STG Option and Right of First Refusal Endorsement for Owner's Policy Guideline 7
Explanation:This endorsement may be issued in conjunction with either a Loan or Owner's Policy. It is safest to issue the option endorsement where there is a lease option and generally it is least safe to issue where there is a mortgage in favor of the optionee, since the option may be considered a clog on the equity of redemption or fettering of the collateral rights of the optionor. Option Endorsements vary in coverage from those simply insuring that the appropriate parties executed the documents to those insuring the enforceability and priority of the option against subsequent interests. In addition, the Option Endorsement may or may not provide insurance against loss by reason of any requirement that an additional price be paid for the exercise of the option. It is also possible with underwriter approval to insure the optionee by issuance of an Owner's Policy covering the optionee's interest or by covering the fee and showing the optionee as the insured.
Underwriting Requirements:(1) You may, without consultation of the underwriter, issue the limited option endorsement insuring only that the appropriate parties executed the document.
(2) If you are asked to issue the Option Endorsement to a lender, then a Senior Underwriter must review the agreement. Among other considerations, we will analyze whether the option is exercisable upon default; whether the price to be paid is fair market value at time of exercise or a fixed price; whether there is separate consideration for the option; whether the option time violates the rule against perpetuities; whether the interest to be purchased under the option is an undivided interest or the fee simple; and whether state law is beneficial with reference to the recording of the option, priority of option, and clog of the equity of redemption.
(3) If you are asked to issue the Option Endorsement insuring priority of the option to a proposed purchaser, a Senior Underwriter must review the option. Among other considerations, we will analyze whether the option price is fair market value at time of exercise; whether the option violates the rule against perpetuities; whether there is any favorable state law as to the priority of the option; whether state law indicates that the option is a real property interest; whether the option may be recorded under state law; and whether the option is being executed in connection with a lease.
The underwriting guidelines contained herein have been provided for general reference. The facts, circumstances, and location of the subject property should be considered when determining the issuance of the requested form or endorsement. Please note that all of the forms and endorsements included in this system may not be available in all states. Accordingly, please contact the appropriate Stewart Title Guaranty Company underwriting personnel in order to determine availability.
Compliance with the underwriting guidelines contained herein in no way obligates Stewart Title Guaranty Company to issue any form or endorsement.
This guideline applies to the following form(s):None