy.

What added protection does the insured get for that added 20% premium?

• Expanded Access Coverage
• Building Permit and Zoning Violations
• Subdivision Violations
• Encroachments by boundary walls or fences
• Restrictive covenant violations

Additionally, insureds get post-policy protection against:

• Forgeries
• Encroachments
• Cloud on Title
• Adverse Possession
• Easement by Prescription

The following scenarios exemplify common claims not covered by a standard policy that are covered with an ALTA Homeowner's Policy:

Scenario 1 - Insured's property line runs to the middle of a creek, on the opposite bank is the nearest public road. A foot bridge allows him to walk across the stream but he can't access property with a car. Covered?

• Under the standard policy? No.
• Under the ALTA Homeowner’s Policy? Yes. See Covered Risk 11. You do not have actual vehicular and pedestrian access to and from the Land, based upon a legal right.

Scenario 2 - Insured buyer receives notice from the municipality requiring him to remove the deck because the seller did not obtain a building permit to build it. Covered?

• Under the standard? No.
• Under the enhanced? Yes. See Covered Risk 18. You are forced to remove or remedy your existing structures, or any part of them – other than boundary walls or fences – because any portion was built without obtaining a building permit from the proper government office. The amount of your insurance for this Covered Risk is subject to Your Deductible Amount and Our Maximum Dollar Limit of Liability shown in Schedule A.

Scenario 3 - Insured buyer files a claim when he receives notice from the municipality that he must knock down his existing garage because it violates building setback lines. Covered?

• Under the standard? No.
• Under the enhanced? Yes. See covered Risk 23. You are forced to remove your existing structures which encroach onto an Easement or over a building set-back line, even if the Easement or building set-back line is excepted in Schedule B.

Scenario 4 - Insured purchases home with an apartment above his garage. He receives notice from the municipality that he must remove the existing apartment above the detached garage because it violates a zoning ordinance. Covered?

• Under the standard? No.
• Under the enhanced? Yes. See Covered Risk 19. You are forced to remove or remedy your existing structures, or any part of them, because they violate an existing zoning law or zoning regulation. If you are required to remedy any portion of your existing structures, the amount of your insurance for this Covered Risk is subject to Your Deductible Amount and Our Maximum Dollar Limit of Liability shown in Schedule A.

Scenario 5 - Insured buyer files a claim when he receives notice from the HOA that he must remove the existing deck because it violates the CC&Rs set forth in the Declaration. The CC&Rs are listed in Schedule B as exceptions. Covered?

• Under the standard? No.
• Under the enhanced? Yes. See Covered Risk 12. You are forced to correct or remove an existing violation of any covenant, condition or restriction affecting the Land, even if the covenant, condition or restriction is excepted in Schedule B. However, You are not covered for any violation that relates to:

a. Any obligation to perform maintenance or repair on the Land; or
b. Environmental protection of any kind, including hazardous or toxic conditions or substances unless there is a notice recorded in the Public Records, describing any part of the Land, claiming a violation exists. Our liability for this Covered Risk is limited to the extent of the violation stated in that notice.

Scenario 6 - Insured buyer files a claim when his deck is damaged by the sewer authority to access the sewer line easement underneath pursuant to an easement (which was excepted in Schedule B of the policy). Covered?

Under the standard? No.
Under the enhanced? Yes. See Covered Risk 24. Your existing structures are damaged because of the exercise of a right to maintain or use any Easement affecting the Land, even if the Easement is excepted in Schedule B.

Scenario 7 - Insured purchases property from a tax-exempt church. The county never updated the exemption status. Insured buyer now receives notice from county seeking retroactive taxes. Covered?

• Under the standard? No.
• Under the enhanced? Yes.

See Covered Risk 27. A taxing authority assesses supplemental real estate taxes not previously assessed against the Land for any period before the Policy Date because of construction or a change of ownership or use that occurred before the Policy Date.

Scenario 8 - Insured buyer purchased the property in 2015. He files a claim when he receives a complaint seeking to quiet title based on a deed into the plaintiff in 2017 that the Insured did not sign. Covered?
Under the standard? No.
Under the enhanced? Yes.
See Covered Risks 7, 1 & 3 -

• Covered Risk 7: Any of Covered Risks 1 through 6 occurring after the Policy Date.
• Covered Risk 1: Someone else owns an interest in Your Title.
• Covered Risk 3: Someone else claims to have rights affecting Your Title because of forgery or impersonation.

Scenario 9 - Insured buyer purchased the property in 2015. He files a claim when he receives a complaint in foreclosure on a mortgage from 2016 that he did not sign. Covered?
Under the standard? No.
Under the enhanced? Yes.
See Covered Risks 7 & 3 -

• Covered Risk 7: Any of Covered Risks 1 through 6 occurring after the Policy Date.
• Covered Risk 3: Someone else claims to have rights affecting Your Title because of forgery or impersonation.

Scenario 10 - Insured purchases property in 2015. Sometime later Insured's neighbor builds a shed in 'his' backyard that extends onto the insured's property. Insured files a claim. Covered?
Under the standard? No.
Under the enhanced? Yes. See Covered Risk 28. Your neighbor builds any structure after the Policy Date ' other than boundary walls or fences ' which encroach onto the Land.

Scenario 11 - Insured purchases property in 2015. He files a claim when his lawn and trees are destroyed as a result of the extraction of oil from under the surface of the land. Covered?
Under the standard? No.
Under the enhanced? Yes.
See Covered Risk 25. Your existing improvements (or a replacement or modification made to them after the Policy Date), including lawns, shrubbery or trees, are damaged because of the future exercise of a right to use the surface of the Land for the extraction or development of minerals, water or any other substances, even if those rights are excepted or reserved from the description of the Land or excepted in Schedule B.

FREQUENTLY ASKED QUESTIONS:

Q. Don't title monitoring services perform a similar service with regard to post-policy forgery and impersonation?

A. No. Just as a tire pressure indicator on your car's dashboard does nothing to assist with the changing of a flat tire, title monitoring services do nothing more than tell you about a possible issue. ALTA Homeowner's Policy Policies, on the other hand, actually provide a defense and assist in curing forgeries and impersonations adversely impacting and insured's title. Title monitoring services typically charge around $15 month to watch your title. That's an expenditure of $180 per year. Whereas a regular premium for a standard policy (say, $400 for example), could be converted to Enhanced coverage for a one-time payment of $80. Title monitoring, on the other hand, does nothing to help with the aftermath of successful fraudster.

Q. Does the covered amount always stay the same?

A. No. Condition 9 of the ALTA Homeowner's Policy increases the coverage amount 10% per year for the first five years. So, on the fifth anniversary of the policy date, the coverage will be 150% of the face amount.

Q. How long does the ALTA Homeowner's Policy coverage last?

A. For the lifetime of the insured. See Condition 2(a).

Q. You mentioned deductibles. What are those?

A. Schedule A in the policy discloses that Covered Risks (16, 18, 19 and 21) are subject to Deductibles and Limitations of Liability. The first three are for violation of Subdivision Laws and Regulations, Permitting Laws and Regulations, and Zoning Laws and Regulations, respectively. The last one, Covered Risk 21, has a Deductible and Limitation of Liability regarding encroachments onto adjoining land.
For North Carolina, these are:

Covered Risk             Your Deductible Amount              Maximum Dollar Limit of Liability
Covered Risk 16      - 1% of Policy Amount or $2,500 (whichever is less)      - $10,000
Covered Risk 18      - 1% of Policy Amount or $2,500 (whichever is less)      - $25,000
Covered Risk 19      - 1% of Policy Amount or $2,500 (whichever is less)      - $25,000
Covered Risk 21      - 1% of Policy Amount or $2,500 (whichever is less)      - $5,000