Many lenders/investors that become involved in existing partnerships or joint ventures ask title insurers to issue a so-called Non-Imputation Endorsement assuring the lender/investor that it will not be charged with knowledge imputed to it solely by reason of the fact that it is a partner in the named partnership or joint venture. The law of general partnerships holds that the new partner will enter into the partnership subject to all defects known to the existing partners, and that the knowledge of any and all partners is imputed by law to the entire partnership entity.

Because there is a potential for considerable risk to the company, this endorsement may be issued only with the written authorization of the local office. This coverage is not standard and directly contradicts one of the Exclusions in the ALTA policy.

Prior to issuing the endorsement, an attempt must be made to determine that the existing partners have no knowledge of any defects or encumbrances against the real estate from any previous transaction which could give rise to a claim against the property. Consequently, before contacting your local office for approval, you should have a basic knowledge of the transaction. You will need the following information:

  1. A description of the current transaction.
  2. Type and amount of policies to be issued.
  3. Name of party asking for endorsement and how that party fits into the transaction.
  4. Facts regarding the existing partnership, such as number of partners, their names, how long the partnership has been in existence, the purpose of the partnership and the party's reputation for honesty and fair dealing.

In addition, we will require that an affidavit and/or an indemnity agreement be obtained from each of the existing partners. Such an affidavit should address, but should not be limited to, the following items:

  1. That there are no unrecorded outstanding rights whatsoever in any person, whether claimed or actual, to the title or possession of said premises, except _________________.
  2. That there are no existing unrecorded deeds, land contracts, mortgages, leases, options to purchase, agreements or other instruments adversely affecting title to said property; and that neither the partnership nor the individual partners have done anything to create any lien, encumbrance, transfer of interest, constructive trust or other equity in the land whatsoever, nor is the partnership or any of its partners a party to any lawsuit, administrative order or other legal action, except ____________________.

Once approved, the actual language of the non-imputation endorsement is as follows:

“The Company hereby insures the insured that, notwithstanding any terms or provisions in this policy to the contrary, in the event of loss or damage insured against under the terms of said policy, the Company will not deny its liability to said insured on the ground that said insured had knowledge of any matter solely by reason of notice thereof imputed to it through partnership by operation of law.”

Note that this endorsement covers only matters which are imputed by law and does not cover matters of which the new lender/investor partner has actual knowledge. In effect, the endorsement insures against unknown and off record matters that could affect the title.

This same coverage and analysis can be applied to joint ventures. A joint venture is where two or more persons agree (usually by contract) to carry out a single business enterprise. In most states a joint venture is not a legal entity that can hold title to real estate, unless the joint venture is evidenced by a partnership. Individuals (joint venturers) in a joint venture that is not a partnership will hold title as tenants in common. The non-imputation endorsement would not be available to an owner who holds title as a tenant in common.

As indicated above, any questions concerning the availability of the non-imputation endorsement must be directed to the local office. The more information that you can provide initially, the more swiftly a determination will be made with respect to the availability of the coverage.