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Creditors' Rights Coverage Revisited

Robert P. Lindfors

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.

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