Standard Exceptions
Contents
Overview
Standard Exceptions are commonly used exceptions to a title insurance policy that must appear in both title insurance commitments and title insurance policies prior to issuance. Unlike Requirements, which typically must be addressed and cleared at or prior to closing, standard exceptions typically remain on the commitment and are incorporated into any final policy. This is because they tend to be matters that affect real property in the long term and that cannot easily be cleared or insured over such as easements, building encroachments, and restrictive covenants. Exceptions can include both recorded and unrecorded matters and are mostly property specific although there are some that are state specific.
Sources
- ALTA
- Underwriters
- Local Custom
- State Law in some states
Compliance
- Standard language must be filed and used in some states.
- Certain generic exceptions prohibited in some states.
- Certain states determine language and criteria for removal of exceptions based on state law and regulations.
Forms
- This language is used primarily on Commitments and Policies.
Searching
- The information required to list property specific exceptions is found through a title search.
Examination
- As part of the examination of title, the Examiner should not only list any recorded documents as exceptions (that are not otherwise listed as requirements) and frequently must raise certain exceptions based on other matters found during the examination that are not necessarily recorded such as those related to the property being landlocked or adjacent to a body of water.
Curative
- Certain exceptions can be cleared prior to closing. For state and national exceptions, there is typically a straightforward and common method for removing such exceptions usually explained by underwriting bulletins. Property specific exceptions, such a restrictive covenants or those related to the location of the property are typically much more difficult to remove and typically require underwriter approval.
Underwriting
- Except where set by state law or regulations, underwriters typically establish both the language and criteria for removal for each different type of exception including property specific, state, and national. As a result each state is different and different underwriters in the same state may have a different set of rules.
Production
Closing & Escrow
- Removal of some exceptions may be cleared at the settlement table, although this commonly limited to removing common exceptions based on underwriter approved practices. A good example of this is when a title commitment is marked up at closing to remove certain standard ALTA exceptions.
- In some cases a requirement that is not property dealt with at closing may be moved to the policy as an exception.
Recording
- Recording does not come into play in this area although most property specific exceptions are themselves based on recorded documents.
- Every once in a while a recorded document, such as a deed, will list all of the known property specific exceptions to a property. These are frequently used by searchers and examiners to double-check their own work.
Pricing
- There is generally no pricing involved in creating exceptions to commitment and policies, but depending on the state, there may be a charge for removing some standard exceptions in order to increase coverage. A good example is the price for "Extended Coverage" for loan policies available in many states.
Types
Although not officially recognized, a helpful way of categorizing exceptions is to break them down into nation, state, and property specific exceptions.
National
These are the commonly listed exceptions used in almost every state that are based on those promulgated by ALTA. A common variation of these exceptions are the so-called Western Regional Exceptions. The criteria for their removal varies from state to state, but tends to be similar. In some jurisdictions the content and criteria for removal of these exceptions is regulated by the state.
State
These are exceptions either mandated by state law, or more commonly those that underwriting counsel in various states has determined should be listed to avoid claims due mostly to matters that affect title but that cannot be ascertained based on a title search and examination. Examples are the Pennsylvania Coal Clause, which is mandated by state law, or the mineral rights exceptions used for some counties in western Maryland adopted by some underwriters for similar issues.
Property Specific
These are exceptions based on a title search and title examination of a property. They are by the far the most numerous and vary from state to state, examiner to examiner. In some cases underwriters may promulgate specific language they want to be used in connection with these exceptions, but for the most part these are raised using customary language developed by specific title search and examiners through decades of use.
Recorded
These are exceptions based on recorded or filed documents found during the course of a title search. It is typically common practice to list not only the reference information but also to provide a small "abstract" of the contents of the document. An example might be "Rights granted to Utility Company A as in Book 1234 page 567."
Not Recorded
These are exceptions based on finding found through the examination process although some may be raised by a title searcher. These are based on items that are either not recorded or that may be recorded but were too early in time to have been discovered in the scope of a search such as a 150-year old railway easement. This includes excepting for matters such as when a property is landlocked or adjacent to a body of water that may include rights of others not in title to access the property.
ALTA Standard Exceptions
For several years, ALTA has maintained a list of standard exceptions with standardized language for various types of exceptions include general national exceptions as well as language for property specific recorded documents such a declarations of condominium. For the most part, only the national exceptions have been widely adopted into use. Each exception also has a specific code to facilitate their use.
ALTA® Standard Exceptions (10-16-08)
ALTA Standard National Exceptions
- STAX01 - Parties in Possession
- Rights or claims of parties in possession not recorded in the Public Records.
- STAX02 - Easements
- Easements or claims of easements not recorded in the Public Records.
- STAX03 - Survey Exception
- Any encroachment, encumbrance, violation, variation, or adverse circumstance that would be disclosed by an inspection or an accurate and complete land survey of the Land.
- STAX04 - Statutory Liens for Services, Labor, or Material
- Any statutory lien for services, labor, or material arising from construction of an improvement or work related to the Land and not recorded in the Public Records.
- STAX05
- Liens for real estate taxes, assessments and other charges imposed by a governmental authority that are not shown as existing liens by its records.
