Bulletin: MU2010001

Dear Associates:  

This Bulletin describes current Company policy regarding covenants purporting to require the payment of a fee upon the transfer of real property (hereafter "Transfer Fee Covenants").  The common characteristic of such covenants is generally a requirement to pay a fee each time the property is transferred (on the current sale and all future sales), for an extended period of time, sometimes as long as 99 years.  The fee varies, but is generally one percent (1%) of the selling price or the gross sales price.  The provisions purport to create a lien on the property in the event the transfer fee is not paid.   

These covenants may be created in separate documents and may be referred to as "Transfer Fee Covenants," "Freehold Licensing Transfer Fee Covenants," "GenEstate Legacy Covenants" or "Private Transfer Taxes."  In some cases, the transfer fee provision is included within other documentation, such as a general declaration of covenants and restrictions, or in a deed.  Because new names may be used as time passes and the descriptions may vary, you must read all such documents very carefully.  

These provisions present a variety of issues.  It may be difficult to accurately ascertain the appropriate payee and to confirm that past and current payments have been received.  The payment may be required to be paid to a single person or an entity, to a "trustee" on behalf of multiple "beneficiaries," or to several persons and/or entities.   

Several states have enacted statutes that regulate, limit, and/or prohibit the use of these covenants and/or that declare these covenants to be invalid and/or unenforceable.  Those states include California, Florida, Kansas, Missouri, Oregon and Texas. It is anticipated that other states may enact legislation or promulgate regulations regarding Transfer Fee Covenants in the future.   

Some settlement agents may decline to record instruments that purport to create a Transfer Fee Covenant. Some settlement agents will also decline to accept any portion of the Transfer Fee, where allowed by the Transfer Fee Covenants to be paid.  

The following guidelines apply to all properties subject to a Transfer Fee Covenant, unless a state-specific Stewart Bulletin provides otherwise or unless you secure approval by our underwriting personnel. 

Company Policy:  

Do not insure any Transfer Fee Covenants, such as by showing them in Schedule A.

1. Exceptions Required.  Upon discovery of a Transfer Fee Covenant in the chain of title, all commitments, preliminary reports and policies must contain the following exceptions (hereafter "Exception"): 

Owner's Policy:  (Covenants, Conditions and Restrictions, set forth in instrument recorded _____________, together with transfer fees set forth therein).  This instrument includes provisions purporting to create a lien on the Land payable upon each transfer of the Land.  Notwithstanding any Covered Risk, policy provision, or endorsement to the contrary, this policy does not insure against and excepts all loss or damage due to the failure to pay any fees, amounts, or assessments: (a) on any prior transfers of Title, (b) on the current conveyance of Title, and (c) on any future transfers of Title.

Loan Policy:  (Covenants, Conditions and Restrictions, set forth in instrument recorded _____________, together with transfer fees set forth therein).  This instrument includes provisions purporting to create a lien on the Land payable upon each transfer of the Land.  Notwithstanding any Covered Risk, policy provision, or endorsement to the contrary, this policy does not insure against and excepts all loss or damage due to the failure to pay any fees, amounts, or assessments: (a) on any prior transfers of Title, (b) on the current conveyance of Title, and (c) on any future transfers of Title, and (d) a lack or loss of priority of the Lien of the Insured Mortgage to any lien securing the payment of such fees, amounts, or assessments.   

2. Modification of the Exception for the Loan Policy only:  

(a) You may delete section (a) of the Exception (relating to prior transfers) from the Loan Policy only if the Public Records disclose or if you receive acceptable documentation (often from the "Trustee") (which may be titled, for example, an Estoppel Certificate, Receipt, Acknowledgment or Release), in recordable form, confirming that the applicable fees have been paid for all prior transfers of the property.  If not already of record, you should record such documentation with all other closing documents.

(b) You may delete section (b) of the Exception (relating to the current conveyance) from the Loan Policy only if you receive acceptable documentation (often from the "Trustee"), in recordable form, confirming that the applicable fees have been paid for the current transaction.  You should record such documentation with all other closing documents.

You should examine the instrument creating the Transfer Fee Covenant to make these determinations.

(c) You may not delete section (c) of the Exceptions (relating to future transfers) from any policy.

(d) You may delete section (d) of the Loan Policy Exception (relating to lack or loss of priority of the Lien of the Insured Mortgage), if you furnish the Transfer Fee Covenant to our underwriting personnel and they approve such deletion.

(e) You may not make any other modifications to the Exceptions or provide any affirmative coverage relating to Transfer Fee Covenants without underwriter approval. 

3. Policies and Endorsements: 

(a) In addition to the 2006 ALTA Owner's and Loan Policies, you may issue the following policies and endorsements, upon the following conditions: 

i. A Short Form Loan Policy, provided that you add the Exception to the Addendum.

ii. An ALTA Endorsement 4-06, 4.1-06, 5-06, 5.1-06, 9-06, 9.1-06, 9.2-06,   9.3-06, 9.4-06, 9.5-06, or CLTA, STG, or other state equivalent, provided that you add the Exception to each policy.

iii. A Homeowner's Policy or an Expanded Coverage Residential Loan Policy (where available), provided that you add the Exception to each policy. 

(b) You may not provide affirmative insurance in Schedule B with respect to the Transfer Fee Covenants. 

4. This bulletin does not apply to a transfer fee set forth in restrictions of a subdivision that require payment of a fee to a Property Owner's Association, Homeowner's Association or Condominium upon transfer of Title.  

5. For an Example of a Transfer Fee Covenant, click here. This is only a sample; do not assume that the Transfer Fee Covenant in your chain of title contains the same terms.   

If you have questions relating to this bulletin, please contact Stewart Legal Services or your local underwriting personnel.

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