Bulletin: CA000004

Dear Associates:

Enclosed you will find a synopsis of Chapter Number 1110 which becomes law effective January 1, 1992. Briefly, the new law creates additional community facilities districts also known as Mello Roos districts, to be formed for the specific purpose of removing hazardous waste materials. The law requires that where a district is formed for such purposes, the legend on the recorded map state for what purpose (i.e., the cleanup of hazardous waste) the district is being formed. In addition, thereafter, a Notice of Special Tax is to be recorded setting forth that the special tax is due in the community facility district for the purpose of hazardous waste cleanup.

Current title practices require you to set out the Mello Roos district as an exception to Schedule B. This exception is in addition to your Taxes and Special Assessments in paragraph 1 in Schedule B. However, if you are aware that a Mello Roos district has been formed for hazardous waste cleanup, you must set out a separate exception that there is of record a notice of violation of hazardous waste as disclosed either on the map as set forth in its legend or as set forth in on the recorded Notice of Special Tax. If we fail to include such an exception, we may find that there may be coverage as set forth under the policy, exclusions from coverage, Paragraph 1(a)(iv) which states:

"The following matters are expressly excluded from the coverage of this policy and the Company will not pay loss or damage, costs, attorneys fees or expenses which arise by reason of...(iv) environmental protection,, or the effect of any violation of these laws, ordinances or governmental regulations, except to the extent that a notice of the enforcement thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy."

Therefore, since the district is being formed specifically for hazardous waste cleanup, which district reference is placed on the public records, either through the recorded map or the recorded Notice of Special Taxes, the above referenced exclusion from coverage would not protect Stewart against such a claim. It is imperative that any time a community facilities district map is of record and is in the chain of title, we review same to determine if in fact the district was specifically set up for hazardous waste cleanup. Again, if it was, a separate exception must be set up, that the map (or the Notice of Special Tax) sets forth a recorded notice of violation of the hazardous waste. If you have any questions in regard to this memo, please get back to me.

Thank you.