Bulletin: KY000004

Dear Associates:

There has been an increase in underwriting questions regarding the issuance of title insurance where a trailer or manufactured home is located on the subject property. In order to address those problems, you should follow the procedures outlined in this Bulletin in addition to all regular standards applicable to the closing of a real estate transaction.

The language used to describe various structures manufactured off-site and placed on real property causes some confusion in this area. The underwriting problem discussed in this Bulletin is associated with structures that fall within the definitions of "trailer," "semitrailer," or "manufactured home" found at KRS 186.650. The structures that meet those definitions, primarily those in which a structured chassis supports the floors, walls, and roofs and in which the chassis rests on wheels, axles, and brakes for the purpose of transportation to a site, are titled in the same manner as motor vehicles. Security interests in those structures are also perfected in the same manner as motor vehicles. This Bulletin is directed to insuring transactions involving those structures.

The procedures outlined in this Bulletin are necessitated by the fact that the Kentucky courts have ruled that the procedure outlined in KRS Chapter 186A for the perfection of a security interest in a structure having a motor vehicle title is the sole and exclusive method for the protection of priority in such liens. Liens or mortgages recorded in the real estate records of the county clerk's office regarding structures with motor vehicle titles would not perfect the security interest for priority purposes.

There are several scenarios that could arise when you are requested to insure a transaction involving a building that was constructed, at least in part, offsite. The three major scenarios are addressed below.

I.UNIT HAS MOTOR VEHICLE TITLE, NOT AFFIXED TO REAL ESTATE

When you become aware of the existence of a trailer or manufactured home on property to be insured, you should assume that the trailer or manufactured home is not affixed to the land and is classified as personal property for tax purposes. Thus, the trailer or manufactured home is not insurable. The following exception should appear in Schedule B of the policy:

The land described in Schedule A hereof shall not be deemed to include any house trailer, trailer, or manufactured home located on the premises.

II.UNIT HAS MOTOR VEHICLE TITLE, AFFIXED TO REAL ESTATE

When a unit has allegedly been affixed to the real property where it is located, but there is a motor vehicle title for the unit, you may be requested to insure the property including the value of the trailer or manufactured home by the issuance of the Manufactured Housing Unit endorsement (ALTA Form 7) which provides for inclusion within the coverage under the policy of any manufactured unit located on the land at the date of the policy.

When you are requested to delete the trailer or manufactured home exception or issue the ALTA Form 7, the following actions must be taken:

Examine any restrictive covenants for prohibitions against trailers or manufactured homes.

Determine that the trailer or manufactured home has become permanently affixed by inspection or by written confirmation from the surveyor or appraiser. Factors which must be present for the unit to be considered permanently affixed to the land include the removal of the wheels, tongue, and axles from the unit, the unit is set on a permanent foundation, and the unit has permanent utility connections.

Perform a search of the motor vehicle title records required to be maintained by KRS Chapter 186A to determine the existence of any prior liens. They are located in the county clerk's office in the county where the unit is located. Also search the UCC records to check for liens in favor of out-of-state vendors who might be unaware of the Kentucky requirements.

The lien of your lender must be noted on the motor vehicle title document, any prior noted liens (including those found in the UCC records) paid and satisfied, and a lien statement filed as required by KRS Chapter 186A. Additionally, the lender should take physical possession of the title document before a policy is issued.

The trailer or manufactured home should be taxed as real property. You should check with the local tax office as to their requirements before closing a transaction where an ALTA 7 endorsement is required.

III.NO MOTOR VEHICLE TITLE ISSUED FOR UNIT

If the transaction at issue involves a modular home or prefabricated home (structures not subject to motor vehicle titling requirements) the analysis is different. An ALTA 7 endorsement can be issued for a modular home (a prefabricated structure that arrives onsite in units preassembled at a factory) or a prefabricated home (a structure consisting of two or more three dimensional components that are joined together at the site) by verifying they are permanently affixed to the real property.

For further information, please see Section 12.24 of the Underwriting Manual.