Underwriting Manual: Extrahazardous Risks

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Underwriting Manual Subtopic

In General

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Extrahazardous risks are matters of title insurance that either from a legal or business standpoint are considered to involve an exceptional degree of risk or call for nontypical forms of coverage.

When you encounter these situations, call our underwriting personnel before you commit to insure against the extrahazardous risk.

Underwriting Manual Subtopic

Risks That May Be Considered As Extrahazardous

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The complexity of real estate transactions, the development of new financing techniques, and the willingness of title insurance companies because of market competitiveness and customer pressure to accept and assume additional risks, make it extremely difficult to compile a comprehensive list of Extrahazardous Risks. Matters considered Extrahazardous Risks can change and notice of these changes may be found in Company Bulletins and revisions to Virtual Underwriter.

The following are examples of Extrahazardous Risks that require the approval of underwriting personnel:

• Automatic subordinations (other than leases, if the lease subordination includes satisfactory non-disturbance language);

• Insuring over violation of building restrictions by a building to be constructed;

• Insuring over mechanic's liens in reliance on indemnity letters, affidavits, credit worthiness of the owner, builder, or other person;

• Insuring title to land formerly covered by navigable water;

• Insuring tidelands or submerged lands;

• Insuring title to air space;

• Insuring title based on adverse possession not determined by a satisfactory judgment;

• Insuring title through: (a) tax deed; (b) sheriff's deed under an execution sale; (c) Federal Marshall's deed under an execution sale; (d) sale by Commissioner of Internal Revenue for unpaid federal taxes; and, (e) other similar sales not confirmed by a court of record having jurisdiction over the parties;

• Transactions involving municipal corporations or other governmental bodies;

• Insuring transactions involving Indian / Native American / Native Band lands. These include (a) land within the boundaries of an Indian Reservation [U.S.] including land in trust for a tribe and land in trust for individuals AKA allotments, (b) land interests outside of a reservation owned by a tribe, or owned by an organization whose ownership includes a tribe or an entity organized under tribal law, or (c) Reserve land [Canada];

• Insuring a mineral estate or interest separate and apart from the surface estate or interest (Please refer to current bulletins concerning "Mineral Exception" for sample definition of minerals.);

• Providing mineral coverage on property in an area of mineral development;

• Insuring easements in gross or prescriptive easements;

• Insuring any estate, right or interest separate and apart from the surface estate or interest, including but not limited to, for example, wind, water, timber, improvements, subsurface storage, salt domes, geothermal, gravel, sand, limestone, caliche, pore space, etc., by lease, easement, reservation, deed, etc.;

• Insuring water rights;

• Insuring title by escheat or forfeiture;

• Insuring against enforcement of existing liens or other interests, such as adverse ownership, or litigation involving title;

• Insuring leveraged buyouts;

• Insuring title to beaches or recreational areas;

• Insuring title to railroad property;

• Insuring conveyances by a corporation to one of its officers or by a partnership to one of its partners;

• Insuring conveyances which appear to be a preference or in consideration for an antecedent debt;

• Insuring conveyances with leasebacks to the grantor;

• Insuring options to purchase or rights of first refusal;

• Insuring execution, IRS,or other summary sales;

• Insuring title to land subject to Federal Estate Tax or state inheritance tax;

• Insuring title when you have actual knowledge of the refusal of a title insurance underwriter other than Stewart to insure the title or the refusal of another title insurance agent to issue a policy insuring the title;

• Insuring transactions that involve a violation of criminal laws.

Extrahazardous Risks also include, but are not limited to, special risks such as the following:

• Synthetic leases;

• Insuring around outstanding enforceable unpaid recorded liens unless proper bond, escrow of funds in an amount that is not less than 150% of amounts claimed on liens (for liens not exceeding $100,000 in the aggregate), or unless title insurer indemnity is secured);

• Fractional interests in notes secured by mortgages and owned by 10 or more individuals;

• Mechanic's lien coverage, unless specifically authorized by Company Guidelines.

The following endorsements are considered Extrahazardous Risks:

1. Re-characterization Endorsements, Non-Partnership Endorsements, "Loan is a Loan" Endorsement;

2. Seafirst/Seattle or other endorsement waiving the exclusion of matters created, suffered or assumed by the insured;

3. Forfeiture or tax deed within last 10 years;

4. Swap/Hedge Endorsement, including ALTA 29-06 or 29.1-06; 29.2-06 OR 29.3-06;

5. Mezzanine Financing Endorsement;

6. Endorsements of unique characters other than commonly issued or customary residential or commercial endorsements.

Extrahazardous Risks also include, but are not limited to, coverages and endorsements such as the following:

• Zoning;

• Usury;

• Non-Imputation;

• Shared appreciation;

• Options;

• Creditor's rights;

• Going concern; loss/measure of damages endorsement;

• Tie-in (Aggregation) Endorsement;

• Other coverages customarily considered to be an unusual risk in the state or relevant market;

• Any Mechanic's Lien Coverage Endorsement (other than as separately authorized), such as CLTA (California Land Title Association) 101 Series Endorsements.

There are risks listed on the form STG Request for Approval to Issue Overlimits (Large) Policy or Extra Hazardous Coverage at paragraph 10 that are not found on the lists included herein. Paragraph 10 requires a response to the question "Does this file involve the following? If applicable, write "Yes" and describe the circumstances..."Those Extrahazardous Risks are:

• Access based solely upon an easement? If so, was title to the access easement examined and insured?

• Title based upon judicial proceedings (e.g., tax foreclosure, condemnation, bankruptcy)?

• Title based upon foreclosure or deed in lieu of foreclosure?

• Title derived from foreclosure or deed in lieu of foreclosure regarding a construction loan deed of trust, within the last 3 years?

• Reliance upon an indemnity? If so, describe purpose and provide a copy.

• Survey concerns (e.g., does the survey show any significant conflict or encroachment)?

• Current owner out of possession of the property?

• Commercial purchasers of fruits, vegetables, livestock, or poultry, or wholesalers or retailers of meat products?

What to do if no information is located concerning a risk or coverage:

If you receive a request to insure over a risk or provide coverage and you do not find any information concerning that risk or coverage in Virtual Underwriter, please contact underwriting personnel before committing to insure.

Note: Not all coverages are available in all jurisdictions.