The Creditors' Rights Endorsement, a Thing of the Past?

Authored by:  Elisabeth WoareThe creditors’ rights endorsement, an endorsement to a lender or owner’s title policy which provides coverage against challenges to a transfer of title as a result of a fraudulent conveyance, fraudulent transfer or preferential transfer, appears to have been essentially eliminated by the title insurance industry earlier this month. Citing the current economic climate, several recent bankruptcy court decisions and recent questioning by state regulators as to whether the coverage is within the “purview” of title insurance, Fidelity National Title Group of Underwriters (which includes Chicago Title, Fidelity National Title, Ticor Title, Lawyers Title, Commonwealth Land Title, Security Union Title and Alamo Title) and First American Title Insurance Company have announced that they will no longer issue the endorsement.  The American Land Title Association (ALTA) has also recently voted to officially de-certify the creditor’s rights endorsement (ALTA Form 21/21-06), effective March 8, 2010. According to the ALTA website, this de-certification of the ALTA form of creditor’s rights endorsement does not affect the ability of title insurers to separately decide what coverage or endorsement, if any, it is willing to provide, it just means that the insurers can no longer use the ALTA form after March 8. Prior to the past 18 months, creditors’ rights coverage was fairly common and easy to obtain. Recently, title insurers have been more and more reluctant to provide the coverage, and when they have agreed to provide it, it has come with additional risks and cost in the form of required indemnity agreements protecting the insurer and increased title premiums. Not all title insurers are eliminating the creditors’ rights endorsement out right. Old Republic National Title Insurance Company and Stewart Title Guaranty Company have indicated that they may still issue the endorsement upon review of the seller or mortgagor financials. Given the new insurer policies, real estate purchasers and lenders should be aware that they are likely going to have to bear some insolvency risks that were once covered by title insurance policies.