ALTA '92 v. ALTA '98

By Kim McCutchen, Affiliate Director, Valmer Land Title Agecy, LLC and Samuel D. Shellhaas, Esq., LandAmerica Financial Group, Inc.

Questions have arisen relative to the recent change in the standard real estate purchase contract which requires issuance of an "ALTA 10 17/98" Homeowners policy of title insurance. Many REALTORS® find themselves asking what is an ALTA 1998 homeowners policy, how is it different from the ALTA 10/17/92 owners policy, and is it worth the extra 15% premium? Click here to view comparison chart.

In 2003, the ALTA (American Land Title Association) adopted a modification to the 10/17/98 homeowners policy. The modified policy is actually the ALTA 10/22/2003 homeowners policy and it is this policy form, not the actual 1998 version, which is routinely offered in Ohio and commonly referred to as the ALTA 98.

For our purposes, there is little difference between the two policies and this article will focus on some of the more important differences between the "Homeowners" policy (ALTA '98) and the "Regular" policy (ALTA '92).

The Homeowners is like any other insurance policy. It consists of a part that tells you what events are covered by the policy ("Covered Risks"), a part that tells you what is not covered ("Exclusions"), and a part in very fine print ("Conditions").

The major differences between the Homeowners and the Regular policy are the Covered Risks. The number and scope of Covered Risks is expanded in the Homeowners policy, thus the reason it is sometimes referred to as an "enhanced coverage policy." Some of the enhanced coverages in the Homeowners policy are the following Covered Risks:

Covered Risk 11 -- Actual vehicular and pedestrian access to and from the land based upon a legal right. The Regular policy covers only a "right of access" to and from the land. This is a subtle, but important difference. A right of access contemplates that the land abuts, either directly or via an easement, a publicly dedicated street. The fact that the abutting street is on a grade 20 feet below the land is not covered on the Regular policy, but it would be covered on the Homeowners policy.

Covered Risk 15 -- Forced removal of existing structures or any part of them, other than a boundary wall or fence, because any portion of said structures was built without obtaining a building permit. Many cities require point of sale inspections prior to sale and these inspections can lead to citations requiring the removal of improvements that were built without a building permit. What do you think a city inspector will do when he learns the person your client bought the house from finished the basement without a building permit, installed a half bath and had their Uncle Ed wire it?

Covered Risks 16 & 17 -- Zoning violation coverages. Zoning Endorsements are available for a Regular policy; however, these endorsements run an additional premium of 15% to 25%.

Covered Risk 18 -- Protects the homeowner if there was a garage, building that was on the neighbor's lot and the neighbor was unable to sell or refinance because of the encroachment.

Covered Risk 19 -- Protection if there is a structure in easement or over a set back line and the policy holder is forced to remove it (i.e. a front porch over the building line or garage in an easement)

Covered Risk 28 -- "Survey" coverages which are not given on a Regular policy unless a higher premium is paid. If you think these things never happen, I can tell you about a house built on the wrong lot which was sold twice before the error was discovered five years later.

Covered Risk 25 -- If a neighbor builds any structure after the Policy Date (other than a boundary wall or fence) which encroaches on your land. This is a major difference from the Regular policy which excludes matters that occur after the Policy Date. (See Exclusion 3 in the 10/17/92 owners policy) You would be surprised at the number of times an insured under a Regular policy has made a claim because their neighbor digs a footer for an addition or a garage in the insured's yard. These claims are not covered on the Regular policy and will result in the claim being denied.

Some of these coverages are subject to deductibles and limits of liabilities that are less than the full policy amount of the Homeowners policy. These items are found in Schedule A of the Homeowners policy.

Some additional coverages are found in the Conditions of the Homeowners policy: 

Condition 9 increases the face amount of the policy by 10% per year for the first 5 years (150% maximum). 

Condition 6 (b) provides coverage to rent a reasonably equivalent residence should the insured be forced to vacate the property due to a claim insured against by the policy.

These are nice coverages, especially in an appreciating market.

All told, the Homeowners policy is a bargain for the extra 15% in premium. The Zoning coverages alone are 15% to 25% additional premium on the 10/17/98 Homeowners policy and the value of the building code violation coverage can be priceless. Do you really want to recommend that your client not spend the additional 25% or do you want to inform them of their options so that they can make an informed decision?

Click here to view comparison chart.