The criteria below must be incorporated in the title insurance policy for mortgage loans covering each unit in a condominium or PUD project.
The legal description for the PUD or Condo must include all components of the unit estate including:
- Name of the project;
- The unit itself;
- The undivided interest in the common elements (for condominium units);
- The non-exclusive easement to use the common areas and facilities (for a PUD unit or other kind of project unit that has separately owned common elements or facilities); and
- Any significant limited common elements or exclusive easements over the common areas.
Ownership must be reflected in the policy if the unit owners possess the common areas of the project as tenants. The policy may explain limited common elements or exclusive easements specifically or by reference to the constituent documents.
The Title Insurance policy for Condos and Planned Unit Developments (PUDs) must include coverage that provides protection by:
- Insuring that the mortgage is superior to any lien for unpaid common expense assessments. In jurisdictions that give these assessments a limited priority over a first or second mortgage lien, the policy must provide assurance that those assessments have been paid through the effective date;
- Insuring against any impairment or loss of title of Pennymac’s first lien caused by any past, present, or future violations of any covenants, conditions, or restrictions of the master deed for the project. The title insurance policy must specifically insure against any loss that results from a violation that existed as of the date of the policy;
- Insuring that the unit does not encroach on another unit or on any of the common elements, areas or facilities. This policy must also insure that there is no encroachment on the unit by another unit or by any of the common elements, areas or facilities;
- Insuring that the mortgage is secured by a unit in a condominium project that has been created in compliance with the applicable enabling statutes;
- Insuring that real estate taxes are assessable and lien able only against the individual condominium unit and its undivided interest in the common elements, rather than against the project as a whole; and
- Insuring that the owner of a PUD unit is a member of the homeowners association and that the membership is transferable if the unit is sold.
If the homeowners association owns the common elements, areas/facilities of a project separately (or holds them in a leasehold estate), insurance on those areas is required to insure that ownership.
The title must be free and clear of any objectionable liens and encumbrances, including any statutory or mechanics’ liens for labor or materials related to improvements on the common areas that began before the title policy was issued.