Review of Loan Policy Richard Black September 21, 2017 In order - PowerPoint PPT Presentation

Review of Loan Policy Richard Black September 21, 2017

 In order to obtain a CE Certificate or CLE Credit, you must  listen to the webinar for a minimum of 55 minutes  obtain the password (provided at the end of the presentation)  follow the instructions as given 2

ATTORNEY INFORMATION Because of opinions expressed by the Texas Department of Insurance (TDI) concerning rebates, legal credit is available only to:  Attorneys who own title agencies that are Stewart Title Guaranty Agents  Attorneys employed by a title insurance agent licensed with Stewart Title Guaranty or Stewart entities  Fee attorneys who have an Escrow Officer license through a Stewart Title Agent or Stewart entity We welcome any other lawyers to listen, but cannot provide continuing education credit to you. 3

Per the TDI and the State Bar, in order to obtain a CE Certificate or CLE Credit you must: – listen to the webinar for a minimum of 55 minutes – obtain the password (provided at the end of the presentation) – follow the instructions as given 4

REVIEW OF THE LOAN POLICY Richard L. Black Associate Senior Underwriting Counsel Austin, Texas

Structure of the Texas Form T-2 Loan Policy of Title Insurance 1. COVERED RISKS: What the Policy insures against. 2. EXCLUSIONS FROM COVERAGE: Limitations on what the Policy insures. 3. SCHEDULE A: Policy details. 4. SCHEDULE B: Coverage exceptions. 5. CONDITIONS: Other Policy terms.

Form T-2 Loan Policy: Covered Risks --Extent of insurance against Covered Risks is limited by the Exclusions From Coverage, Schedule B Exceptions, and the Policy’s Conditions. --Insurance against Covered Risks Nos. 1 through 10 is as of Date of Policy. --Covered Risk No. 1: “Title being vested other than as stated in Schedule A” ( ties to No. 3 in Schedule A, “Title is insured as vested in: . . .”).

Covered Risks. --Covered Risk No. 2: “Any defect in or lien or encumbrance on the Title” a) 13 itemized non-exclusive examples of defects such as forgery, fraud, etc.; b) Lien of real estate taxes/assessments that are due and payable (can be limited by Schedule B tax exception ); c) Matters that would be disclosed by “an accurate and complete land survey of the land” (limited by Schedule B area-and-boundaries exception and other specific exceptions in Schedule B ).

Covered Risks. --Covered Risk No. 3: “Lack of good and indefeasible Title” (title is not perfect, but is also not subject to being defeated). --Covered Risk No. 4: “No right of access to and from the Land” (coverage can be removed entirely by appropriate Schedule B deletion statement from Procedural Rule P-37, Basic Manual). --Covered Risks Nos. 5 & 6: “Enforcement of any law, ordinance, etc . , or other exercise of governmental police power” (but only if notice is recorded in the Public Records which describes some part of the Land).

Covered Risks. --Covered Risk No. 7: “The exercise of the rights of eminent domain (but only if notice recorded in the Public Records which describes any part of the Land). --Covered Risk No. 8: Governmental taking that is binding on the rights of a purchaser for value without Knowledge (defined as actual knowledge) . -- Covered Risk No. 9: “The invalidity or unenforceability of the lien of the Insured Mortgage upon the Title” (non- exclusive list of possible lien impairments corresponds to Covered Risk No. 2(a)) .

Covered Risks. --Covered Risks Nos. 10 & 11: “Lack of priority of the lien of the Insured Mortgage over any other lien” (specifically, (a) mechanic’s liens with inception prior to Date of Policy and (b) assessments for street improvements under construction or completed at Date of Policy). --Covered Risk No. 12: “Invalidity or unenforceability of any assignment of the Insured Mortgage” (assignment/transfer of lien must appear in Schedule A).

Covered Risks continued. --Covered Risk No.13: Invalidation, involuntary subordination, or avoidance of the Insured Mortgage as a fraudulent or preferential transfer (specifically, delayed or faulty recording). --Covered Risk No. 14: Any defect, lien, or encumbrance attaching or recorded subsequent to Date of Policy and prior to recording of the Insured Mortgage in Public Records (see Dept. of Insurance Bulletin No. 152: Date of Policy cannot be earlier than recordation of the instrument creating estate or interest being insured).

Exclusions From Coverage. --Exclusion No. 1(a): Any law, ordinance, permit, or governmental regulation (including those relating to building and zoning) . . . relating to iii) subdivision of land (compliance with platting/subdivision ordinances or regulations is not a covered matter unless notice of violation or intended enforcement is recorded in the Public Records). --Exclusion No. 1(b): Any governmental police power (does not negate Covered Risk Nos. 6 with respect to notices of enforcement recorded in the Public Records).

Exclusions From Coverage. --Exclusion No. 2: Rights of eminent domain (does not negate Covered Risks No. 7 with respect to notices of exercise recorded in Public Records). --Exclusion No. 3: Defects, liens, encumbrances, adverse claims or other matters: (a) created, suffered, assumed or agreed to by the Insured (acts of the Insured) ; or (b) unknown to the underwriter, unrecorded on Date of Policy, but known to the Insured and not disclosed in writing to the underwriter prior to Date of Policy.

Exclusions From Coverage. --Exclusion No. 3 continued: Defects, liens, encumbrances, adverse claims or other matters: (c) resulting in no loss/damage to the Insured; (d) attaching or created subsequent to Date of Policy (but not limiting Covered Risks Nos. 11,13, or 14); (e) resulting in loss/damage that was avoidable if the Insured had paid value for the Insured Mortgage. -- Exclusion No. 4: Unenforceability of the Insured Mortgage because of . . . failure of an Insured to comply with applicable [Texas] doing business laws.

Exclusions From Coverage. -- Exclusion No. 5: Invalidity or unenforceability of . . . the Insured Mortgage . . . based on usury or any consumer credit protection of truth in lending law (triggers need for T- 42 and T-42.1 Home Equity Loan Endorsements). --Exclusion No. 6: Any claim . . . that the transaction creating the lien of Insured Mortgage is (a) a fraudulent conveyance or fraudulent transfer or (b) preferential transfer for any reason not stated in Covered Risk 13(b). (TIP: This Creditor’s Rights Exclusion does not extend to a title company’s failure to timely record a Deed of Trust).

Exclusions From Coverage. --Exclusion No. 7: Any lien . . . for real estate taxes or assessments imposed . . . and created or attaching between Date of Policy and date of recording of the Insured Mortgage (TIP: No such gap in Texas). --Exclusion No. 8: The refusal of any person to purchase, lease or lend money on the estate or interest covered hereby . . . because of Unmarketable Title (arises from TEX. INS. CODE § 2502.002 prohibiting any title insurance coverage for unmarketability of title in Texas).

Schedule A. --Amount of Insurance: (See Procedural Rule P-66(B), Basic Manual: All of the collateral versus part of the collateral; value of the land versus amount of the loan). --Date of Policy: (See Title Bulletin No. 152, Basic Manual). -- 1. Name of Insured: “. . . and each successor in ownership of the indebtedness secured by the insured mortgage, except a successor who is an obligor under the provisions of Section 12(c) of the Conditions.” --(Procedural Rule P- 7(C), Basic Manual: “No words may be added or deleted from the language allowed by Section B of this rule.”

Schedule A. --2. The estate or interest in the land that is encumbered by the Insured Mortgage is: (TIP: Identify easement estate or leasehold estate being insured by recording information for the grant, lease agreement, or memorandum of lease). --3. Title is insured as vested in: (TIP: Avoid descriptive references that might be claimed by the lender as a form of affirmative insurance , e.g. “and wife”, “a single man”, “a Texas limited partnership,” etc.)

Schedule A. --4. The Insured Mortgage, and its assignments, if any, are described as follows: (TIP: Usually a Deed of Trust, but can be Mechanic’s Lien Contract with Power of Sale or even a naked Vendor’s Lien in a deed). --5. The Land referred to in this policy is described as follows: (description of “Land” in Schedule A defines the geographical scope of the Policy; see No. 1(i) under “Definition of Terms” in the Policy Conditions); --6. The policy incorporates by reference those endorsements selected below: (A real tree-saver!)

Schedule B, Exceptions From Coverage. --Preamble: This Policy does not insure against loss or damage (and the Company will not pay costs, attorney’s fees or expenses) that arise by reason of the terms and conditions of leases and easements, if any, shown in Schedule A, and the following matters: (TIP: Eliminates a separate Schedule B “terms and conditions” exception whenever a lease or easement is identified in Schedule “A” by recording data.)