Guideline: ALTA Endorsement 5-06 and 5.1-06 (Planned Unit Development)

Explanation:

This endorsement is designed for dwellings in homeowners associations and planned unit developments, which may include a "de minimus" planned unit development (PUD).  A planned unit development will consist of a fee simple interest in a townhouse, patio home or single-family residence together with an appurtenant easement over common elements or together with an undivided interest as co-tenant in common elements.

Both ALTA Endorsement 5-06 and ALTA Endorsement 5.1-06 insure against loss or damage sustained by the Insured by reason of: present violations of any restrictive covenants referred to in Schedule B that restrict the use of the Land or the forfeiture or reversion of Title by reason of any provision contained in the restrictive covenants; the enforced removal of any existing structure on the Land (other than a boundary wall or fence) because it encroaches onto adjoining land or onto any easements; and the failure of the Title by reason of a right of first refusal to purchase the Land that was exercised or could have been exercised at Date of Policy.

ALTA Endorsement 5-06 and ALTA Endorsement 5.1-06 differ with respect to their coverage regarding the priority of the lien of the Insured Mortgage in relation to the homeowners association’s lien for future unpaid charges and assessments.  The Insured Mortgage may or may not have priority over the homeowners association’s lien for future unpaid charges and assessments based upon applicable state law and/or the documentation creating the homeowners association.

The documentation creating the PUD or homeowners association– usually, a Declaration of Covenants, Conditions and Restrictions (“CC&Rs”) - frequently provide for the homeowners association to have a lien against the dwelling for unpaid charges and assessments. 

Some states have statutes or case law that determine the priority of the homeowners association’s lien for unpaid charges and assessments in relation to other liens.  Some state laws provide that the homeowners association’s lien for unpaid charges and assessments is superior to all other liens.  Some state laws subordinate the homeowners association’s lien to specific liens, for example, to real estate taxes or to the lien of a first mortgage or deed of trust encumbering the dwelling.  Some state laws provide that, when a dwelling is foreclosed by a lender, the association may be entitled to a priority payment out of the proceeds of the foreclosure or trustee’s sale – for example, six months’ unpaid charges and assessments. 

Where the priority of the homeowners association’s lien for unpaid charges and assessment is not determined by state law, the CC&Rs may provide that the association’s lien is superior to all other liens.  In some cases, the CC&Rs may subordinate the association’s lien to another lien, for example, to the lien of a first mortgage or deed of trust encumbering the dwelling, or only to a purchase money mortgage or deed of trust.

When issued with a Loan Policy, ALTA Endorsement 5-06 insures the Insured against the priority of any lien for charges and assessments in favor of any homeowners association that are provided for in any document at Date of Policy and referred to in Schedule B over the lien of the Insured Mortgage.  ALTA Endorsement 5-06 may be used only on policies where the Insured Mortgage has priority over the homeowners association’s lien for unpaid charges and assessments – including future unpaid charges and assessments - whether by statute, case law or pursuant to the CC&Rs (where not otherwise determined by state law).

ALTA Endorsement 5.1-06 insures against any charges or assessments in favor of any homeowners association that are provided for in any document referred to in Schedule B, due and unpaid at Date of Policy.  ALTA Endorsement 5.1-06 may be used on all policies provided that all homeowners association charges and assessments are paid to date.  We prefer the use of ALTA Endorsement 5.1-06.

ALTA Endorsement 5-06 and ALTA Endorsement 5.1-06 may be issued with an ALTA Loan Policy 2006 or an ALTA Owner's Policy 2006.

Underwriting Requirements:

(1) The examination must not reflect that the present development violates outstanding prior restrictions. For example, sometimes older restrictions prohibit more than one residence on a platted lot and the townhouse development violates such restrictions by multi-unit development.

(2) The CC&Rs may not contain forfeiture or reversionary provisions.

(3) Any maintenance assessment secured by a lien in the CC&Rs and due prior to the Date of Policy must be paid.

(4) Click here to view a chart that shows the potentially applicable endorsements by state, if available, as they relate to the priority of an association’s lien for future unpaid charges and assessments.  If an endorsement is indicated and if it is available in the applicable state, you should issue only that endorsement, unless approved by an Underwriter.  In all other cases, the CC&Rs must be reviewed to determine if the homeowners association’s lien for unpaid charges and assessments is expressly subordinate to the specific type of mortgage or deed of trust to be insured.  These are designated as “Review CC&Rs” on the chart. 

(5) Do not issue this endorsement if you know of any significant encroachments or boundary conflicts without approval of an Underwriter.

(6) If the CC&Rs provide for a right of first refusal, then you must verify with the association that the right may not be exercised in connection with the current or prior transactions.

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.