STG Clogging Endorsement (Option Invalidity) Guideline 1
Explanation:This endorsement is to be issued only in conjunction with the Loan Policy. It relates to the effect of an option in favor of the lender and whether the option constitutes a clog on the equity of the borrower to redeem its mortgage.
Underwriting Requirements:(1) A Senior Underwriter must review the loan documents and proposed Clogging Endorsement.
(2) If the endorsement simply insures against invalidity or unenforceability of the lien of the insured mortgage by reason of the option, then we will probably agree to the endorsement.
(3) If the endorsement provides insurance as to the enforceability of the option by the lender, then we will consider whether there is independent consideration for the option; whether the lender has substantial controls (e.g., approval of all future leases and other material agreements); whether the borrower has the right to buy out the option; whether the option is exercisable upon default; and whether the option price will be at full fair market value at time of exercise.
The underwriting guidelines contained herein have been provided for general reference. The facts, circumstances, and location of the subject property should be considered when determining the issuance of the requested form or endorsement. Please note that all of the forms and endorsements included in this system may not be available in all states. Accordingly, please contact the appropriate Stewart Title Guaranty Company underwriting personnel in order to determine availability.
Compliance with the underwriting guidelines contained herein in no way obligates Stewart Title Guaranty Company to issue any form or endorsement.
This guideline applies to the following form(s):