If an issuing agent discovers a creditor's rights issue in a prior deed in the chain of title, the Company may require that a creditor's rights exception be included in the policy.  Such exception may read as follows"

"Consequences of any attack on the estate or interest insured herein under any federal or state law dealing with bankruptcy, insolvency, or creditor's rights." 

It is impossible to enumerate all the cases or circumstances where a creditor's rights issue may exist, but as an illustration only, we cite transactions involving:

• Asset swaps
• Deeds in lieu of foreclosure.
• Workout agreements.
• Nonjudicial foreclosures.
• Preexisting debts.
• Downstream problems.
• Upstream problems.
• Corporations conveying to an insider.
• Lack of adequate consideration.
• Corporate assets being used to finance the purchase of the stock of the corporation.
• Leveraged Buyouts.

Stewart Title Guaranty Company no longer provides creditors' rights coverage arising out of the current transaction. We are prohibited by law from providing creditors' rights coverage arising out of the transaction creating the Insured Mortgage or vesting title in the owner who is the Insured. The law applies to any policy issued, delivered, or renewed on or after January 1, 2012. We are informed that an endorsement to a policy issued before January 1, 2012, is not considered a renewal of that policy for purposes of the law and does not violate the law if it does not provide creditors' rights coverage. 

You must comply with the following: 

• Do not issue the 1970 ALTA Policy.
• Do not delete the creditors' rights exclusion.
• Do not issue a creditors' rights endorsement, such as the former ALTA 21-06 (Creditors' Rights).
• Add the creditors' rights exception shown on Exhibit 1 (below) (paragraph A) in any assignment endorsement, unless it already appears in that endorsement.
• Add the creditors' rights exception shown on Exhibit 1 (paragraph B) in any modification endorsement, unless it already appears in that endorsement.
• Add the creditors' rights exception shown on Exhibit 1 (paragraph C) in any U.S. Policy, unless you issue the new U.S. Policy (12-3-12) recently approved by ALTA (where available, this policy includes a Creditors' Rights Exclusion). This exception has been approved by personnel representing the U.S. Department of Justice.

An additional creditors’ rights exception is not required in connection with an endorsement that does not involve an assignment or modification of a loan.

EXHIBIT 1

CREDITORS' RIGHTS EXCEPTIONS

A. Creditors' Rights Exception for Assignment Endorsement (Not necessary for ALTA Endorsement 10-06 (2-3-10) or 10.1-06 (2-3-10))

This endorsement does not insure against loss or damage, and the Company will not pay costs, attorneys' fees, or expenses, by reason of any claim that arises out of the transaction creating the assignment by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws that is based on:

1.   the assignment being deemed a fraudulent conveyance or fraudulent transfer; or

2.   the assignment being deemed a preferential transfer.

B. Creditors' Rights Exception for Modification Endorsement (Not necessary for any ALTA Endorsement 11-06 or 11.1-06)

This endorsement does not insure against loss or damage, and the Company will not pay costs, attorneys' fees, or expenses, by reason of any claim that arises out of the transaction creating the Modification by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws that is based on:

1.   the Modification being deemed a fraudulent conveyance or fraudulent transfer; or

2.   the Modification being deemed a preferential transfer except where the preferential transfer results from the failure

a. to timely record the instrument of transfer; or

b. of such recordation to impart notice to a purchaser for value or to a judgment or lien creditor.

C. Creditors' Rights Exception for U.S. Policy

Any claim, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws, that the transaction vesting the Title as shown in Schedule A, is (a) a fraudulent conveyance or fraudulent transfer or (b) a preferential transfer.

The decertified ALTA policies (4-6-90) contain the following creditors' rights exclusions:

Loan Policy:

"Any claim, which arises out of the transaction creating the interest of the mortgagee insured by this policy, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws."

Owner's Policy:

"Any claim, which arises out of the transaction vesting in the insured the estate or interest insured by this policy, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws."

The ALTA policies (10-17-92) contain the following creditors' rights exclusions:

Loan Policy:

Any claim, which arises out of the transaction creating the interest of the mortgagee insured by this policy, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws, that is based on:

(a) the transaction creating the interest of the insured mortgagee being deemed a fraudulent conveyance or fraudulent transfer; or

(b) the subordination of the interest of the insured mortgagee as a result of the application of the doctrine of equitable subordination; or

(c) the transaction creating the interest of the insured mortgagee being deemed a preferential transfer except where the preferential transfer results from the failure:

(i) to timely record the instrument of transfer; or

(ii) of such recordation to impart notice to a purchaser for value or a judgment or lien creditor.

Owner's Policy:

Any claim, which arises out of the transaction vesting in the Insured the estate or interest insured by this policy, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws, that is based on:

(a) the transaction creating the estate or interest insured by this policy being deemed a fraudulent conveyance or fraudulent transfer; or

(b) the transaction creating the estate or interest insured by this policy being deemed a preferential transfer except where the preferential transfer results from the failure:

(i) to timely record the instrument of transfer; or

(ii) of such recordation to impart notice to a purchaser for value or a judgment or lien creditor.

If the creditors' rights issue arises out of the current insured transaction, you do not need to add the creditors' rights exception when you issue a 1990 or 1992 policy. For example, if you issue a 1990 or 1992 policy to the grantee of a deed-in- lieu of foreclosure where all other underwriting requirements are met, you do not need to add the creditors' rights exception. However, if the creditors' rights issue arises out of a prior deed in a prior transaction, add the creditors' rights exception even if you use a 1990 or 1992 policy.