[WSBARP] 3 story house meets 2 story CCR restriction

[Steve Tubbs]

The ‘risk’ is the cost of removing the third story of the home.  Insurance ‘coverage’ arguably exists for some risks, conditionally.  There are three stated conditions that allow the insurer to deny coverage.  Conditions ‘a’ and ‘b’ are clearly not applicable as exceptions.  However, the policy goes on to state that the coverage is available “unless there is a notice recorded in the Public records, describing any part of the Land, claiming a violation exists.”  Oops.  The policy goes on to state, however, “Our liability for this Covered Risk is limited to the extent of the violation stated in that notice.”  Clear as mud.  First, the Covenants, duly recorded and presumably recited as an exception to title insurance, expressly give notice that the home does not conform to the same.  Thus the ‘unless’ exception would seem to apply, but for the last sentence referencing said “notice”.  This makes no sense.  However, that last sentence applies solely to “liability for this Covered Risk”!  Thus, the risk in question must first be ‘Covered’ for the last sentence to apply.  Returning then to the original question, Query:  is the ‘third story’ a “covered” risk in the first instance?  It would appear that it is not, imho, as the holder of the insurance policy was on notice that the third story violated covenants of record and duly recited as exceptions under the policy at the time of purchase.  I would advise the purchasers to find another home; if you are comfortable with a contrary position, make sure that your own professional coverage is in order should litigation papers hit the fan.  Remember that if suit is filed, someone other than the friendly title agent will be reviewing whether and to what extent the title company must defend and/or pay.  Good luck!


> On Mar 20, 2018, at 11:26 AM, marc holmeslawgroup.com <marc at holmeslawgroup.com> wrote:
> 
> We have a client set to buy a brand new 3 story house and, lo and behold, the builder didn’t notice or ignored a CCR restriction limiting homes to no more than 2 stories.  Title company says the ALTA Homeowner’s policy covers this and points to a “covered risk” provision that reads:
>  
> You are forced to correct or remove an existing violation of any covenant, condition or restriction affecting the Land, even if the covenant, condition or restriction is excepted in Schedule B.  However, You are not covered for any violation that relates to:
> Any obligation to perform maintenance or repair on the Land; or
> Environmental protection of any kind, including hazardous or toxic conditions or substances.
> unless there is a notice recorded in the Public records, describing any part of the Land, claiming a violation exists.  Our liability for this Covered Risk is limited to the extent of the violation stated in that notice.
>  
> We’re not aware of any publicly recorded notice of that the 3rd story is a violation.  Does this seem like adequate protection for the buyer or a recipe for disaster?
>  
>  
>  
> Marc Holmes
> Holmes Law Group PLLC
> 2303 W. Commodore Way, # 306
> Seattle WA 98199
> HolmesLawGroup.com <http://holmeslawgroup.com/>
> marc at holmeslawgroup.com <mailto:marc at holmeslawgroup.com>
> Ofc: 206-357-4224
> Cell: 206-849-0853
>  
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