When insuring title to real property encumbered by restrictions, an exception for such restrictions must be made in both owners and loan policies along with a notation as to whether or not the restrictions are accompanied by a reverter or forfeiture clause in the event of violation. If a forfeiture or reverter clause has been modified, such modification must be noted. The forfeiture or reverter must be reviewed to determine if the interests of a mortgage holder are protected, if not, then the exception should state that the insurer accepts no liability for any past or present violation of the restrictions. If the restrictions have been violated, such violation must be shown as a separate exception. Most importantly, if the restrictions are accompanied by right of reverter or forfeiture in event of violation, and a known violation has occurred, no policy should be issued until a deed can be obtained from the party entitled to such reversionary or forfeiture rights. Generally, lenders will require some form of affirmative coverage with respect to exceptions for restrictions – language to the effect that the restrictions contain no reversion or forfeiture clause, that the restrictions have not been violated, and that a future violation will not cause a reversion or forfeiture of title. Provided a review of the restrictions shows that no reversion or forfeiture clauses exist and that no violations of restrictions have occurred, such affirmative language may be given.
Some lenders will also ask that affirmative coverage include the assurance that the use intended for the property will not result in a violation of the restrictions. Since violation of use restrictions is one of the most common forms of violations, it is unwise to provide affirmative coverage against such violations, especially when a potential violation will be the first of its nature in the subdivision or might become a nuisance or otherwise offend or annoy neighboring property owners.
Where building restriction lines appear on a recorded subdivision plat or on the plat of a survey, an exception should be noted to the platted restrictions. Affirmative insurance, stating that such setback lines have not been violated should not be given unless and until it can be verified, by an inspection or a recent survey, that the improvements on the property do not, in fact, violate the setbacks. Where there has been a violation, the violation must be noted as a separate exception.
Any affirmative assurance, if given, should be set out on a separate endorsement after approval by local Agents National Title title underwriting counsel.
No affirmative insurance should ever be given on owners policies regarding the exception for restrictions or building line restrictions unless underwriter approval is obtained.