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
• btain the password (provided at the end of the presentation)
• follow the instructions as given

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ATTORNEY INFORMATION

Because of opinions expressed by the Texas Department

• f 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.

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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

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

• 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.

Structure of the Texas Form T-2 Loan Policy of Title Insurance

• -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
• f 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: . . .”).

Form T-2 Loan Policy: Covered Risks

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 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,
• rdinance, 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
• f 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
• f 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.

• -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).

Covered Risks continued.

• -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

• f 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).

Exclusions From Coverage.

• -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
• wnership 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

• r 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 A.

• -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.)

Schedule B, Exceptions From Coverage.

• -1. The following restrictive covenants itemized below

. . . (insert specific recording data or delete this exception):

(TIP: Avoid descriptive phrases, e.g. “as amended by,” when itemizing restrictive covenant filings.)

• -Also includes express insurance against enforcement of a right of

reverter: . . .but the Company insures that any such

restrictions have not been violated so as to affect, and that future violation thereof will not affect, the validity or priority of the Insured Mortgage . . .

Schedule B, Exceptions From Coverage.

• -2. Any discrepancies, conflicts, or shortages in area or

boundary lines, or any encroachments or protrusions,

• r any overlapping of improvements.
• -Compliance with Procedural Rule P-2, Basic Manual, allows this

exception to be reduced to “shortages in area” in the Loan Policy at no additional premium cost.

• -3. Standby fees, taxes and assessments by any taxing

authority for the year , and subsequent years . . .

(TIP: If Insured is taking title subject to delinquent taxes, the year shown will be the earliest delinquent year.)

Schedule B, Exceptions From Coverage.

• -3. (continued) . . . and subsequent assessments by any

taxing authority for prior years due to change in land usage or ownership . . .

• -Excludes liability for agricultural/open-space rollback taxes.
• -When

allowed by Procedural Rule P-20(B), Basic Manual, deletion

• f this phrase provides rollback tax coverage to the lender.
• -Deletion is available in the Loan Policy and Interim Construction

Binder, but not in the Owner’s Policy.

Schedule B, Exceptions From Coverage.

• -3. (continued) . . . but not those taxes or assessments

for prior years because of an exemption granted to a previous owner of the property under Section 11.13 Texas Tax Code, or because of improvements not assessed for a previous year.

• -Clarifies that this exception for subsequent-years tax assessments

does NOT apply to supplemental assessments for improper exemptions or for improvements omitted from tax appraisal. (TIP: Supplemental assessments are limited to the past five (5) tax years.)

Schedule B, Exceptions From Coverage.

Schedule B, Exceptions From Coverage.

• -4. Liens and leases that affect the title, but that are

subordinate to the lien of the Insured Mortgage.

• -Can be automatically deleted at lender’s request made

prior to issuance of the Loan Policy; deletion triggers requirement to itemize in Schedule B each lien or lease that is subordinate to the Insured Mortgage and to affirmatively insure latter’s priority by adding the statement authorized by Procedural Rule P-64, Basic Manual.

• -5. (Insert here all other specific exceptions as to

superior liens, easements, outstanding mineral and royalty interests, etc.)

• -Delete this item only when there are no further exceptions.

Conditions.

• -1. Definition of Terms.
• -(e)(i)(A) “Insured” also includes: (A) the owner of

the indebtedness and each successor in

• wnership
• f the indebtedness . . . except a successor who is an
• bligor under the provisions of Section 12(c) of these

Conditions . . . (carries into Procedural Rule P-7, Basic Manual).

• -(h) “Knowledge” or “Known”: actual knowledge,

not constructive knowledge or notice imputed to an Insured by reason of the Public Records . . .

Conditions.

• -1. Definition of Terms (continued).
• -(i) “Land”: the land described in Schedule A, and

affixed improvements that by law constitute real property . . . (excludes land beyond Schedule A boundaries and

also manufactured housing units not converted to real estate).

• -(k) “Public Records”: records established under

state statutes at Date of Policy for the purpose of imparting constructive notice of matters relating to real property . . . (Real Property Records, Official Public

Records, etc., maintained by the County Clerk).

• -2. Continuation of Insurance. The coverage of this

policy shall continue in force as of Date of Policy in favor of an Insured after acquisition of Title by an Insured or after conveyance by an Insured . . .

• - but only so long as the mortgagee-insured:

(1) owns an interest in the land, (2) holds a mortgage from sale of the land, or (3) is liable under covenants of warranty from resale.

(TIP: Foreclosure or deed in lieu of foreclosure does NOT convert the Loan Policy into a true Owner’s Policy.)

Conditions.

• -8. Determination and Extent of Liability

(a) The extent of liability of the Company for loss or damage under this policy not shall exceed the least of: (i) the Amount of Insurance (from Schedule A); (ii) the Indebtedness (debt balance secured by the Insured

Mortgage); [or]

(iii) the difference between value of the Title as insured and the value of the Title subject to the risk insured against by this policy . . . (determined by

appraisal).

Conditions.

• -12(c) The Company’s Rights Against Non-insured
• Obligors. . . . The Company’s right of subrogation shall

not be avoided by acquisition of the Insured Mortgage by an obligor . . .who acquires the Insured Mortgage as the result of an indemnity, guarantee, other policy of insurance, or bond and the obligor will not be an Insured under this policy.

(Rule that the Loan Policy follows the promissory note secured by the Insured Mortgage does NOT apply to an assignee who is

• bligated to the pay the indebtedness.)

Conditions.

From Schedule A, Form T-2RShort Form Residential Loan Policy:

. . . STEWART TITLE GUARANTY COMPANY, A DELAWARE CORPORATION, HEREBY INSURES THE INSURED IN ACCORDANCE WITH AND SUBJECT TO THE TERMS, EXCLUSIONS, AND CONDITIONS SET FORTH IN THE LOAN POLICY OF TITLE INSURANCE (FORM T-2) PRESCRIBED BY THE TEXAS COMMISSIONER OF INSURANCE AND IN EFFECT ON DATE OF POLICY, ALL OF WHICH ARE INCORPORATED HEREIN.

Postscript: Texas Short Form Residential Loan Policy of Title Insurance.

To Receive CE Credit

Each individual seeking credit hours must send their own certificate request to: CEcertificate@stewart.com Please include the following information:

• Provide only this Presentation Name in the Subject Line of your e-mail – “Review
• f Loan Policy”

In the body of your e-mail:

• Name of Participant (as it appears on your Escrow Officer License);
• Presentation PASSWORD given at the end of the webinar;
• License Number Only (located on left side of Escrow Officer Certificate of License –

for example: License Number: 1234567-890123) For Attorney CLE Credit also include:

• Texas State Bar Number
• Affiliation with Stewart

– Employed by Stewart Title Guaranty Company; – an affiliate; or – a Stewart agent

For more details, see the CE and CLE FAQs at:

http://www.stewart.com/en/stg/texas/education/texas-tips/ce-cle-faqs.html

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Join us for the next Texas TIPS webinar!

October 19, 2017

Spooky Claims 2017

Victor Davis

For Questions/Comments Email john.rothermel@stewart.com

• r

heidi.junge@stewart.com

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