Non-Imputation Title Insurance

New York Real Estate Journal recently published an article authored by Co-Chair of Olshan’s Real Estate Law practice Thomas Kearns and real estate partner Hyman Kindler entitled “Non-Imputation Title Insurance” (subscription required). The article discusses an “investor’s” title insurance policy when a real estate investor purchases an ownership interest in existing entities that own commercial real estate rather than acquiring the property by deed. This policy insures the purchaser of the equity instead of the entity that owns the real estate. “If there was a recovery under a claim made such a policy,” Tom and Hymie write, “only the purchaser would receive the insurance proceeds (and not the entity that owns the real estate). However, in either a partial ownership purchase or a purchase of 100% of the ownership interests, title insurance policies typically have a big hole in these circumstances: all New York title policies have an exclusion for the knowledge of the insured.” The issuance of a non-imputation endorsement by the title insurer, which removes the knowledge exclusion but is heavily dependent on the facts and circumstances of the transfer and seller, resolves this problem. Because the title insurer often insists on a detailed affidavit from the seller and often insists on an indemnity to back up that affidavit from a credit-worthy individual or entity even to the extent of insisting on financial disclosure from the indemnitor, a non-imputation endorsement needs to be carefully negotiated. Tom and Hymie go on to discuss the factors that impact the structuring of the transaction and the possible policy. They conclude that, “While navigating non-imputation issues requires diligence, non-imputation coverage can be key to successfully concluding a transaction.”