Guideline: NM 89 – Mezzanine Financing Endorsement (ALTA 16-06, 6/17/06)
This endorsement is made to an Owner’s Policy only. This may not be issued 1-4 family residential property.
A mezzanine loan is typically a hybrid of debt and equity financing. Mezzanine financings can be structured in many different ways, but the two most basic forms are subordinated notes or preferred stock. Mezzanine financing is basically debt capital that gives the mezzanine lender rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. It is usually subordinated to debt provided by senior lenders such as banks and senior investors. The term “mezzanine” (from the Latin for middle) comes from its priority position below senior lenders but above the owner equity interests. For example, traditional mortgage financing might be for 75% of the real property value, and an additional 10-15% financing may be mezzanine financing, with the balance being owner equity. The mezzanine lender does not obtain a mortgage on the real property; as such there is no mortgage loan for which to issue a Loan Policy. The mezzanine lender, however, does secure the benefits of title insurance by a Mezzanine Endorsement to the Owner's Policy.
The Mezzanine Endorsement (1) makes the mezzanine lender an assignee of payments under the Owner's Policy not to exceed the debt owed to the mezzanine lender (but does not name the mezzanine lender as an additional insured) in paragraph 2 of the endorsement, (2) provides Nonimputation coverage to the mezzanine lender in paragraph 4 of the endorsement, (3) includes "Fairway" coverage in paragraph 5 of the endorsement, acknowledging that coverage will not be adversely affected because of transfer of ownership interests (direct or indirect) in the insured, (4) expressly retains a right to interplead in paragraph 7 of the endorsement, and (5) reserves the title insurer's subordinate rights of subrogation and indemnity after the mezzanine lender has recovered its indebtedness in paragraph 8 of the endorsement.
The Mezzanine Endorsement may be issued simultaneously with or after the Date of Policy, and requires consent of the insured under the Owner's Policy, since it affects payments to the insured. In New Mexico, the Mezzanine Endorsement may be issued only with the 2006 ALTA Owner’s Policy form (NM form 1). This endorsement may not be issued on 1-4 family residential property.
1. We require execution of the Stewart Non-Imputation Affidavit by the Insured under the Owner's Policy.
2. We require financial disclosures by the Affiants showing the financial strength of those parties.
3. Signature of the Insured in Schedule A of the Owner's Policy on the Mezzanine Endorsement, evidencing its consent, including appropriate evidence of authority. Otherwise, require a separate letter from the Insured consenting to issuance of the Mezzanine Endorsement.
4. Name the mezzanine lender in paragraph 1 of the Endorsement and secure the signature of the mezzanine lender on the Endorsement.
5. Stewart Underwriting Personnel must approve issuance of the Endorsement.
6. The cost of this endorsement is $100 per policy endorsed.
Any revision to this form requires approval of a Stewart Title Guaranty Company underwriter. 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):None