Guideline: ALTA Endorsement 4 (Condominium - Assessments Priority) and 4.1 (Condominium - Current Assessments)

Explanation:

ALTA 4-06 and 4.1-06 are designed to be issued with a 2006 ALTA Loan or Owner's Policy.  ALTA 4 (07-01-2021) and ALTA 4.1 (07-01-2021) contain modifications to align the endorsements to the terms of the 2021 ALTA Loan and Owner’s Policies and are designed to be issued with the 2021 policies.  Where available, use the version of the endorsement designed for the applicable policy, unless approved by a Stewart Title Guaranty Company underwriter.  It is not necessary to indicate “-06” or the parenthetical (date) on the endorsement attached to the policy.

Both ALTA Endorsement 4 and ALTA Endorsement 4.1 insure against loss or damage sustained by the Insured by reason of the failure of the unit to be part of a condominium; the failure of the documents creating the condominium to comply with the requirements of applicable condominium statutes to the extent that such failure affects title to the unit; present violations of any restrictive covenants that restrict the use of the unit or the forfeiture or reversion of title by reason of any provision contained in the restrictive covenants; the failure of the unit to be entitled to be assessed for real property taxes as a separate parcel; any obligation to remove any improvements that exist at Date of Policy because of any present encroachments; or a right of first refusal to purchase the unit that was exercised or could have been exercised at Date of Policy.

ALTA Endorsement 4 and ALTA Endorsement 4.1 differ with respect to their coverage regarding the priority of the lien of the Insured Mortgage in relation to the priority of condominium association’s lien for future unpaid charges and assessments.  The Insured Mortgage may or may not have priority over the condominium association’s lien for future unpaid charges and assessments based upon applicable state law and/or the documentation creating the condominium.

The documentation creating the condominium – usually, the Declaration of Condominium or Master Deed - frequently provide for the condominium association to have a lien against the condominium unit for unpaid charges and assessments. 

Some states have statutes or case law that determine the priority of the condominium’s lien for unpaid charges and assessments in relation to other liens.  Some state laws provide that the condominium association’s lien for unpaid charges and assessments is superior to all other liens.  Some state laws subordinate the condominium association’s lien to specific liens, for example, to real estate taxes or to the lien of a first mortgage or deed of trust encumbering the unit.  Some state laws provide that, when a unit is foreclosed by a lender, the condominium association may be entitled to a priority payment out of the proceeds of the foreclosure or trustee’s sale – for example, six months’ unpaid charges and assessments. 

Where the priority of the condominium association’s lien for unpaid charges and assessment is not determined by state law, the condominium documentation may provide that the condominium association’s lien is superior to all other liens.  In some cases, the condominium documentation may subordinate the condominium’s lien to another lien, for example, to the lien of a first mortgage or deed of trust encumbering the unit, or only to a purchase money mortgage or deed of trust.

When issued with a Loan Policy, ALTA Endorsement 4 insures the Insured lender against loss by reason of the priority of any lien for charges and assessments provided for in the condominium statutes and condominium documents at Date of Policy over the lien of the Insured Mortgage. ALTA Endorsement 4 may be used only on policies where the Insured Mortgage has priority over the condominium association’s lien for unpaid charges and assessments – including future unpaid charges and assessments - whether by statute, case law or pursuant to the condominium documentation (where not otherwise determined by state law).

ALTA Endorsement 4.1 insures the Insured against loss by reason of any charges or assessments provided for in the condominium statutes and condominium documents, due and unpaid at Date of Policy. ALTA Endorsement 4.1 may be used on all policies provided that all condominium charges and assessments are paid to date.  We prefer the use of ALTA Endorsement 4.1.

Underwriting Requirements:

1. The examination must verify that the condominium declaration complies with all statutory requirements and that all conditions to the creation of the condominium (such as record evidence of completion in some states) have been satisfied.

2. All taxes for the years prior to the time that the units are entitled to separate assessment must be paid.

3. The restrictions must not contain any forfeiture or reversionary provisions. 

4. If the condominium declaration creates a lien for charges or assessments, all charges and assessments outstanding for the period of time prior to the Date of Policy must be paid.

5. Click here to view a chart that shows the potentially applicable endorsements by state, if available, as they relate to the priority of an association’s lien for future unpaid charges and assessments. If an endorsement is indicated and if it is available in the applicable state, you should issue only that endorsement, unless approved by an Underwriter. In all other cases, the condominium documentation must be reviewed to determine if the condominium association’s lien for unpaid charges and assessments is expressly subordinate to the specific type of mortgage or deed of trust to be insured. These are designated as “Review CC&Rs” on the chart.

6. If the declaration creates a right of first refusal, you must verify with the association that the right is waived or ineffective as to the current and prior transactions.

7. If the condominium creates commercial condominium units, then you must verify that any prior restrictions do not prohibit use for commercial purposes; otherwise, you must delete the first sentence of Section 3.

8. Do not issue this endorsement if you know of any significant encroachment or boundary conflicts without approval of an Underwriter.

The underwriting guidelines contained herein have been provided for general reference. The facts, circumstances, and location of the subject property should be considered when determining the issuance of the requested form or endorsement. Please note that all of the forms and endorsements included in this system may not be available in all states. Accordingly, please contact the appropriate Stewart Title Guaranty Company underwriting personnel in order to determine availability.

Compliance with the underwriting guidelines contained herein in no way obligates Stewart Title Guaranty Company to issue any form or endorsement.