I was recently asked by a client if title companies disclose environmental liens or cover them on title insurance policies. I offer the following and this supports the need to include environmental liability insurance as part of your real estate purchasing strategy.
Title Companies provide Title Policies for Lender Liability for Environmental Liens per ALTA Policies 8.1 (for residential) and 8.2 (for commercial). These endorsements do not provide coverage for environmental protection. These endorsements provide affirmative coverage that no document in the public records discloses an environmental lien or notice of enforcement of a lien.
- ALTA® Endorsement Form 8.1-06 Environmental Protection (effective 06-17-06) [S]
- ALTA® Endorsement Form 8.2-06 Commercial Environmental Protection Lien (effective 10/16/08) [S]
The risks of missing an environmental lien can be costly to a purchaser, in that the cleanup can exceed property values, whereas the Title Insurance only covers the unpaid balance of loans. It does not protect for potential cost above and beyond the loan.
Neither 8.1-06 and 8.2-06 disclose historical (satisfied) environmental liens. Therefore, they do not satisfy requirements for the search of environmental liens for an innocent landowner, contiguous property owner or bona fide prospective purchaser for liability protection under the Superfund Environmental Response, Compensation, and Liability Act (CERCLA) “Standards and Practices for All Appropriate Inquiries” (40 CFR Part 312) or ASTM’s revised Phase I environmental site assessment standard (ASTM E 1527-05).”
PROPERTY TRANSFER COVERAGE
When buying or selling property their can be unknown preexisting environmental
conditions. Since environmental due diligence (All Appropriate Inquiry (AAI), a Phase
I or Phase II survey, Baseline Environmental Assessment (BEA)….), cannot guarantee
uncovering all potential environmental liabilities, insurance companies have created
property transfer insurance. This coverage protects the new owner or any party with an
insurable interest, against unknown environmental conditions that may be discovered
during the policy period, that were not caused by the new owner.
This coverage not only helps to keep the property at its maximum value, it will assist the purchaser in being able to secure the necessary financing to complete their transaction.
Real estate owners and developers who use this product as part of their risk transfer strategy often find they can negotiate with the seller to share the cost and negotiate a better mortgage rate than if they did not have property transfer coverage. You can cover multiple locations on a single policy.