In some states, the making of a mortgage by a foreign entity is considered to be "the doing of business" and state laws provide that such foreign entities must be licensed to do business in the those states. The penalty for failure to qualify is that any contract made by such an unlicensed entity is void.
In most states, such contracts are considered valid but unenforceable until the lender-entity is licensed. The Exclusion for Coverage number 4 of the ALTA loan policy protects the Company from liability arising because of the failure of the lender-entity to qualify in the state where the land is located.
This Exclusion from Coverage reads as follows:
ALTA - 1987 - Loan Policy:
4. Unenforceability of the lien of the insured mortgage because of the inability or failure of the insured at Date of Policy, or the inability or failure of any subsequent owner of the indebtedness, to comply with applicable doing business laws of the state in which the land is situated.
ALTA - 1970 - Loan Policy:
4. Unenforceability of the lien of the insured mortgage because of the failure of the insured at Date of Policy or of any subsequent owner of the indebtedness to comply with applicable "doing business" laws of the state in which the land is situated.
Doing Business Coverage
Affirmative "doing business" coverage is accomplished through the issuance of the doing business endorsement. Any request for its issuance must be referred to the National Legal Department.
In the issuance of this endorsement, the following minimum conditions will generally have to be satisfied:
- An affidavit from the lender stating that: (a) the loan to the mortgagor
will not take place in the state where the land is located (including negotiation,
issuance of the lender's loan commitment, execution of documents, closing
of the transaction, disbursement of loan proceeds, and repayment of loan);
(b) no prior loans have been made in the state by the lender; (c) no real
estate in the state is or has been owned by the lender; (d) no prior business
by the lender has occurred in the state; and, (e) no office of the lender
exists in this state.
- An attorney's opinion addressed to the National Legal Department stating that the making of the loan does not violate the doing business laws of the state where the land is located and reciting any specific statutory exemption of the loan transaction.
We will consider issuance of a doing business endorsement based solely on an attorney's opinion only if the endorsement is similar to the applicable sate law and if the endorsement contains exceptions to matters within the control of the lender (such as maintenance of an office in the state.)