ALTA endorsements can be a confusing piece of the closing process in commercial real estate. With that being said, they are incredibly important and often requested by lenders to ensure protection for not only the asset, but also the lender and the borrower. While there are around 150 different and very specific endorsements, the average real estate developer will usually see a much shorter list requested by a lender. The most commonly requested endorsements include but are not limited to survey-related endorsements, zoning endorsements, access endorsements, environmental endorsements, and mechanics’ lien endorsements. These endorsements will typically be asked for in the form of an ALTA survey, a third party report initiated by either the lender or the borrower. The survey provides a detailed land parcel map and outlines the surveyor’s findings regarding zoning, access, improvements to the property, utilities and other relevant information that may impact the marketability of title. We’ll dive a bit further into which specific endorsements a commercial real estate developer might see, and what exactly they mean.
Who is ALTA and what are endorsements?
The American Land Title Association (ALTA) is a national trade association, founded in 1907, that represents the title insurance industry in the United States. The association provides endorsements to offer additional protection and minimize risk in commercial real estate transactions. ALTA endorsements are addendums to title insurance policies, providing specific coverage beyond the standard protections offered by the base policy. They are designed to address various concerns and contingencies that may arise during real estate transactions.
Survey-Related Endorsements (ALTA 25 and ALTA 28.1)
These endorsements, such as ALTA 25 (Same as Survey) and ALTA 28.1 (Encroachments – Boundaries and Easements), address issues related to property surveys, such as encroachments, boundary disputes, and survey errors. They provide assurances to lenders and buyers regarding the accuracy of property boundaries and improvements.
Zoning Endorsements (ALTA 3 and ALTA 3.1)
Zoning ordinances can significantly impact the permissible use and development potential of commercial properties. Zoning endorsements, such as ALTA 3 (Zoning) and ALTA 3.1 (Zoning – Completed Structures), protect buyers and lenders by insuring against losses resulting from violations of zoning regulations.
Access Endorsements (ALTA 17 and ALTA 17.1)
Ensuring uninterrupted access to a property is crucial for its commercial viability. Access endorsements, such as ALTA 17 (Access and Entry) and ALTA 17.1 (Indirect Access and Entry), protect against losses caused by restrictions or disputes related to property access rights, or lack of legal access to a property.
Environmental Endorsements (ALTA 8.1 and 8.2)
Environmental risks can pose significant challenges in commercial real estate transactions. Endorsements, such as ALTA 8.1 (Environmental Protection Lien) and ALTA 8.2 (Commercial Environmental Protection Lien), addressing environmental concerns provide coverage for losses arising from contamination, regulatory violations, and remediation costs.
Mechanics’ Lien Endorsements (ALTA 32 and ALTA 33)
Mechanics’ liens can cloud title and create complications during property sales or financings. Mechanics’ lien endorsements, such as ALTA 32 (Construction Loan) and ALTA 33 Disbursement Endorsement), protect against losses resulting from mechanics’ liens filed against the property.
ALTA endorsements are valuable tools in commercial real estate transactions, offering customized coverage to address specific concerns and contingencies relevant to the specific transaction. By providing enhanced protection, mitigating risks, and ensuring the marketability of title, these endorsements play a crucial role in facilitating smoother transactions and safeguarding investments in the fast-paced and complex world of commercial real estate.
