Underwriting Manual: Contract Purchasers

The interest of a purchaser under a contract to purchase is an insurable interest and policies naming contract purchasers as insured may be issued under the conditions outlined herein.

The procedure set forth permits the use of the ALTA owner's policy.

As with any other form of title insurance, a complete examination of the title must be made in order to ascertain the capacity of the owner-vendor, the legal description of the property, the capacity of the proposed insured-vendee, the liens, encumbrances and other matters and encumbrances affecting the title. The total consideration will determine the amount of the policy.

The Contract is to be Recorded

If the contract is to be recorded, the vendee may be insured as to the status of the seller's title by the issuance of an ALTA owner's policy.

The policy is completed as if a fee simple were to be insured, except that the name of the contract purchaser is shown as the insured in Schedule A. The name of the fee simple owner of record must be shown at Item 3 of Schedule A.

Schedule B of the policy must contain, in addition to the general or standard exceptions and special exceptions, the following exception:

• Rights, terms, provisions, conditions, and limitations contained in the contract of sale (or memorandum of sale) entered into by _____, seller, and _____, purchaser, dated ______ and recorded _____ in Book ___________ Page _______,.on ______, in the ______, County Clerk's (Recorder's ) Office.

Contract Is Not To Be Recorded

The issuance of title policies to holders of unrecorded contracts should not be encouraged. However, if neither the contract nor a memorandum thereof is to be recorded, the procedure outlined above may be followed as to Schedule A, but Schedule B will need to show, in addition to the general or standard exceptions and special exceptions, the following exceptions:

• Right, terms, provisions conditions, and limitations contained in the unrecorded contract of sale (or memorandum of sale) dated _______________, and entered into by ______________, purchaser and __________________, buyer.
  
  
• Any loss or damage resulting from the fact that the instrument creating the insured's estate or interest in the land and referred to in exception No. _____________ hereof, has not been recorded.

This may be accomplished by showing in Schedule A at Item 2 the estate or interest in the land covered by the policy as "Rights of contract purchaser(s) in the contract for deed dated _____ executed by and between ____________ , seller and ____________ , purchaser, recorded _______ in book, page _____, .on ______ "_________, in the ________, County Clerk's (Recorder's) Office."

In this situation, the insured would be the contract purchaser and the contract purchaser's name would be shown in Schedule A at Item 3. This procedure requires strict compliance with the following:

• The filing for record of the contract or a memorandum thereof.
  
  
• The inclusion in Schedule B of the following exception:
  Rights, terms, provisions, conditions and limitations contained in the contract of sale (or memorandum of sale) entered into by __________ , seller, and ______________ purchaser, dated __________ , and recorded __________ in Book ________ Page ________ and the effect of any failure to comply therewith.

A lender making a loan on the security of a contract interest should not be insured on a loan policy.

Upon recordation of the contract, the lender may be insured on an ALTA owner's policy through the above described indirect method of insurance.

In this respect, it will be necessary to show:

• The lender as the insured.
• The estate or interest covered by the policy as fee simple estate.
• The title to the estate vested in the record owner.
• In Schedule B, an exception relative to the recorded contract.
• In Schedule B, the following exception:

"This policy does not insure the insured's lien or mortgage which encumbers the aforementioned contract."

Note: Any deviation from this procedure requires specific written consent from a Senior Underwriter.

In lieu of recording the full contract of sale, it is permissible to allow the recording of a memorandum thereof:

The memorandum must:

• be duly executed in recordable form by the seller(s), the purchaser(s) and their respective spouses, if any;
• contain all the necessary elements of a contract of sale of real property;
• contain a precise legal description of the property; and,
• incorporate by reference all the rights, terms, provisions, conditions, and limitations contained in the contract.

In addition, an executed and duly acknowledged copy of the full contract must be kept in our files.

Note: Sometimes local statutes do not specifically provide for the recording of short-form contracts. In these cases, it is of paramount importance to determine whether the memorandum qualifies as a contract. If it does not, either require the recording of the full contract or show a pertinent exception.

Cover Or Jacket

Schedule A:

• Amount: It should be the sale price as shown by the contract.
• Proposed Insured: Show the name of the contract purchaser but do not identify this person as a Contract Purchaser or Vendee.
• Vesting Of Title: Show the name of the record owner (presumably the contract vendor). Do not identify the owner as a contract seller or vendor.
• Legal Description: The legal description must be the same as the one shown in the contract.

Schedule B:

In addition, the following Exception must be added:
Rights terms, provisions, conditions and limitations contained in the contract of sale entered into by ____________ , seller, and ______________ , buyer, dated ______________ and recorded _____________ in Book __________ Page __________, .on _________, in the _________, County Clerk's (Recorder's ) Office.

Note: If the contract has not been filed for record, it becomes necessary to show the following:
No. _____ : We require that the above contract be filed for record. In lieu of such recording, a memorandum thereof may be recorded if the memorandum standing alone constitutes a valid contract of sale and incorporates all the terms, provisions, conditions, and limitations of the contract.

In the event that neither the contract nor the memorandum thereof is to be filed for record, no policy is to be issued without prior clearance from the a Senior Underwriter.