Bulletin: MI2021003

Dear Associates:

In furtherance of Stewart Bulletin MU2021002, which Bulletin addressed the adoption of various new ALTA 2021 forms, please be advised that when issuing the Short Form Residential Loan Policy we would direct you to use the ALTA 2021 Short Form Residential Loan Policy - Current Assessments in Michigan as opposed to the Assessments Priority version of the form.  

There are a few notable distinctions between the two forms. The Assessments Priority form, Paragraph 2 b provides coverage over a forfeiture or reversion of title from a future violation of covenants and restrictions. In contrast, the Current Assessments form, Paragraph 2 b provides coverage over a forfeiture or reversion of title from a violation of covenants and restrictions at the Date of Policy.

Another important distinction between the forms is that when using the Short Form Residential Loan Policy - Assessments Priority form, you would issue the ALTA 4 - Assessment Priority Endorsement (when insuring a Condominium Unit), and the ALTA 5-06 - Assessments Priority Endorsement form (when insuring a Planned Urban Development parcel). These two endorsements provide coverage to the lender for priority of the lien of the mortgage over condo or neighborhood association liens: 

ALTA 4:

The priority of any lien for charges and assessments provided for in the State condominium statutes and condominium documents at Date of Policy over the lien of any Insured Mortgage identified in Schedule A.

ALTA 5-06:

The priority of any lien for charges and assessments in favor of any association of owners that are provided for in any document at Date of Policy and referred to in Schedule B over the lien of any Insured Mortgage identified in Schedule A. 

When issuing the Short Form Residential Loan Policy - Current Assessments, you would use the ALTA 4.1 and ALTA 5.1. These two endorsements provide coverage to the lender for priority of the lien of the mortgage over Association liens that are due and unpaid at Date of Policy:

ALTA 4.1-06:

Any charges or assessments provided for in the condominium statutes and condominium documents due and unpaid at Date of Policy. 

ALTA 5.1-06:

Any charges or assessments in favor of any association of owners, that are provided for in any document referred to in Schedule B, due and unpaid at Date of Policy. 

In Michigan this distinction is important. Due to a quirk in the Michigan Condominium Act, Condo Association Assessment liens have priority over previously recorded 2^nd mortgages.

MCL 559.208 [Sec.108]: (1) Sums assessed to a co-owner by the association of co-owners that are unpaid together with interest on such sums, collection and late charges, advances made by the association of co-owners for taxes or other liens to protect its lien, attorney fees, and fines in accordance with the condominium documents, constitute a lien upon the unit or units in the project owned by the co-owner at the time of the assessment before other liens except tax liens on the condominium unit in favor of any state or federal taxing authority and sums unpaid on a first mortgage of record, except that past due assessments that are evidenced by a notice of lien recorded as set forth in subsection (3) have priority over a first mortgage recorded subsequent to the recording of the notice of lien. 

Due to the potential loss of priority to the subsequently recorded condo association liens, we would suggest that our agents and offices use the Current Assessments version when issuing the Short Form Residential Loan Policy. We would be unable to provide the “absolute priority” coverages offered in the ALTA 4 (unless we are insuring a first position mortgage), but we can determine that there are no current delinquent association fees before closing which is the coverage afforded in the ALTA 4.1 and ALTA 5.1. 

There is one further endorsement distinction to be made between the Short Form Assessments Priority version and the Short Form Current Assessments version. You would use the ALTA 9.6-06 with the Assessments Priority version and the ALTA 9.6.1-06 endorsement with the Current Assessments version. These endorsements carry the same distinction in that the 9.6-06 provides absolute lien coverage for the mortgage over assessments and the 9.6.1-06 provides for coverage over a private charge or assessment due and payable at Date of Policy. 

Should you be requested by the proposed lender/Insured to issue the Assessments Priority version of the Short Form Loan Policy, please contact the Legal Department for approval. 

Sample forms of both versions of the Short Form Residential Loan Policy are attached below with suggested endorsement lists for Paragraph 6 for both forms, though the agent has the ability to tailor these at will.

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

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