Often a survey or plot plan will reveal a possible encroachment of the building over the property lines or a possible setback violation. If this is the case, an exception must be taken in both the loan and owner's policies. Examples of the language used for such exceptions are as follows:
Possible encroachment of the existing structure onto ___________ Street.
Possible setback or sideline violation along the
______________ boundary of the insured premises.
In most cases, this exception will not be acceptable to a lender. In order to enable the transaction to close, it will be necessary to provide affirmative coverage on the loan policy. Do not provide any such affirmative coverage until you have spoken with counsel from the local Old Republic office.
In determining whether to provide affirmative insurance for encroachments, we will look at a number of factors, including (1) the seriousness of the encroachment; (2) the duration of its existence; (3) the type and size of the transaction; and (4) any other pertinent factors. If affirmative coverage is provided, it will appear on the loan policy after the exception mentioned above and will read as follows:
NOTE: This policy, however, affirmatively insures against any loss or damage occasioned by the forced removal, relocation, or alteration of the structure on the insured premises due to the above violation or encroachment.
Such affirmative insurance is never given on an owner’s policy and, as stated above, should not be offered on a loan policy until you have first received approval from the local office.
If there is an encroachment onto the insured property by an improvement owned by an abutter, an exception must be taken for the possible rights of the abutter. Typical examples are where the neighbor's shed or driveway is partially located on the insured premises. In such an instance, the following exception must be added to Schedule B of the owner’s policy:
Possible prescriptive or adverse rights of others by reason of the encroachment of the _________________ onto the insured premises along the _____________ boundary of the property.
This exception must also be included in the loan policy, unless the local office has authorized its deletion. If the exception does remain in the loan policy, the local office may authorize the following affirmative language for the loan policy only:
This policy, however, affirmatively insures that said rights do not adversely affect the use and enjoyment of the premises for residential purposes.
You should always contact the local office if you have any questions concerning encroachments.