B7-2-04, Special Title Insurance Coverage Considerations (05/03/2023)

The title insurance policy for a condo or PUD unit mortgage must describe all components of the unit estate.

For condo units, an ALTA 4 or 4.1 endorsement or its equivalent is required. For PUD units, an ALTA 5 or 5.1 endorsement or its equivalent is required. These endorsements must be attached to each policy or incorporated in the text of the policy.

If the unit owners own the common areas of the project as tenants in common, the policy for each unit mortgage must reflect that ownership. If the homeowners' association owns the common elements, areas, or facilities of the project separately (or holds them in a leasehold estate), the title insurance on those areas must insure that ownership. This title policy must show that title to the common elements, areas, or facilities is free and clear of any objectionable liens and encumbrances, including any statutory or mechanic's liens for labor or materials related to improvements on the common areas that began before the title policy was issued.

The title policy must protect Fannie Mae by insuring the following:

• that the mortgage is superior to any lien for unpaid common expense assessments. (In jurisdictions that give these assessments a limited priority over a first mortgage, the policy must provide assurance that those assessments have been paid through the effective date of the policy.)

• against any impairment or loss of title of Fannie Mae's first mortgage caused by any past, present, or future violations of any covenants, conditions, or restrictions of the master deed for the project. (It must specifically insure against any loss that results from a violation that existed as of the date of the policy.)

• that the unit does not encroach on another unit or on any of the common elements, areas, or facilities. (The policy also must insure that there is no encroachment on the unit by another unit or by any of the common elements, areas, or facilities.)

• that the loan is secured by a unit in a condo project that has been created in compliance with the applicable enabling statutes;

• that real estate taxes are assessable and lienable only against the individual condo unit and its undivided interest in the common elements, rather than against the project as a whole; and

• that the owner of a PUD unit is a member of the homeowners' association and that the membership is transferable if the unit is sold.

When co-op shares are recognized as real property, a title policy is required. Title evidence for a co-op share loan must ensure that:

• the title is generally acceptable,

• the borrower has good and marketable title to the shares, and

• the co-op corporation has good and marketable title to the project.

When co-op shares are considered personal property and therefore cannot be insured under standard title policies, the title must be generally acceptable, the borrower must have title to the shares, and the co-op corporation must have good and marketable title to the project.

A mortgage that is subject to a leasehold estate must have an ALTA Endorsement 13.1.

For loans secured by properties held by a community land trust, see Title Insurance and Delivery Requirements in  B5-5.3-03, Shared Equity Transactions: Eligibility, Underwriting and Collateral RequirementsB5-5.3-03, Shared Equity Transactions: Eligibility, Underwriting and Collateral Requirements.

The table below provides the title insurance coverage requirements or endorsements for other types of loans.