LLC endorsement on an ALTA Homeowners policy?

Question

Hello,

My husband and I purchased 3 four-plex multifamily buildings in Mesa, AZ last year. All of the properties were purchased in both our names as Community Property with ROS. After completion of the sale, we transferred title to all three properties into an AZ Limited Liability Corp (LLC) using a General Warranty Deed. When we purchased the properties, we also purchased an ALTA Homeowners policy of title insurance.

Since my husband and I are the only members of the LLC, do we need to get an endorsement for the LLC on the title insurance policy or are we already covered by the policy as there has been no change in parties holding interest in the property?

Thank you!

-Lella

Lella Bennett · Answer

Thanks @Doug McVinua , I have reached out to Empire West to get additional clarification. They've not been very helpful in this process so far, so we'll see if I can get a response. Really appreciate your input. I will post back an update on what I find out in case it may be helpful to others.

Tom Gimer · Answer

@Lella Bennett I can tell you that when this issue comes up -- and it comes up a lot -- either in the context of a transfer to a trust for estate planning purposes or to a wholly-owned LLC, the answer is always the same:

No endorsement needed... read the definitions in the policy

The term "insured" also includes ... (D) a grantee of an Insured under a deed delivered without payment of actual valuable consideration conveying the Title (1) if the stock, shares, memberships, or other equity interests of the grantee are wholly-owned by the named Insured...

That said, our policies are ALTA forms without "natural person" restrictions, so ymmv.

Doug McVinua · Answer

@Lella Bennett Stewart Title is one of the largest Title Policy co around and Empire has been OK as well.

What they don't seem to answer is whether you have a gap in your coverage as a result of the transfer to the LLC or as @Tom Gimer points out you might be OK?

I would try and get something from Empire in writing (email) that you are OK and don't need anything. They state isn't allowed......do they also state not necessary and you are covered?

You might also inquire into the needs should the day come you transfer them back into your name, maybe the day you sell the properties? (at a huge profit)

Title should be able to answer these questions for you as this is very common with transfers in and out of LLC's. Of course, I'm not an attorney either and only looking at this a Broker/Property Manager.

Who did your LLC, are they any help?

Lella Bennett · Answer

In reading through the policy documents provided by Stewart Title, it appears that the ALTA Homeowners policy we purchased:

"This policy covers only Land that is an improved residential lot on which there is located a one-to-four family residence and only when each insured named in Schedule A is a Natural Person"

So....looks like I bought the wrong type of policy? Yikes! Can I cancel this policy and buy another that lists the LLC as the insured?

Lella Bennett · Answer

@Doug McVinua , Thank you so much for verifying this. I reached out to Empire West Title Agency that sold us our policy and they responded that "Per my Title Department, The title of policy that you received at Close of Escrow, Homeowners Alta Policy, doesn’t allow for Endorsements when deeding into LLC’s".

Does this sound right? Not sure if this is a limitation from the issuer, in this case, Stewart Title Guaranty Company or if Empire just doesn't want to do this for me.

Thanks,

Lella

Tom Gimer · Answer

@Doug McVinua

I disagree. If OP’s LLC satisfies the definition of “the insured” in the policy there is no need for an endorsement or a new policy. 50/50 individual owners to LLC where the individuals are 50/50, for no consideration other than the interest in the LLC ... this type of transfer meets that definition. No legal advice given... confirm how this fits with the instant scenario.

Doug McVinua · Answer

@Lella Bennett Answer from a very trusted Title source that has nothing to sell you or gain by this:

They are not covered anymore as the LLC is a completely different entity so it is not considered "Arm's Length".  They would need to see if the previous Title company would issue an Endorsement to that policy.

Doug McVinua · Answer

@Lella Bennett I reached out to a trusted Title rep for an answer for you. Will post the response once it comes in.