Guideline: ALTA Endorsement 46-06 (Option) (08-01-15)

Explanation:

A real estate option is a written agreement giving the holder of the option the right, but not the obligation, to acquire an interest in real property for an agreed upon price and within a certain time period.  The Optionor is the owner of property who agrees to give the Optionee a right to buy the property.  The Optionee is the party to whom the option is given.

This endorsement insures against loss or damage sustained by the Insured by reason of: (a) any defect in the execution of an option to purchase real property resulting from: (i) forgery, incompetency, incapacity, or impersonation of the optionor; (ii) failure of the optionor to have authorized the option; or (iii) the option not being properly signed, witnessed, sealed, acknowledged, notarized, or delivered by the optionor; and (b) any right to acquire an estate or interest in the option parcel granted to another person in a document recorded in the Public Records at Date of Policy if the document is not excepted in Schedule B.

The endorsement can be used in situations where the insured named in a policy is the holder of a specific option identified in the endorsement.  This endorsement does not insure the validity, priority or enforceability of the option.

This endorsement can be issued with either an ALTA Loan Policy 2006 or an ALTA Owner's Policy 2006.

Underwriting Requirements:

1. An underwriter must review the Option.

2. The Option must be considered an interest in real property under state law. The Option should not be shown in Schedule A without approval by a Senior Underwriter.

3. The Option or memorandum of option must be filed for record in the county in which the property is located. The commitment and policy should show the Option in Schedule B.

4. The Option must be executed with the same formalities required for recordation under state law including being signed, witnessed, sealed, acknowledged, notarized and delivered by the optionor.

5. Require satisfactory evidence that the optionor is a validly existing entity in good standing and has authorized the Option and all the appropriate parties with ownership in the land have executed the Option.

6.  Item 2 (a) “Option”:  Insert the recording information for the document creating the Option.

7.  Item 2 (b) “Option Parcel”:  This item contains bracketed sections.  Confirm the property description of the land subject to the Option.  It must be all or part of the Land shown in Schedule A.

(i)  If all of the Land shown in Schedule A is subject to the option, revise Item 2 (b) to read: “(b) “Option Parcel” means the Land described in Schedule A.”

(ii)  If only a portion of the Land shown in Schedule A is subject to the option, revise Item 2 (b) to read: “(b) “Option Parcel” means that portion of the Land described in Schedule A as :(Insert land description of the optioned parcel).”

8.  Review all recorded documents for options and rights of first refusal. Schedule B must show as exceptions all documents that contain options and rights of first refusal, and all mortgages or deeds of trust, whether or not they contain option provisions.  It is not necessary to specifically identify the option aspect in the exception, nor is it necessary to create an additional, separate exception specifying the option aspect.  Any rights to acquire the estate or other interests in the option parcel at Date of Policy other than the Option described in item 2(a) of the endorsement must be taken exception to in Schedule B of the title policy unless disposed of by conveyance or release satisfactory to the Company.

9.  Although this endorsement does not insure the validity, enforceability or priority of the option, we may consider the option price at time of exercise; whether the option period may violate the rule against perpetuities; whether there is any favorable state law as to the priority of the option; whether state law indicates that the option is an undivided interest or fee simple interest; whether the option may be recorded under state law; and whether the option is being executed in connection with a lease.