Options to Purchase

Options to Purchase: Underwriting Guidelines

When insuring a stand-alone option, the regular ATLA owner’s policy may be used, showing the estate or interest being insured as an “option to purchase a [specified] estate as granted in ______ recorded in______.” When insuring a lease-option (a leasee in which an option to purchase is granted to the lessee), a leasehold policy may be used to insure both the leasehold estate and the option to purchase. Alternately, a leasehold policy, insuring the leasehold estate, may be issued in conjunction with an owner’s policy insuring the option to purchase. When insuring under two policies, you must make an exception in Schedule B of the owner’s policy as to the option provision of the recorded lease. 


In addition to the above, when insuring a stand-alone option or leasehold option, an exception should be made as to any loss or damage resulting from the bankruptcy of the optionor; and another exception made regarding the optionee’s responsibility to comply with the terms and conditions of the option agreement and, in the case of a lease-option, to comply with the terms and conditions of the lease. 


The policy insuring the option would have to be issued for the option price or the full value of the property, whichever is greater. 


The following exceptions should be used:


1.  Loss or damage resulting from the rejection of the option referred to in Schedule A hereof in any proceedings in or related to the Bankruptcy Act of the United States subsequent to the date hereof or resulting from loss of title by the optionor by sale for taxes and/or assessments herein excepted or here-after accruing. 

2.  (for an option to purchase contained within a lease) Terms and provisions of the lease described under Schedule A above creating the estates or interests insured hereunder. Note: By insuring the interest of the insured as optionee under the option contained in said lease, the company insures that by virtue of the option, the insured has the prior right to a conveyance of the fee simple title, subject to the exceptions herein contained, the Exclusions from Coverage and the Conditions and Stipulations of this policy, upon legally exercising the option and fulfilling its terms and conditions; and that such right may be successfully maintained against any other parties claiming through or under the lessor. At the time of exercising the option and taking title pursuant thereto, the optionee must determine in whom title is then vested through or under the lessor, and the liens and encumbrances on said title attaching subsequent to the recording of said option, and the company assumes no liability hereunder for cost or expense incurred by the insured in making such determinations or, there being no question of the validity or priority of the option involved, in prosecuting such suit or suits as may be necessary to procure the necessary deed from the party or parties in whom title is then vested or the necessary discharge of the liens and encumbrances then on the property. 

3.  (for a stand-alone option to purchase) Terms, provisions, conditions, limitations, and restrictions contained in the Option to Purchase described on Schedule A hereof, and the instrument which grants or contains the said Option to Purchase. 

4.  This Policy insures the statues of title to the land described on Schedule A hereof only as of the Date of Policy stated on Schedule A. This Policy does not insure against rights, liens, encumbrances, or interests attaching to the land subsequent to the Date of Policy or statues of title at the time the Option to Purchase is exercised. 

5.  This Policy does not insure the enforceability of the Option to Purchase described in Schedule A, and no obligation is assumed herein to enforce the performance or terms of said Option to Purchase. 


NOTE: Approval by Agents National Title underwriting counsel is required for an option to be insured. Counsel must be provided with sufficient information from which to analyze the nature and insurability of the option and the requirements and exceptions which must be listed.