The 5 W’s of Title Insurance Who, What, When, Where, & Why
History • Patent • Transfer of Title • Land Registry • Public Records Search • Abstract of Title • Attorneys Opinion • Liability • Title Insurance 1876 • Secondary Mortgage Market • GSE’s, Fannie, Freddie, Mortgage Backed Securities
Benefits • Underwriter Financial Strength • Protection From Hidden Defects • 36% of Transactions have Defects or Need Curative Solutions • Expedites Sale and Loan Process Saves Interest & Expense • Tax Collector and Debt Collector
Public Benefits of Title Insurance • Because of the title insurance industry, American close their loans faster than any other country – 30 days on average – and the speed of the transaction saves consumers tens of billions of dollars annually in additional interest costs. • At no cost to taxpayers, the title industry collects $1.75 billion per year in back income taxes. • At no cost to taxpayers, the title industry collects $3 billion per year in delinquent real estate taxes. • At no cost to taxpayers, the title industry collects $325 million per year in delinquent child support payments. • The title industry spends $225 million per year to correct errors in the public property records that otherwise would lead to serious impairment to the property rights of millions of Americans
Public Benefits of Title Insurance • The title industry is an important source of revenue for local governments, paying $170 million per year to purchase copies of recorded documents • Because of the title insurance industry, people can be confident about purchasing property anywhere in the country because they are insured against fraud and defects in the public record. • Because of the title insurance industry, mortgage lenders are more willing to lend because ownership by the borrower of the collateral (the real estate) is guaranteed. • Because of the title insurance industry, mortgage-backed securities (MBS/CMBS) can be created and traded, because in the event of a default, recourse to the underlying collateral is guaranteed.
Regulatory Environment State: DOI Federal: NAIC, CFPB (HUD) Title Insurance Forms: ALTA Rates and Forms Approval • Promulgated • Rating Bureaus • File and Use • File and Approve • Nothing
Underwriters Agents Attorney Agents Affiliated Business Relationships National Agents The Players
Title Insurers / Underwriters • Contract with Agency • Closing Liability, Insured Closing Letter • Claims Handling • Underwriting Support • National vs. Regional
Title Agents • Agency Contract with Underwriter • Duty to Perform Adequate Title Search • Duty to Issue Policy • Duty to Remit • No Duty to Handle Claims • Liability of Agent • Maintain License of Agency and Employees • Discuss Policy Terms, Conditions, Coverage • Sales • Closers
Consumer Financial Protection Bureau (HUD) • Consumer Protection • RESPA • 1974 Basic Provisions of RESPA • A Uniform Settlement Statement • Advance Disclosure of Settlement costs and information to home buyers • Disclosure of previous selling price of residential real estate • Prohibition of kickbacks • Prohibition that home buyers be required to buy title insurance from a particular company • Limitation of advance tax and insurance deposits in escrow accounts
Consumer Financial Protection Bureau (HUD) • RESPA continued • Disclosure of beneficial interest in real estate transactions • Prohibition of fee for preparing truth in lending statements • First HUD-1 Settlement Statement went into effect June 1975 • Good Faith Estimate came into effect 1976 • Enforcement • CFPB • DOI • AG
Title Insurance vs Casualty Insurance • One Time Premium • Provides protection for as long as the owner or their heirs retain an interest in the property • Examination of Public Records vs Actuarial Statistics • Seeks to eliminate risk rather than simply pricing risk. • The emphasis on risk prevention is labor intensive and costly • Insure the Past Not Future • Agent Performs Underwriting • Agent Issues Policy • Loss Ratio Comparison
Jackets Schedules A and B
Title Commitment • Preliminary Commitment to issue a Title Insurance Policy • Provides information for a safe procedure for purchasers and lenders to close transactions • Sets out specific requirements for issuing a policy such as payment of a title premium, evidence of the satisfaction of all the requirements set out in Schedule B • Sets out information such as current owner, real estate taxes, liens encumbrances, easements, judgments, and all other information found of record • Typically are valid for 120 days • Liability is zero
Title Commitment Components • Effective Date • Type of Policy - Owners and/or Loan • Full Name of Owners, Alive or Dead • Proposed Insured’s – Owner and/or Lender • Legal Description • Exceptions from Coverage • Liens & Encumbrances
Title Policy • Policy guarantees title is clear of any claims or undisclosed liens and that the owner has the right to sell or transfer the property • The insurance company will pay damages to the policyholder or take steps to correct problems with property ownership and covers problems that did not show up during the title search or were missed by the searcher or examiner and errors in the public records • Title Insurance does not cover title defects that occur after the issuance of the policy • Liability amount is stated on Schedule A of the policy
Owner’s Policies • Types of Policies • ALTA 2006 & 2008 Homeowner’s • Insuring Provisions • Exclusion from Coverage • Conditions/Stipulations: Definition of Insured, Continuation of Coverage, Duty to Defend, Subrogation • Exceptions from Coverage
Loan Policies • ALTA 2006 and Short Form • Insuring Provisions specific to Lender • Coverage for Loss Different than Owners
Claims • When is a Claim a loss • Coverage based on type of policy • What needs to be done • Bad Faith • Liability
When is Title Insurance Used • Sale/Transfer of Real Estate • Land Contract • Leasehold Interest • Financing of Real Estate
Closings • Contract for Purchase • Lender Closing Instructions • Closing Protection Letters (ICL/CPL) • Collection of Closing Information • Go over documents to be signed HUD, mortgage, note, etc. • Do Not Practice Law • Notarization of Documents • Post Closing: Timely Recording
Department of Insurance • 311 W. Washington Street, Suite 300, Indianapolis, IN 46204 • Phone: 317-232-5153 • www.in.gov/idoi
Title Division • TIEFF • Bulletins • Audit/Examinations • Enforcement
Tips to keep you out of trouble • IC 27-4-1-3 No person shall engage in trade practice defined as an unfair method of competition • Indiana Homeowners Protection Act at IC 24-9-1-1 protects the consumer against predatory and deceptive acts. The practice of a title agent reducing its closing fee and applying the amount of the reduction towards fees in order to allow the mortgage broker to increase their broker fee is acting in violation of this act. If found guilty of this practice, a title agent may b e subject to a $10,000 fine for each individual violation of this act. For violation questions contact Indiana Attorney General’s office at 317-232-6201 • RESPA: Shams, Mark-Ups, and Kickbacks • Don’t hire, contract, or otherwise pay or compensate any vendor, broker, realtor or other third party for the completion of processing or order forms relating to the settlement transaction. • Don’t print or pay for the printing of bulletins, flyers, post cards, labels, for any vender, broker, realtor or other third party. • Don’t furnish or pay for the furnishing of office equipment (fax machines, copiers, cell phones, laptops, or other such devices) for any vendor, broker, realtor or other third party. • Don’t provide or pay for trips, travel expenses, cellular telephone minutes, phone cards, or gasoline cards for any vendor, broker, realtor or other third party.
Tips to keep you out of trouble • Deceptive Practices • Misrepresenting the terms of any policy • Making an untrue or misleading statement with respect to a person’s conduct of the person’s insurance business • Publishing material which is false or critical of the financial condition of an insurer.\ • Don’t Practice Law • Don’t explain the legal obligations of the parties under a real estate sales contract • Don’t explain the meaning of legal terms used in taking title • Don’t explain the legal obligations of the parties under loan documents • Don’t explain the legal effect of a documents in the chain of title • Don’t assist in the completion of a legal document if it requires legal judgment
Principles of Fair Conduct Behavior within the title industry that demonstrates a commitment to ethical and fair treatment of consumers. • To engage only in business practices that are lawful and consistent with a high standard of ethical behavior. • To encourage a culture of compliance within their organizations for federal and state laws that govern the title insurance business and for these Principles. • To treat consumers in a fair and ethical manner • To provide consumers with timely and comprehensive information regarding their policies, services, products, and prices so as to enable consumers to shop effectively among providers of title-related services. • To encourage and assist consumers to be educated purchasers of title insurance and title-related services.
ALTA Forms Licensing • No charge if Member of ALTA • Non-Members to pay annual fee of $195
Definition • Title insurance in its simplest forms is a one-time premium agreement to indemnify a policy-holder against losses caused by both record and off-record defects found in the title or interest to an insured property
Formula + Insuring provisions -Exclusions From Coverage -Exceptions to Coverage • Subject to Conditions and Stipulations • +/- Endorsements ________________________________ = TITLE INSURANCE COVERAGE
Insuring Provisions for 2006 Policy Title being vested other than as stated in Schedule A.
2. Any defect in or lien or encumbrance on the Title. This Covered Risk includes but is not limited to insurance against loss from A defect in the Title caused by (i) forgery, fraud, undue influence, duress, incompetency, incapacity, or impersonation; (ii) failure of any person or Entity to have authorized a transfer or conveyance; (iii) a document affecting Title not properly created, executed, witnessed, sealed, acknowledged, notarized, or delivered;
Insuring Provision 2 (con’t) • (iv) failure to perform those acts necessary to create a document by electronic means authorized by law • (v) a document executed under a falsified, expired, or otherwise invalid power of attorney • (vi) a document not properly filed, recorded, or indexed in the Public Records including failure to perform those acts by electronic means authorized by law; or • (vii) a defective judicial or administrative proceeding
2 (b) and 2 (c) • The lien of real estate taxes or assessments imposed on the Title by a governmental authority due or payable, but unpaid. • Any encroachment, encumbrance, violation, variation, or adverse circumstance affecting the Title that would be disclosed by an accurate and complete land survey of the Land. The term ”encroachment” includes encroachments of existing improvements located on the Land onto adjoining land, and encroachments onto the Land of existing improvements located on adjoining land.
3. Unmarketable Title • 4. No right of access to and from the land
5. The violation or enforcement of any law, ordinance, permit, or governmental regulation (including those relating to building and zoning) restricting, regulating prohibiting or relating to • the occupancy, use, or enjoyment of the Land; • the character, dimensions, or location of any improvement erected on the Land; • the subdivision of land; or • environmental protection • if a notice, describing any part of the Land, is recorded in the Public Records setting forth the violation or intention to enforce, but only to the extent of the violation or enforcement referred to in that notice.
An enforcement action based on the exercise of a governmental police power not covered by Covered Risk 5 if a notice of the enforcement action, describing any part of the Land, is recorded in the Public Records, but only to the extent of the enforcement referred to in that notice. • The exercise of the rights of eminent domain if a notice of the exercise, describing any part of the Land, is recorded in the Public Records. • Any taking by a governmental body that has occurred and is binding on the rights of a purchaser for value without Knowledge.
9. The invalidity or unenforceability of the lien of the Insured Mortgage upon the Title. This Covered Risk includes but is not limited to insurance against loss from any of the following impairing the lien of the Insured Mortgage:
(a) forgery, fraud, undue influence, duress, incompetency, incapacity, or impersonation;(b) failure of any person or Entity to have authorized a transfer or conveyance; (c ) the Insured Mortgage not being properly created, executed, witnessed, sealed, acknowledged, notarized, or delivered;
failure to perform those acts necessary to create a document by electronic means authorized by law; • a document executed under a falsified, expired, or otherwise invalid power of attorney; • a document not properly filed, recorded, or indexed in the Public Records including failure to perform those acts by electronic means authorized by law; or • a defective judicial or administrative proceeding.
10. The lack of priority of the lien of the Insured Mortgage upon the Title over any other lien or encumbrance.
11. The lack of priority of the lien of the Insured Mortgage upon the Title(a) as security for each and every advance of proceeds of the loan secured by the Insured Mortgage over any statutory lien for services, labor, or material arising from construction of an improvement or work related to the Land when the improvement or work is either: