Bulletin: NV000005

Dear Associates:

It has been brought to my attention that certain lenders providing funding for 2nd mortgages have recently established a practice of requesting that a 100 series endorsement be issued along with their title policy.

Please note that the 100 endorsement provides in part the following:

"The Company ( Stewart Title ) hereby insures the owner of the indebtedness secured by the insured mortgage against loss or damage which the insured shall sustain by reason of:

1. The existence of any of the following:

(a) "covenants", "conditions" or "restrictions" under which the lien of the mortgage referred to in Schedule A can be cut off, subordinated, or otherwise impaired;

Please also note that typical CC&Rs filed in the last 20-30 years on subdivided properties may contain a "mortgage protection clause" with generic language to the following effect:

"No lien created under this Declaration, nor any lien arising by reason of any breach of the (subdivision) Restrictions, nor the enforcement of any provision of this Declaration, shall defeat or render invalid the rights of the Beneficiary under any Deed of Trust of first and senior priority now or hereafter upon a Lot in the Subdivision."

In other words, in the event of a foreclosure on delinquent Home Owners Association dues, or the enforcement of a restriction or covenant contained in the CC&Rs which results in title to the property reverting or forfeiting to the Home Owners Association, the "mortgage protection clause" referenced above provides assurance to First Lien Holders exempting their security document from the effects of the foreclosure. The mortgage protection clause does not extend any such benefits to lien holders in any other position.

In the event that a 100 endorsement has been issued to a lender in 2nd position, we have extended an obligation to the lender under the policy, insuring that their security will not be impaired by a foreclosure on delinquent Home Owners Association dues, or the enforcement of a restriction or covenant contained in the CC&Rs which results in title to the property reverting or forfeiting to the Home Owners Association. Since the CC&Rs do not provide for a 2nd lenders' security interest to survive a foreclosure or Action under the CC&Rs, we are creating an extra-hazardous obligation under the policy, with-out any provisions in the CC&Rs to rely upon in providing this extra-hazardous coverage.

Please do not issue a 100 Endorsement to a 2nd Lien Holder without first obtaining written approval from an Underwriter, who has conducted a satisfactory review of the CC&Rs applicable to the subject property.