Pub. 12 2015 Issue 1

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G N E W M E X I C O R E A L I Z E D R E A M S Spring • 2015 19 50 and 50.1) provides coverage against loss or damage to an insured lender arising from, among other risks, damage to im- provements resulting from the future exercise of a right to use the surface of the property for extraction or development of minerals. Under New Mexico’s title insurance regulations, coverage relating to mineral extraction and development is not available when the minerals have been severed from the surface, unless the owner or lessee of the mineral estate has waived its right to enter upon and use the surface of the property. A mini-course in split estates may be helpful in understanding when a minerals endorsement should be used and can be purchased: In NewMex- ico, minerals underlying the surface may be conveyed separately from the surface by outright conveyance to another party via a mineral deed, by reservation of the minerals when conveying the surface estate to another party, or by leasing the mineral rights to a third party such as an oil and gas company. The holder of the right to the exploit minerals may use the surface under which the minerals lie for the purpose of developing and extracting the minerals. This creates a risk of damage to improvements located on the property, which could result in impairment of a lender’s collateral. In a real estate loan transaction in which the minerals have been severed by any of the methods described above, a lender concerned about the risk of mineral development should ask whether the mineral rights holder has waived its right to use the surface of the property. In sizable loan transactions, if the waiver has not been obtained, a lender might insist that it be obtained, then require the minerals endorsement. Construction Loans. Several endorsements are available to cover various construction lending risks, including: (a) the construction loan policy endorsement (Form A18), used when a lender advances funds for construction costs incurred prior to the date of recordation of its mortgage; (b) the additional ad- vance endorsement (Form 25) to insure the validity and prior- ity of a mortgage securing a loan that includes multiple future advances; (c) the foundation endorsement (Form 61) to insure against loss or damage if the foundation of the structure under construction is not within the property’s boundary lines; and (d) zoning endorsements (Forms 64 and 65) insuring against loss or damage if the property is not classified in a specified zoning category or if specified uses are not allowed under that category. Access Issues. The access and entry endorsement (Form 67) insures against loss or damage to an insured lender if (a) the property does not abut and have both vehicular access and pedestrian access to a named street, road or highway; (b) the street is not physically open and publicly maintained; or (c) there is no right to use existing curb cuts or entries along the street abutting the property. To obtain this coverage, a title company must receive a survey showing access to an abutting, existing public street, road or highway. This coverage is com- mon in commercial real estate lending, for both urban and rural properties. If the property is not served directly by a public street, road or highway, but access is provided by an easement, a lender may request an indirect access and entry endorsement (Form 68). Availability of Utilities. In some parts of New Mexico, a lender may want to ensure that its collateral is served by utili- ties. Coverage for this risk may be obtained through a utility ac- cess endorsement (Form 69), but is not available for residential properties containing four or fewer dwelling units. This cover- age insures against loss or damage if there is a lack of access to utilities over, under or upon rights-of-way or easements for the benefit of the subject property. Environmental Liens. The commercial environmental protection lien endorsement (Form 70) insures against loss or damage arising from an environmental protection lien that is recorded in the real property records in the county in which the property is located or filed in the United States District Court for the district in which the property is located. This endorsement is not available if the environmental protection lien is listed as an exception in Schedule B to the loan policy of title insurance. As part of its due diligence in a real estate lending transaction, a lender should conduct a thorough review of the state of title of the subject real property to identify and assess the risks as- sociated with the property and consider alternatives to mitigate those risks. n Debbie Ramirez is a Shareholder in the Modrall Sperling Law Firm in Albuquerque and Santa Fe. She represents New Mexico and national lenders throughout the state and may be reached at (505) 983-2020 or debbie.ramirez@modrall.com .