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Underwriter Questions

Frequently Asked Questions

Please find below Frequently Asked Questions. Should you not find the answers you need please contact us

Q: Isn't there an access endorsement available in Texas?
A: Yes, form T-23 is the access endorsement promulgated by the Texas Insurance Department.

Q: Can it be used in commercial transactions? 
A: Yes, it can only be used in commercial (non-residential- see definition of residential in P-1u.) transactions.

Q: Does it insure that there is more than a legal right of access?
A: Yes. The access endorsement insures actual vehicular and pedestrian access from a specific street.

Q: What do you mean by actual vehicular access?
A: Legally authorized curb cuts.  No documents filed for record limiting vehicular access.

Q: Can I get the access endorsement when my access is by an easement? 
A: Yes.  The easement must be insured as an appurtenant tract, usually as tract 2 on schedule Aof the policy.

Q: What if my access crosses more than one appurtenant tract?
A: You are still entitled to an access easement if the access reaches a public road.

Q: Can I get any other coverage when my access easement crosses more than one appurtenant tract? 
A: Yes, you can get a contiguity easement insuring that each of the appurtenant easement tracts touch.

Q: What is the price of the access easement?
A: $100 per policy.

Q: What is the price of the contiguity endorsement?
A: $100 per policy.

Q: So if my access crosses 3 different properties, I get the contiguity easement for just $100.
A: That's correct, also.  However, depending on whether or not the appurtenant easements have ever been insured before, there could be an additional chain charge of $229 for each appurtenant tract.

Q: Why is there an additional chain charge?
A: The title company must review the title to the tracts over which the easement runs to determine that the easement was granted by the proper party and what encumbrances affect the easement.  There is additional title searching involved for which the searching agent must be compensated.

Q: Does the title company set the fees we've been talking about?
A: No, the Texas Insurance Department sets the fees.  See rate rules R-30 for the access rate and R-32 for the contiguity rate.  See R-9 for additional chain rule.

Under a Chapter 11 Bankruptcy proceeding an agreed ordered between the parties was approved by the bankruptcy court lifting the automatic stay imposed upon both a first and second lien;

After  the order lifting stay, the Chapter 11 proceeding was converted to a Chapter 7 proceeding by order of the bankruptcy court;

After the conversion to a Chapter 7 proceeding, the holder of the second lien posted said lien for foreclosure, and conducted a proper non-judicial foreclosure on the subject property.

ISSUES:   Was the lifting of the automatic stay under the Chapter 11 proceeding  survive the conversion to the Chapter 7 proceeding, or would another lift of stay need to be obtained under the Chapter 7 proceeding to allow the subsequent foreclosure? 

ANSWER:  The conversion of a bankruptcy from one chapter to another does not affect the orders entered in the case up to that point.  (11 USCS § 348  Effect of conversion (a) Conversion of a case from a case under one chapter of this title [11 USCS §§ 101 et seQ: ] to a case under another chapter of this title [11 USCS §§ 101 et seQ: ] constitutes an order for relief under the chapter to which the case is converted, but, except as provided in subsections (b) and (c) of this section, does not effect a change in the date of the filing of the petition, the commencement of the case, or the order for relief.

Subsection (c) of section 362 specifies the duration of the automatic stay. Paragraph (1) terminates a stay of an act against property of the estate when the property ceases to be property of the estate, such as by sale, abandonment, or exemption. It does not terminate the stay against property of the debtor if the property leaves the estate and goes to the debtor. Paragraph (2) terminates the stay of any other act on the earliest of the time the case is closed, the time the case is dismissed, or the time a discharge is granted or denied (unless the debtor is a corporation or partnership in a chapter 7 case).

Under this section, t when the court 1. lifts the stay and 2. allows the change from Chapter 11 to Chapter 7, the stay is terminated unless the court issues an order reinstating it. If the case went the other way from Chapter 7 to Chapter 11, it would put the property in the hands of the debtor and thus the stay wouldn't be lifted until there was another order or the court approved the plan that in some way deals with the property.

Q: What rule applies to additional chains of title? 
A: R-9. Additional Chains of Title----In the event more than one chain of title is involved in the issuance (including determination of insurability of access) of any policy, the Company shall charge the minimum policy Basic Premium Rate for each additional chain. For purpose of applying this rule, contiguous parcels of land in one county shall be treated as one chain, provided record title to the land and record title to the access is vested in one owner at the time application is made. Each noncontiguous parcel having a separate chain shall be treated as a separate chain, except where two or more lots in the same platted subdivision, and having the same plat recording date, belong to the same owner, then such shall be treated as one chain. If the parcels of land lie in more than one county, there are separate chains of title in each county. No additional chain charge may be made for determination of insurability of access to land located within a subdivision, provided: (i) the subdivision is located in only one county, and (ii) the plat of the subdivision has been lawfully approved by an authorized governmental entity, is duly recorded, and the roads shown thereon have been dedicated for public use or for the use of the owners of lots located in the subdivision.

Q: Why is an additional chain of title necessary?  
A: The title premium includes search and examination of the title to the property in question.  However, many transactions involve more than one tract of land that may have or have had more than one legal description or more than one owner.  The premium doesn't adequately cover more than one search.

Q: What is an additional chain? 
A: There is no additional chain whererecord title to the land and record title to the access is vested in one owner at the time application is made. An additional chain occurs when more than one person owns the property.

Q: When are there other additional chains?  
A: Each noncontiguous parcel having a separate chain shall be treated as a separate chain, except where two or more lots in the same platted subdivision, and having the same plat recording date, belong to the same owner, then such shall be treated as one chain.

Q: When are tracts contiguous?  
A: Tracts are contiguous when they touch each other along their entire common boundary.  They are adjacent when they simply touch at one point.

Q: Are tract contiguous when separated by a street?
A: That depends.  If you have acreage tracts that are separated by a public road, they are not contiguous.  Residential lots in the same subdivision owned by the same owner at the time the order is placed are contiguous, no matter how many streets are in between them.   Remember, that a tract must have a separate legal description to be a separate tract.  In other words, 2 acres described by metes and bounds and 4 acres described by metes and bounds are 2 separate tracts and 2 separate chains when divided by a street.  On the other hand, a 2 acre tract with a road running through it doesn't have an additional chain.

Q: If an acreage tract has 2 platted subdivisions in it and we are dealing with lots out of each are there separate chains?  
A: Yes.  Each set of lots from the separate subdivision is a separate chain.  But you only have 1 additional chain here since you have 1 subdivision as the base chain and the lots in the other subdivision are a separate chain.

Q: What if I'm also handling the remaining acreage in the same deal?
A: You would have the base tract and 2 additional chains. One chain for the other lots in the other subdivision and one chain being the acreage.

Q: What if title to some lots are in one corporation and title to the other lots is in an LLC but the same person owns them both? 
A: R-9 says: Each noncontiguous parcel having a separate chain shall be treated as a separate chain, except where two or more lots in the same platted subdivision, and having the same plat recording date, belong to the same owner, then such shall be treated as one chain. So in this example, there are 2 different entities who own the property and so there is 1 additional chain.

Q: What if we are insuring access through an easement? 
A: It depends.  If title to the land and the easement are in the same owner when the order is placed, you don't have an additional chain. Why?  Because an additional chain was charged (or a full search paid for) when the easement was created. On the other hand, if title to land and title to the easement are being created in this transaction, you will have an additional chain unless you are carving out both the land and the easement from land owned by just the seller(s) in this transaction.

Q: What if we are asked to insure access in a platted subdivision?  For example issuing an access endorsement. 
A: No additional chain charge may be made for determination of insurability of access to land located within a subdivision, provided: (i) the subdivision is located in only one county, and (ii) the plat of the subdivision has been lawfully approved by an authorized governmental entity, is duly recorded, and the roads shown thereon have been dedicated for public use or for the use of the owners of lots located in the subdivision.  You would charge an access endorsement as appropriate.

Q: What if the property is in 2 counties?  
A: If the parcels of land lie in more than one county, there are separate chains of title in each county.

Q: What if the lots are in separate blocks of 1 subdivision?  
A: Whether or not they are contiguous, you only have on chain.

Religious Denominations

Q: I've heard that different churches have different rules for buying, selling an building on real estate.  Is that true?
A:  Yes.  Some churches are local unincorporated associations; some are non-profit corporations; some belong to national churches and some are corporations sole.

Q:  How do I find out what I need from the church?
A:  Ask the pastor  and the lay leaders of the congregation for a copy of their churches manual of organization.  If they don't have one, you will need to determine if the church is incorporated inTexas or is an unincorporated association.  The Secretary of State's office is the starting place.  Then, check to see if it is affiliated with a national church group. 

Q: If the church is part of a National Group, how do I contact them?
A: Click here.  We have a listing of nearly every church denomination that has more than 5 congregations in Texas .  We have addresses and websites  as of  January 1, 2006.   Please be aware that website address can and frequently do change so this list is only a tool and not the definitive listing.  We will try to update it periodically and will change the date on the list when we do.

Q:  Once I determine the status of the congregation as an entity, what do I do next?
A:  Please review Stewart?s bulletin Tx?78 on entities.  This bulletin explains corporations and association requirements.  Then also comply with the internal and denominational requirements of the congregation with whom you are dealing.  

TDI Bulletin 163 E-Filing Fees

Q: Has the Texas Insurance Department ruled on charging a separate fee for electronic filing of documents and for hard copy recording fees?
A. Yes.  The TDI has now issued Bulletin 163 on this issue. Click here to view.

Q: Can we charge both fees?
A: No

Q: Why not?
A. TDI takes the position that only the fee paid to the County Clerk for recording can be passed to the consumer.  If the Clerk charges a surcharge for electronic recording , then the base fee and the surcharge can be passed to the consumer.  However, if a service provider charges a fee for use of their internet service or as a carrier of the fee, TDI's position is that that fee is done as a convenience for the title company and is not a benefit to the consumer and the title company must absorb that charge.

Q: Is this position open to debate?
A: Certainly.  However, since TDI position has been stated in the form of a commissioner's order, a procedural rule would be necessary to change their position.

In some transactions, a party to the transaction is in another country and needs to get a document notarized. If a U.S. Embassy or U.S. Consulate notary is unavailable, the party may obtain a foreign acknowledgement by using an Apostille Form. We will accept this form executed by a foreign notary from any country that is a member of the Hague Convention. The following link lists the countries that are members of the Hague Conference http://hcch.e-vision.nl/index_en.php?act=states.listing.

Click here for the Apostille form.

If you have a health care facility or nursing home in Texas that might be subject to the Hill-Burton act (see Virtual Underwriter at www.vuwriter.com for more details), please check the following website.  If your facility is not listed, you do not need an exception for any possible governmental rights of reimbursement.

http://www.hrsa.gov/hillburton/hillburtonfacilities.htm

Q: How can stewart help an independent agent with insurance and bonds?

Errors & Omissions (E&O) insurance is a specific form of professional liability coverage that covers mistakes made by professionals on behalf of another party.

In the Real Estate industry, E&O insurance can specifically cover failure to disclose facts to a consumer or facts misprinted in documents, where the agent is held responsible even if the mistake made was unintentional. Coverage can include legal defense costs and will pay for any judgments against the covered party, depending on the coverage stated in the policy. E&O can extend to both W-2 employees and 1099 subcontractors. Typically, it is worldwide in scope, covering claims made while the policy is in effect.

Errors & Omissions coverage is generally not included in a commercial general liability policy. Contract performance, errors made in a professional setting, and liability issues must be covered separately by professional liability insurance. Every insurance portfolio carried by a professional real estate broker should include an& E&O policy.

In many states, E&O insurance is required by legislation. It is important to know which states require specific coverage, and the sources for obtaining coverage.

 

Why Stewart E&O?

Stewart Specialty Insurance Services offers E&O insurance underwritten by a variety of highly rated carriers with many years of experience in the liability coverage field. While continuing education requirements, increased disclosure requirements upon sellers and tort reform trends are easing the burden of the real estate broker, a lawsuit can easily bankrupt a company - or in the least, can cause a well-earned good reputation to be damaged by a single careless mistake.

Stewart's Bond Department offers a full range of surety and fidelity products to protect your business interests. We are able to offer our clients with a wide variety of bonds, including completion bonds, lost instrument bonds, tax, water and sewer bonds, appeals bonds, lis pendens bonds, mechanic's lien bonds and many, many more.

We believe the key to success is flexibility. We review clients individually and give full consideration to their assets. We work closely with our clients to quickly assess your needs and issue your bond, often within 24 hours.

Stewart's Bond Department offers:

  • Contract performance and payment bonds - At Stewart, we specialize in writing small- to medium-sized contractor bonds. Our unique underwriting approach emphasizes personal assets and a contractor's ability to perform projects.
  • Commercial surety - We write a variety of commercial surety bonds, including license and permit bonds, probate bonds, court bonds, notary bonds, notary errors and omissions policies, public official bonds, federal bonds and other miscellaneous bonds.
  • Fidelity and dishonesty coverage - We offer coverage for .your business assets from theft by employees and volunteers. Stewart specializes in not-for-profit and professional organizations, as well as associations. Coverage is available for all employees, volunteers and non-compensated officers. We also provide name or position scheduled coverage, business service bonds and Employee Retirement Income Security Act (ERISA) fidelity.

When you need a bond, contact your Stewart bond Department agent at (866) 338-8615 for fast, friendly service on quality surety and fidelity products.

Stewart and American Home Shield (AHS) have partnered to offer you comprehensive home warranty protection.

Your home is probably your most valuable asset. That's why you protect it with a home warranty

 

Affordable coverage that could save you hundreds of dollars

Homeowners spend and average of $900 each year to repair home systems and appliances1. The cost for just one appliance or systems repair can range from $65 to $20001, and replacement costs average $1,319.2

With Stewart Home Warranty, you reduce the risk of these high costs.

  • Whether you're selling or buying, you benefit from the financial protection of a Stewart Home Warranty
  • You pay a low trade service call fee for covered repairs or replacements
  • The affordable Stewart Home Warranty cost you pay now can help protect you from many budget-breaking, covered repair expenses later

 

Sensible protection against unexpected repair costs

Your home systems and appliances won't last forever. In fact, the average life expectancy of nine critical home systems and appliances is 13 years, and the likelihood of failure in a given year is 68 percent.1 You can help protect yourself against many of these financial risks with a Stewart Home Warranty, which:

  • Covers most home systems and appliances
  • Pays for repair or replacement of any covered item that breaks down due to normal wear and tear
  • Can save you much of the expense, time and frustration of dealing with unexpected covered repairs

 

Stewart Home Warranty through AHS is the right choice in the case things go wrong

  • AHS founded the home warranty industry in 1971 and today covers more homes than any other provider
  • AHS is recommended by REALTORS® over twice as often as the nearest competitor
  • AHS is a ServiceMaster Company, America's leading provider of service brands for residential and commercial customers

Q: What is an insured closing letter?
A: An insured closing letter is an insuring form wherein a title insurance company agrees to replace settlement funds that are lost as the direct, proximate cause of fraud or dishonesty by the title insurance company's agent or by the failure of the agent to following closing instructions not inconsistent with the terms of the letter, subject to the terms of the letter.

Q: You say that the Insured Closing Letter is an insuring form?
A: Yes, the Texas Department of Insurance has promulgated the form of the letter for use in Texas Form T-50 for the Lender Letter and Form T-51 for the Owner/Purchaser Letter.  The authority of the Insurance Department to promulgate these forms is found in Section 2702.001 of the Insurance Code.

Q: What is the cost for the letter?
A: There is no premium charged for either of the letters.

Q: Does a lender need a new letter for each transaction with the named insuring agent?
A: NO.  The letter specifies that once a lender has an Insured Closing Letter from a title insurer and signs the letter and returns it to the insurer, all of the lender's transactions are covered until the letter is cancelled.

Q: Is that all there is to getting the coverage? 
A: No.  For example, the lender must have specified and requested a policy from the specific title insurance company.

Q: Are mechanic's liens covered by the Lender ICL?
A: Not during the period of construction.

Q: Is the title insurer liable for bank failure?
A: No.

Q: If the lender's employees, agents (such as mortgage brokers) or attorney cause the loss, is the title company liable?
A: No.  Additionally, the title insurance company is not liable for losses caused by the settlement or release of any claim without the written consent of the title company or for things created, suffered, known or assumed by the lender or its employees, agents or attorneys.

Q: How long is the coverage provided by the Lender's ICL?
A: The lender has 12 months from the date of the closing instructions to discover and report the loss or in any event 2 years from the date  of the mailing of the closing instructions.

Q: Can the form of the letter be negotiated or changed?
A: No.  The form(s) are promulgated by the Texas Insurance Department and cannot be changed in any way.

Q: Does the form come directly from the underwriter?
A: Yes.  Stewart Title Guaranty Company allows its licensed title insurance agents to access a secure website to request the letter.  The letter is then generated by Stewart Title Guaranty Company and can be delivered electronically to the lender or to the title insurance agent or will be mailed by Stewart Title Guaranty Company to the lender.

Q: Is the ICL just for lenders?
A: No.  There is a totally separate form (T-51) available for Sellers and Buyers.

Q: What does this letter cover?
A: It covers the same risk of loss of funds by fraud or dishonesty on the part of the title agent.  The covered party must have signed the letter and returned it to Stewart Title Guaranty Company.  This letter doesn't cover  the first $250,000 of a covered loss.

Q: How long is protection provided under this letter? 
A: 12 months after the transaction has been closed.

Q: Can any owner/buyer get this letter?
A: No.  Only transactions where the policy amount will exceed $250,000 are subject to the letter.

Q: How do I get coverage for amounts under $250,000? 
A: The Texas Insurance Code provides for a guaranty fund to cover transactions under the threshold amount.  The Guaranty Fund is maintained by the Texas Title Insurance Guaranty Association under the supervision of the Texas Insurance Commissioner.

Q: Can the form of the letter be negotiated or changed?
A: No.  The form(s) are promulgated by the Texas Insurance Department and cannot be changed in any way.

Q: Does the form come directly from the underwriter? 
A: Yes.  Stewart Title Guaranty Company allows its licensed title insurance agents to access a secure website to request the letter.  The letter is then generated by Stewart Title Guaranty Company and can be delivered electronically to the lender or to the title insurance agent or will be mailed by Stewart Title Guaranty Company to the owner/purchaser.

Q: Can a title insurance agent order either letter? 
A: Yes, however, the agent must have had its permissions set up in Stewart's system to order both letters.

Q: If I'm only allowed to order the Lender Letter what do I do? 
A: Contact your Stewart Agency Services Manger (formerly called a District Manager) and ask them to change your permissions.

Q: Why should I get permission to each both kinds of letters? 
A: While the coverages provided are similar, they are not identical.  See particularly the limitation on the size of the transaction covered by the Owner/Purchaser letter.  It is improper to issue the wrong form.

Q: Can insured closing letters be issued to cover funds placed with an attorney?
A: It depends.  If the attorney is an escrow officer for the title insurance agent or direct operation, then the letter will cover funds sent to the attorney's office.  If the attorney is not an escrow officer of the title company, no letter can be issued showing his name.

Q: What is an insured closing letter?
A: An insured closing letter, frequently called an ICL,is an insuring form in Texas. It protects funds of a lender or buyer/seller placed with atitle insurance agent or direct operation. A title insurance company agrees to replacesettlement funds that are lost as the direct, proximate cause of fraud or dishonesty by thetitle insurance company's agent or by the failure of the agent to following closinginstructions not inconsistent with the terms of the letter, subject to the terms of the letter.”? This feature is discussed more fully below.

Q: Who creates the form of the ICL?
A: In Texas, the form is promulgated by the Texas Insurance Commissioner. The lender letter is form T-50 and the seller/buyer letter is form T-51. The forms appear similar but please be aware that the seller/buyer letter contains different and lesser coverage

Q: What is the cost of the ICL? There is no charge in Texas.
A: Who is entitled to an ICL? The form itself says that a person or entity shown as a proposed insured in a commitment issued by or on behalf of a title insurer may request and receive an ICL

Q: Can the form be issued to cover the assignees of the lender?
A: No. Since the ICL creates a contract between the lender, seller/buyer and the title company, the title company has the right to know with whom it has contracted. Additionally, the ICL specifies that the part covered must have specified a title commitment from us, that we have rights of subrogation.

Q: Are transactions of all amounts covered?
A: No. Lender letters have no limitation as to size. Very small transactions and very large transactions are all eligible for an ICL. Seller/ buyer letters apply only to transactions where the policy amount is expected to exceed $250,000.

Q: Why is there this limitation on Seller/ Buyer Letters?
A: Section 2602.256 of the Texas Insurance Code provides that the Title Insurance Guaranty Association covers claims for impaired title insurance agents up to the greater of $250,000 per policy or $250.000 per claimant. The Seller/Buyer ICL then covers the excess of the statutory amount.

Q: If I place money with a title agent, get and ICL and my money disappears, am I covered?
A: The terms of the ICL state that the Company will replace your settlement funds that are lost after receipt of such funds by the title agent or direct operation as a direct, proximate cause of the fraud or dishonesty of the title agent or direct operation. Additionally, if you receive a commitment for title insurance before your funds and closing instructions are placed with the agent or direct operation and your funds are lost as a direct, proximate cause of the title agent or direct operation failing to comply with your closing instructions, your funds are covered.

Q: No matter what my closing instructions say, I’m covered?
A: No. Lender instructions must be consistent with documentation usually required for the closing of real estate transactions in Texas. This limitation is not contained in the Seller/Buyer letter.

Q: If the title agent or direct operation fails to sign my closing instructions but still closes the transaction and money is lost because they failed to follow all of my lawful instructions, am I covered?
A: Generally, Yes. Title agents and direct operations are prohibited by TDI procedural rule P-35 from making certifications as to facts other than a loan has closed and been funded, certification that documents are true and correct copies of the original or recorded documents or insuring forms, including ICLs. As long as your instructions did not instruct the title agent or direct operation to violate P-35, the ICL coverage should apply.

Q: If you put my money into a bank that fails, am I covered?
A: If you specified a bank in your instructions, and the agent or direct operation failed to put the money in that bank and the bank that the agent picked fails, you would have coverage for the amount exceeding FDIC coverage limits. If you fail to specify the bank, coverage is provided only by the FDIC.

Q: How do you protect my funds from the mandatory FDIC limits?
A: For escrow accounts and other types of fiduciary accounts, deposits are held in the name of the escrow agent but actually belong to others. FDIC rules will permit the insurance to "pass-through" the escrow agent to the true owner(s) of the funds if certain requirements are met, as follows:

  1. The fiduciary status of the accountholder must be clearly stated in the account records of the depository institution. To satisfy this requirement each escrow account opened at a bank (or other insured institution) must be named in the bank's records as "____________ Title Company, as Escrow Agent" or "___________ Title Company Escrow Account", or the like, which makes clear the named company is acting as a fiduciary for others who are actual owners of the account funds. To the extent applicable include the names of the actual owners of the account or a reference to the particular file number.
  2. The identity of the actual owners of the account funds, and their respective interests in the funds, must be ascertainable either from the bank's account records or from records maintained by the escrow agent in its regular course of business. To satisfy this requirement, the escrow agent must keep its records as to each escrow account meticulously up-to-date with the owners' names and the amount of account funds belonging to each.
  3. The account funds must actually belong to the owners named in the escrow agent's records. This is a factual requirement that depends upon the specific facts and circumstances of the transaction for which the particular escrow account was established

We provide this information to our agents and offices and encourage them to be certain that all escrow accounts are so denominated. Minimum escrow audit standards #9 promulgated by the TDI also required escrow accounts to be so denominated

Q: What if one of my employees is involve in a scheme to steal the money? Am I covered?
A: No. The letter provides that loss caused in whole or in part by the fraud, dishonesty or negligence of the lender, buyer or seller or their employee, agent or attorney is not covered. Losses caused by your unilateral action to release claims or by matters create, suffered, assumed or agreed to by you are not covered.

Q: Am I covered if losses are caused by consumer credit issues or truth-in-lending issues?
A: No. The form expressly provides no coverage for losses causes by these issues.

Q: If I become aware of a loss under the letter, how long do I have to file a claim?
A: You have 2 years from the date that you mailed your instructions. Sellers/Buyers have 1 year after the closing date to file a claim.

Q: My title agent closed but money is not missing from the escrow accounts. Am I covered?
A: Probably not. As long as the money is located in the escrow account, the protection afforded by the ICL is not applicable. If money is lost because the escrow accounts are short, the first $250,000 is covered by the guarantee fund.

Q: Are the forms used in Texas the same as used in the rest of the United States?
A: No. The American Land Title Association has proposed forms that have been adopted in many states. Texas will consider adopting these forms in Fall, 2008.

Q: Does a lender need a separate letter for each transaction? 
A: Under the existing Texas forms, a separate letter has not been required for each transaction. Under the current ALTA letter, a separate letter is required. If Texas adopts the new forms, only the ALTA forms will be allowed in Texas.

Q: May an attorney be covered by an ICL?
A: An attorney who is an escrow officer of a title agent may have his office location covered by the ICL. An attorney who closes transactions independently under P-22 cannot have his office or files covered by the ICL. A pending rule by the TDI would also prohibit a title agent or direct operation from receipting funds in its name, issuing an ICL and then transferring the funds to the account of the attorney. This rule will be considered by the Texas Commissioner of Insurance in the fall of 2008.

Stewarttexas.com 8-8-2008

CORPORATIONS: (XYZ, Inc.; LMN, Corp., ABC, Co.)

Description
A corporation is an entity created by or under the Texas Business Corporations Act 1.01 et seq. A corporation is made up of shareholders, directors and officers. The law treats the corporation itself as a person who can sue and be sued, hold title to and convey real property in its own name. The law calls a corporation an "artificial person".

Formation
In Texas, a corporation is formed by articles of incorporation, which are filed with the Secretary of State. Once the articles of incorporation are filed and fees are paid, the Secretary of State issues a Certificate of Incorporation. Before transacting any business or incurring any debt, the corporation must issue $1,000 worth of shares. In addition, once the certificate of organization is issued, the initial board of directors named in the articles of incorporation must hold an organization meeting and adopt bylaws, elect officers and transact business, if any.

Title Insurance Requirements
When dealing with a transaction involving a corporation, agents must determine that the corporation exists and in good standing with the Secretary of State. In addition, agents must determine the authority of the person signing on behalf of the corporation by obtaining certified copies of the articles of incorporation, bylaws and corporate resolution executed by the board of directors.

NON-PROFIT CORPORATIONS:

Description
A corporation formed for some charitable or benevolent purpose and not for profit making. A non-profit corporation is created by the Texas Non-Profit Corporations Act located in Texas Civil Statute 1396-1.01 et seq. This type of corporation will have a board of directors and officers, but no shareholders.

Formation
In Texas, a non-profit corporation is formed by articles of incorporation that are filed with the Secretary of State. Once the articles of incorporation are filed and fees are paid, the Secretary of State issues a Certificate of Incorporation. Once the certificate of incorporation is issued, the initial board of directors named in the articles of incorporation must hold an organization meeting and adopt bylaws, elect officers and transact business, if any.

Title Insurance Requirements
When dealing with a transaction involving a non-profit corporation, agents must determine that the corporation exists and in good standing with the Secretary of State. In addition, agents must determine the authority of the person signing on behalf of the corporation by obtaining certified copies of the articles of incorporation, bylaws and corporate resolution executed by the board of directors.

PROFESSIONAL CORPORATION (Sally Devine, P.C.)

Description
A group of people who render professional services to the public, which requires a license or other legal authority. A professional corporation is formed like a regular corporation, and most professionals will use a professional corporation because of its tax benefits. A professional corporation is created by the Texas Professional Corporation Act located in Texas Civil Statute 1528e. Frequently, professional associations include attorneys, architects, CPAs, veterinarians and dentists.

Formation
One or more people may incorporate a professional corporation by filing the Articles of Incorporation with the Secretary of State. A professional corporation is made up of directors, officers and shareholders. Once the articles of incorporation are filed and fees are paid, the Secretary of State issues a Certificate of Incorporation. A professional corporation can be formed by other professional corporations.

Title Insurance Requirements
When dealing with a transaction involving a professional corporation, agents must determine that the corporation exists and in good standing with the Secretary of State. In addition, agents must determine the authority of the person signing on behalf of the corporation by obtaining certified copies of the articles of incorporation, bylaws and corporate resolution executed by the board of directors.

FOREIGN CORPORATION

Description
A foreign corporation is one that has been incorporated outside of the state of Texas. (See Texas Business Corporation Act 8.01 et seq.)

Formation
A foreign corporation cannot do business in Texas unless it has been issued a certificate of authority to do so by the Texas Secretary of State.

Title Insurance Requirements
When dealing with a transaction involving a foreign corporation, agents must determine that the foreign corporation exists and in good standing with the state or territory where it is incorporated. However, if agents are insuring the sale of a piece of property that is the only piece that the foreign corporation owns in Texas, then agents do not need to require a certificate of authority. In any event, agents must determine the authority of the person signing on behalf of the foreign corporation by obtaining certified copies of the articles of incorporation, bylaws and corporate resolution executed by the board of directors.

COOPERATIVE ASSOCIATION

Description
A corporation or association organized for the purpose of rendering economic services, without gain to self, to shareholders or members who own and control it. The Texas Cooperative Association Act creates a cooperative association. (See Texas Civil Statute 1396-50.1 §1 et seq.)

Formation
Five or more natural persons, five or more hospitals or a hospital council or related subgroup, or two or more associations may incorporate. Articles of Incorporation must be signed and acknowledged by each of the incorporators if they are individuals and by presidents and secretaries if they are associations. The articles must be filed with the Secretary of State. Once the articles are received and fees paid, the Secretary of State shall issue a certificate of incorporation and the directors shall hold an organizational meeting.

Title Insurance Requirements
When dealing with a transaction involving a cooperative association, agents must determine that the corporation exists and in good standing with the Secretary of State. In addition, agents must determine the authority of the person signing on behalf of the corporation by obtaining certified copies of the articles of incorporation, bylaws and corporate resolution executed by the board of directors.

UNINCORPORATED NON-PROFIT ASSOCIATION

Description
Voluntary group of people, without a charter, formed by mutual consent for the purpose of promoting common expertise or prosecuting a common objective. An unincorporated non-profit association is created by the Texas Uniform Unincorporated Non-Profit Association Act located in Texas Civil Statute 1396-70.01 §2 et seq. A non-profit association in its name may acquire, hold, transfer or encumber an estate or interest in real property. Frequently, churches will hold title as unincorporated non-profit associations.

Formation
An unincorporated non-profit association does not have to file any documents with the Secretary of State or pay any fees.

Title Insurance Requirements
A nonprofit association may execute and record a statement of authority to transfer an estate or real interest in property in the name of the association, which will authorize a person to transact business on behalf of the association. We will require copies of any and all organization documents to determine the person who has authority to act on behalf of the association. If you are dealing with a church or other religious group, please call a Texas Underwriting Counsel.

PROFESSIONAL ASSOCIATION (Dr. Sam Slade, P.A.; Heart Docs Assoc.)

Description
A group of professional people organized to practice their profession together under the Texas Professional Association Act located in Texas Civil Statute 1528f. A professional association consists of officers, a board and members. Typically, a professional association involves people in the medical profession (i.e. ophthalmologists.)

Formation
Any one or more persons licensed to practice a profession under Texas law may form a professional association by associating themselves with the purpose of performing professional services and dividing the gains as stated in the articles of association or bylaws. The articles of association must be filed with the Secretary of State. A certificate of association will be issued once the articles are filed and fees are paid.

Title Insurance Requirements
We will require certified copies of the articles of association or bylaws to determine the authority of the person signing on behalf of a professional association.

FOREIGN ASSSOCIATION

Description
A foreign association operating on a cooperative basis and complying with the laws of the state in which it is organized may transact business within Texas. (See Texas Civil Statute 1396-50.01 § 43.)

Formation
A foreign association is formed according to the state laws in which it is associated.

Title Insurance Requirements
We will require certified copies of the articles of association or bylaws to determine the authority of the person signing on behalf of a professional association.

LIMITED LIABILITY COMPANY: (Airline Drive L.C.; 1401 Jones Road, L.L.C.)

Description
A limited liability company combines the advantage of the limited liability of shareholder in a corporation with the tax benefits of partners in partnerships. Additionally the limited liability company provides added flexibility in the management of the company and distribution of profits. A limited liability company is created by the Texas Limited Liability Company Act located in Texas Civil Statute 1528n - § 1.01 et seq.

Formation
Any person may act as an organizer of a limited liability company by signing Articles of Organization and delivering the articles for filing to the Secretary of State. When all fees are paid, the Secretary of State will issue a certificate of organization. The articles of organization, sometimes called the operating agreement is the document agreed to by the Members (owners) which govern the management of the limited liability company in the conduct of its business and distribution of profits. This document must be in writing. The operating agreement is similar to the corporate charter and by-laws for a corporation or the partnership agreement for a partnership

Title Insurance Requirements
We will require certified copies of the articles of organization or operating agreement to determine the authority of the person signing on behalf of a limited liability company.

FOREIGN LIMITED LIABILITY COMPANY

Description
A foreign limited liability company is one that has been organized outside of the state of Texas. (See Texas Civil Statute 1528n § 7.01 et seq.)

Formation
To transact business in Texas, a foreign limited liability company must have received a certificate of authority to do so from the Texas Secretary of State.

Title Insurance Requirements
We will require certified copies of the articles of organization or operating agreement to determine the authority of the person signing on behalf of a limited liability company.

LIMITED PARTNERSHIP: (Best Built Homes, L.P.; 1st Burgers, L.L.P.; Last Chance, Ltd.)

Description
A type of partnership comprised of comprised of one or more general partners who manage business and who are personally liable for the partnership debts, and one or more limited partners who contribute capital and share in profits but who take no part in running the business and incur no liability with respect to partnership liabilities beyond their capital contributions. A limited partnership is formed under the Texas Revised Limited Partnership Act.

Formation
To form a limited partnership, the partners must enter into a partnership agreement and one or more partners, including all of the general partners, must execute a certificate of limited partnership. The filing fee and certificate must be filed with the Secretary of State.

Title Insurance Requirements
All limited partners should join in the execution of any real estate instrument, unless:

There is authority for less than all of them to act (this authority to be set forth in the partnership agreement).

The consent of all the limited partners is required by agreement. (This consent, if necessary, should not be expressed by a joinder of the limited partners in executing the documents. To do so might impair the certain immunity the limited partners enjoy if they do not engage in the management of the partnership affairs.)

In the event the limited partnership conveys all, or substantially all, of the assets of the partnership, the consent of the limited partners should be required.

GENERAL PARTNERSHIP: (Four Sisters, a Texas Partnership)

Description
One or more persons carrying on a business as co-owners for profit. All partners share the profits and losses as well as the management equally, though their capital contributions may vary. Partnerships are created by the Texas Revised Partnership Act located in Texas Civil Statute 6132b-1.01 et seq.

Formation
To form a partnership, one or more people may enter into a partnership agreement. Unless otherwise provided in the partnership agreement, the Texas Revised Partnership Act will govern the actions of the partnership.

Title Insurance Requirements
Partnership property should be conveyed or mortgaged in the same name in which the title was acquired. The question of the required signatories is dependent upon the partnership agreement. Be aware that the sales contract may not show the partnership name, but show the common name of the partnership as the buyer or seller.

All general partners should join in the execution of instruments affecting the partnership property unless the recorded statement or certificate of partnership, signed by all the partners, delegates the authority to so execute to less than all or certain of the general partners. The delegation of authority for less that all general partners to act can also be made by agreement or some other document signed byall partners, both general and unlimited. Such delegation should be reflected in the public records.

FOREIGN PARTNERSHIPS, LIMITED PARTNERSHIP, LIMITED LIABILITY COMPANY

Definition -
A partnership formed under the laws of a state or territory outside of Texas. (See Texas Civil Statute 6132a-1 § 9.01 et seq.)

Formation
The laws of a state under which a foreign partnership is formed govern its organization and affairs and the liability of the partners for obligations of the partnership.

Title Insurance Requirements
We will require a formal legal opinion from the attorney for the foreign partnership to determine if the partnership complies with its state statutes.

JOINT VENTURE (5101 Broadway Development)

Description
A legal entity, which is like a partnership, and is engaged in a particular transaction for mutual profit. (See Texas Business and Commerce Code 36.01 et seq.)

Formation
See General Partnerships Section of this Bulletin.

Title Insurance Requirements
See General Partnerships Section of this Bulletin.

SOLE PROPRIETORSHIP (d/b/a or "doing business as")
(Tom's Tacos; Tom Martin d/b/a Tom's Tacos)

Description
A form of business in which one person owns all of the assets of the business and is solely liable for all of the debts of a business. The individual owner may elect to operate under an assumed name by recording an assumed name certificate in the counties where (s)he does business.

Formation
A sole proprietorship consists of a single person acting as a business in his/her own name. A sole proprietorship is not a separate entity.

Title Insurance Requirements
For a sole proprietorship, agents would do a search just as agents would for an individual person. Agents will also need to check the homestead status of the property in the transaction. In addition, do not show an Assumed Name Certificate as an exception in Schedule B of the policy.

TRUST ACTING AS A BUSINESS:

Description
A trust acting as a business or trustees transacting business on behalf of a trust. (See Texas Property Code § 113.008.)

Formation
See the Trust Section of Virtual Underwriter.

Title Insurance Requirements
We will require a review of the entire Trust Agreement to determine if the trust has the power to operate as a business and to determine the authority of the trustee(s). Title should be shown as : WWH Trust, whose Trustees are A, B and C or A, B, and C, Trustees of the WWH Trust.

Date: January 28, 2008
Re:  Master Indemnity Letters

Dear Associates,

In November, 2005 the Texas Commissioner of Insurance approved for use the Master Indemnity letter (form T-29 in the rate manual.)  This letter is issued by underwriters to underwriters and takes the place of the individual letters for the matters stated. Mechanic’s lien affidavits are not covered. Master Indemnity Letters are not issued by agents.

We have exchanged Master Indemnity Letters with the following underwriters licensed in Texas:

Please note:  You do not need a copy of the Master Indemnity in each file to which the indemnity applies. You will need a copy of the prior policy that does not take exception to the matter in question. 

The Master Indemnity Letter covers the following matters:

Potential Defects

Homestead, AJs, FederalTax liens or State Tax Liens to a prior owner , other consensual liens not being released, authority of trustee ,attorney in fact, or executor or administrator  to sign documents

When a separate letter is required

A separate letter is required when the amount of the indemnitor’s policy is more than $500,000 and the lien of any unreleased lien is more than $500,000 and no foreclosure proceedings have been initiated.

The form itself provides most of the guidance necessary for use of the form:

HOMESTEAD
Item I above applies when a deed in the chain of title to the Land, prior to or contemporaneously with Our Policy, does not contain either:  1. Joinder by the spouse of the grantor; or 2. A statement on the deed that the grantor is a single person; or  3. A statement on the deed or other recorded instrument that the Land conveyed by the deed is not the homestead of the grantor; or  4. A statement that the property is community property under the sole management and control of the grantor. 

JUDGMENT LIENS OR FEDERAL OR STATE LIENS
Item II above applies to a recorded judgment lien(s), including a federal judgment lien(s) or a federal lien(s) securing the payment of a criminal fine/restitution pursuant to 18 USC §3613 or appropriate state law, when the lien or judgment states what appears to be a sum certain, or when a recorded federal tax lien(s) or state tax lien(s) were recorded prior to the date of Our Policy; if  1. The Lien(s) are not against the insured under Our Policy;  2. The face amount of the Lien(s), exclusive of costs, interest and attorneys' fees, do not exceed $500,000.00; and  3. No notice of any proceedings or levy to collect the Lien(s) have been recorded  4. We did not take exception to such Lien(s) in Our Policy.  "State tax lien shall not include: (i) any lien securing the payment of ad valorem taxes; and/or (ii) any municipal/city or county lien for weed or sanitary liens, demolition liens, street assessment or paving liens, and/or utility service liens or other similar matters.  

MORTGAGES
Item III above applies when a recorded Mortgage(s) was recorded prior to the date of Our Policy if:  1. No foreclosure proceedings respecting the Mortgage(s) have been recorded;  2. No Mortgage(s) secure a principal amount of more that $500,000.00; and  3. We did not except to such Mortgage(s) in Our Policy. 

AUTHORITY OF TRUSTEES AND ATTORNEYS IN FACT
Item IV above applies when your search of the title finds insufficient or no recorded evidence of the power or authority of the conveying trustee or attorney in fact to make the conveyance of the Land, provided that there is no notice of record in the county where the Land lies of any proceeding to attack or set aside the conveyance by the trustee or attorney in fact. Item IV applies when Our Policy insures the current seller or mortgagor of the Land. 

AUTHORITY OF EXECUTOR OR ADMINISTRATOR
Item V above applies when your search of title finds insufficient or no recorded evidence of the power or authority of the conveying executor/executrix or administrator/administratrix to sell and convey the Land, provided that there is no notice of record in the county where the Land lies of any proceeding to attack or set aside the conveyance by the executor/executrix or administrator/administratrix. Item V applies when Our Policy insures the current seller or mortgagor of the Land.

If you have questions, please contact a Texas Underwriter

Click here to view the indemnity agreement checklist.

§80.90. Issuance of Statements of Ownership and Location

a) - (f) No change.

(g) When a title company or attorney's office fails to complete the conversion of a manufactured home to real property, the holder or servicer of the loan may apply for a statement of ownership and location electing real property status after-the-fact, providing that evidence of notice to all parties is sent via certified mail and that proof of such efforts is provided along with an affidavit of fact describing such efforts, pursuant to §1201.2055(i)(3) of the Standards Act.

(h) Submitting an application for Statement of Ownership and Location pursuant to the abandonment provision in §1201.217 of the Standards Act, should include an affidavit of fact, on the prescribed form, attesting to that all statutory notifications have been made to the appropriate parties, including the tax assessor-collector of the county where the home is located, and evidence that all notification was sent via certified mail.

The TDHC also has promulgated a new form of the Application for SOL to be effective August 3, 2008 as well as a new supporting affidavit to implement the above rule.  The new forms will be posted on the TDHCA website.

Situation: I am the spouse of a person serving in the military of the United States and she is deployed overseas.  Before she left, she gave me a power of attorney prepared by a military lawyer.  Now, I am going to sell our home and buy a new one.  How do I use this power of attorney?

A:  There are really 2 questions here.  First, while we prefer a special power of attorney spelling out the exact transaction, we accept Statutory Durable Powers of Attorney in almost every circumstance.  Most military style powers of attorney are more general than we would accept under ordinary circumstances.  However, because of the special nature of the military power of attorney and the service that your spouse is performing for our country, the military power may be used.

Second,  a power of attorney ceases to be effective upon the death of the principal ( the maker).  Accordingly, our normal requirement is to speak with the principal on the day of closing to be certain the power is still valid.  When spouses are deployed, this check becomes very difficult.   Each service has a different method for assisting a spouse in providing evidence that their servicemember is alive at the closing.

United States Army


The spouse should contact the Unit to which their servicemember is attached and speak to the office of Rear Detachment Family Assistance.  They will provide a written statement that as of a certain date (usually the day before the request) that the servicemember was alive.

United States Navy

The spouse should contact the Unit to which their servicemember is attached and speak to the office of Rear Detachment Family Assistance.  They will provide a written statement that as of a certain date (usually the day before the request) that the servicemember was alive.

United States Marine Corps

The spouse should contact the Unit to which their servicemember is attached and speak to the office of the Remainbehind Family Readiness Officer.  They will provide a written statement that as of a certain date (usually the day before the request) that the servicemember was alive.

United States Air Force


The spouse should contact the Air Force Personnel Center at 210-565-2761 or 210-565-4295 and as them to check the Worldwide Personnel Database.  They will provide a written statement that as of a certain date (usually the day before the request) that the servicemember was alive.

As a matter of company policy, we are willing to take the risk that the servicemember has not died between the date of the written confirmation that they are alive and the closing date. However, if more than3 days have elapsed since the date of the letter, we will require an affidavit from the family member that they have not been informed on the death of the servicemember.

In the past, Stewart Title Guaranty Company's position has been not to insure minerals in Texas due to the difficulty in determining the value of insurance. However, at this time, STG will consider opportunities to insure severed minerals on a case - by- case basis. Please call the San Antonio Underwriting Office at 1-800-292-5712 or National Legal Counsel at 1-800-729-1900 for more information regarding underwriting requirements and guidelines.

You will need to fill out an Overlimits (Large) Policy Request form and submit it with a copy of the Commitment to a Texas Underwriting Counsel for approval.  Please click here to obtain a form.

Questions and Answers about Reverse Mortgages in Texas

Where can I find the constitutional provisions authorizing and regulating reverse mortgages? Article 16, Section 60(a)(7) authorizes reverse mortgages.

Can a home equity loan be refinanced by a reverse mortgage? Yes. Article 16, Section 50.a.(f) A refinance of debt secured by the homestead, any portion of which is an extension of credit described by Subsection (a)(6) of this section, may not be secured by a valid lien against the homestead unless the refinance of the debt is an extension of credit described by Subsection (a)(6) or (a)(7) of this section.

What is a reverse mortgage? (Note: all reverences hereafter are to Article 16, Section 50 (k) and subsequent sections and subsections)  "Reverse mortgage" means an extension of credit (loan) where the lender pays to the borrower the equity in the borrowers’ home and doesn’t have to repay the loan until borrowers die or the property is sold.

Does the reverse mortgage have to be in writing and signed by the owner and their spouse?   Yes. k (1) provides  that is secured by a voluntary lien on homestead property created by a written agreement with the consent of each owner and each owner's spouse;

Must at least one borrower be over 62?  Yes. k (2) provides that is made to a person who is or whose spouse is 62 years or older;

Does the borrower have personal liability for the loan? No. k(3) provides  that is made without recourse for personal liability against each owner and the spouse of each owner;

Do the payments from the lender to the borrower have to be based on something? Yes. k(4) provides the advances are provided to a borrower based on the equity in a borrower's homestead;

Can the lender refuse to make advances or change the amount of advances? No. k(5) that does not permit the lender to reduce the amount or number of advances because of an adjustment in the interest rate if periodic advances are to be made;

When does a reverse mortgage have to be paid? There are several potential triggering events as provided under K(6) that requires no payment of principal or interest until:

  1. all borrowers have died;
  2. the homestead property securing the loan is sold or otherwise transferred;
  3. all borrowers cease occupying the homestead property for a period of longer than 12 consecutive months without prior written approval from the lender; or
  4. the borrower:

defaults on an obligation specified in the loan documents to repair and maintain, pay taxes and assessments on, or insure the homestead property;

  (ii)  commits actual fraud in connection with the loan; or

  (iii)  fails to maintain the priority of the lender's lien on the homestead property, after the lender gives notice to the borrower, by promptly discharging any lien that has priority or may obtain priority over the lender's lien within 10 days after the date the borrower receives the notice, unless the borrower:

a.agrees in writing to the payment of the obligation secured by the lien in a manner acceptable to the lender;

b.contests in good faith the lien by, or defends against enforcement of the lien in, legal proceedings so as to prevent the enforcement of the lien or forfeiture of any part of the homestead property; or 

(iv)  secures from the holder of the lien an agreement satisfactory to the lender subordinating the lien to all amounts secured by the lender's lien on the homestead property;

What happens if the lender wrongfully fails to make advances under the terms of the reverse mortgage? Under k(7) , if the lender fails to make loan advances as required in the loan documents and if the lender fails to cure the default as required in the loan documents after notice from the borrower, the lender forfeits all principal and interest of the reverse mortgage, provided, however, that this subdivision does not apply when a governmental agency or instrumentality takes an assignment of the loan in order to cure the default;

Must the borrower get counseling about reverse mortgages? Yes k(8) prohibits a reverse mortgage from being made unless the owner of the homestead attests in writing that the owner received counseling regarding the advisability and availability of reverse mortgages and other financial alternatives;

Must the lender disclose all of the loan terms prior to the loan being made? Yes, k(9) that requires the lender, at the time the loan is made, disclose to the borrower by written notice the specific provisions contained in Subdivision (6) of this subsection under which the borrower is required to repay the loan (see the list set out above under k6);

If an event of default occurs, how does the borrower (or the borrower’s family know about it? k(10)  does not permit the lender to commence foreclosure until the lender gives notice to the borrower, in the manner provided for a notice by mail that a ground for foreclosure exists and gives the borrower at least 30 days, or at least 20 days in the event of a default under Subdivision (6)(D)(iii) of this subsection, to:

  1. remedy the condition creating the ground for foreclosure;
  2. pay the debt secured by the homestead property from proceeds of the sale of the homestead property by the borrower or from any other sources; or
  3. convey the homestead property to the lender by a deed in lieu of foreclosure;

Can the lender foreclose on a ground not listed under K6? k(11) provides that a reverse mortgage may be foreclosed upon only by a court order, if the foreclosure is for a ground other than a ground stated by Subdivision (6)(A) or (B) of this subsection.

Do both the initial advances and subsequent advance made under a reverse mortgage have priority over subsequently filed liens? Yes. 6(l) provides that advances made under a reverse mortgage and interest on those advances have priority over a lien filed for record in the real property records in the county where the homestead property is located after the reverse mortgage is filed for record in the real property records of that county.

Can a reverse mortgage have an adjustable rate? Yes 6(m) allows an interest rate that is fixed or adjustable and may also provide for interest that is contingent on appreciation in the fair market value of the homestead property. Although payment of principal or interest shall not be required under a reverse mortgage until the entire loan becomes due and payable, interest may accrue and be compounded during the term of the loan as provided by the reverse mortgage loan agreement.

Can a reverse mortgage “violate” other Texas laws? Yes. 6(n) provides than a reverse mortgage that is secured by a valid lien against homestead property may be made or acquired without regard to the following provisions of any other law of this state:

  1. a limitation on the purpose and use of future advances or other mortgage proceeds;
  2. a limitation on future advances to a term of years or a limitation on the term of open-end of open-end account advances;
  3. a limitation on the term during which future advances take priority over intervening advances;
  4. a requirement that a maximum loan amount be stated in the reverse mortgage loan documents;
  5. a prohibition on balloon payments;
  6. a prohibition on compound interest and interest on interest;
  7. a prohibition on contracting for, charging, or receiving any rate of interest authorized by any law of this state authorizing a lender to contract for a rate of interest; and
  8. a requirement that a percentage of the reverse mortgage proceeds be advanced before the assignment of the reverse mortgage.

Can the borrower receive the proceeds of the reverse mortgage in installments? Yes (p) The advances made on a reverse mortgage loan under which more than one advance is made must be made according to the terms established by the loan documents by one or more of the following methods:

  1.  an initial advance at any time and future advances at regular intervals;
  2.  an initial advance at any time and future advances at regular intervals in which the amounts advanced may be reduced, for one or more advances, at the request of the borrower;
  3.  an initial advance at any time and future advances at times and in amounts requested by the borrower until the credit limit established by the loan documents is reached;
  4. an initial advance at any time, future advances at times and in amounts requested by the borrower until the credit limit established by the loan documents is reached, and subsequent advances at times and in amounts requested by the borrower according to the terms established by the loan documents to the extent that the outstanding balance is repaid; or What happens if the borrower doesn’t pay for taxes, insurance, repairs and the like?
  5. at any time by the lender, on behalf of the borrower, if the borrower fails to timely pay any of the following that the borrower is obligated to pay under the loan documents to the extent necessary to protect the lender's interest in or the value of the homestead property:
    1. taxes;
    2. insurance;
    3. costs of repairs or maintenance performed by a person or company that is not an employee of the lender or a person or company that directly or indirectly controls, is controlled by, or is under common control with the lender;
    4. assessments levied against the homestead property; and
    5. any lien that has, or may obtain, priority over the lender's lien as it is established in the loan documents.

Are reverse mortgages subject to judicial foreclosure? Not exactly, (r) provides that the supreme court shall promulgate rules of civil procedure for expedited foreclosure proceedings related to the foreclosure of liens under Subsection (a)(6) of this section and to foreclosure of a reverse mortgage lien that requires a court order. This section means that the court must order the foreclosure but it isn’t a judicial foreclosure.

Can the borrower use a credit card or other device to get more money? 
No. (v) (1) provides that the owner does not use a credit card, debit card, preprinted solicitation check, or similar device to obtain an advance;

Can the lender change additional fees to make additional advances? No. (v) (2) after the time the extension of credit is established, no transaction fee is charged or collected solely in connection with any debit or advance; and

Can the lender change the terms of the loan without the borrower signing anything? No. (v) (3) provides that the lender or holder may not unilaterally amend the extension of credit. Is there a special form that has to be added to a Loan policy insuring a reverse mortgage? Yes. It is mandatory that form T-43, the Reverse Mortgage Endorsement be added to any loan policy insuring a reverse mortgage.

Is there a charge for the T-43? No. There is no charge for the T-43.   Does the T-43 insure the full amount of a reverse mortgage? The first paragraph of the endorsement provides that the policy insures only up to, and liability is limited to, the amount of proceeds of the loan secured by the lien instrument set forth under Schedule A hereof actually disbursed as of the date of the policy, but increases as each subsequent advance or disbursement of loan proceeds is made from time to time and as unpaid interest accrues on loan proceeds. Do all advances made under the reverse mortgage have priority over subsequently recorded liens? Generally, Yes. The 2nd paragraph of the endorsement provides that the Company insures the Insured that any disbursements of such loan proceeds made subsequent to the date of this policy shall be deemed to have been made as of the date of this policy and such disbursements and accrued interest shall have the same priority as any advances made as of the date of this policy, except as to (i) bankruptcies affecting the estate or interest described on Schedule "A" hereof prior to the date of any such advance or disbursement; and (ii) taxes, costs, charges, damages and other obligations to the government secured by statutory liens arising or recorded subsequent to the date of the Policy. Does the endorsement insure the lender against violations of the constitution? Subject to the terms of the policy, Paragraph 3 of the endorsement provides that the Company insures the Insured against loss, if any, sustained by the insured because of invalidity or unenforceability of the lien of the insured mortgage by reason of: (i)the failure of the insured mortgage to be created under a written agreement with the consent of each owner of the estate or interest described in Schedule A and each owner's spouse, as set forth in Subsection (k)(1) of Section 50, Article XVI, Texas Constitution; (ii)  the failure of the extension of credit secured by the insured mortgage to be made to a person who is or whose spouse is 62 years or older, as set forth the Subsection (k)(2) of Section 50, Article XVI, Texas Constitution; (iii) the failure of the written document purporting to be made pursuant to Subsection (k)(8) of Section 50, Article XVI, Texas Constitution to be executed by the owner on the date that the insured mortgage and promissory note secured thereby are executed by the owner, provided that the Company does not insure that the written document complies with Subsection (k)(8) of Section 50, Article XVI, Texas Constitution; or (iv) the failure of the Company or its Title Insurance Agent to furnish the owner with a copy of the written notice purporting to be made pursuant to Subsection (k)(9) of Section 50, Article XVI, Texas Constitution on the date that the owner executed the insured mortgage and the promissory note secured thereby, provided that the Company does not insure that the written document complies with Subsection (k)(9) of Section 50, Article XVI, Texas Constitution.   Underwriting standards1.make sure that there is a written loan agreement in addition to the deed of trust 2.determine from the driver’s license or other method of identification that at least one of the spouses is over age 62. 3.Make sure that all owners and spouses sign the deed of trust 4.furnish the owner with a copy of the written notice purporting to be made pursuant to Subsection (k)(9) of Section 50, Article XVI, Texas Constitution on the date that the owner executed the insured mortgage and the promissory note secured thereby. Does the title policy provide the lender with title insurance against consumer credit issues? No. The 4th paragraph of the Endorsement provides that the Company does not insure against loss or damage based on (a) usury; or (b) any consumer credit protection or truth-in-lending law and/or violation of Subsections (k)(3), (k)(4), (k)(5), (k)(6), (k)(7), (k)(8), (k)(9), (k)(10), (k)(11), (m), (p), or (v) of Section 50, Article XVI, Texas Constitution and any regulatory or statutory requirements for a mortgage made pursuant to Subsection (a)(7) of Section 50, Article XVI, Texas Constitution except as expressly provided in paragraph 3 of this endorsement; or (c) costs, expenses or attorney's fees required to obtain a determination of the amount of interest or indebtedness.   If there is no charge for the endorsement, are there any differences in charging for the policy? There is no additional charge for the endorsement. You calculate the regular premium for your Mortgagee Policy insuring the Reverse Mortgage, subject to any credits and charges for endorsements and tax coverage.   Can a reverse mortgage be made to a family trust or partnership? A reverse mortgage is made on the homestead of persons, where the owner or spouse is at least 62 years of age.   Underwriting standard: A trust or family partnership does not have a homestead. If the owner and spouse are liable on the loan, and join on the deed of trust, the trust can also be a signatory to the deed of trust.   Do you have a simple checklist for the Reverse Mortgage Endorsement? Yes Bulletin Tx-39 has such a CHECKLIST FOR TEXAS REVERSE MORTGAGE ENDORSEMENT (T-43) Attach the Texas Reverse Mortgage Endorsement (T-43), if you issue the Mortgagee Policy. Issue the Mortgagee Policy in the amount requested by the insured, but the amount may not exceed 150% of the maximum total of advances (or estimated total) to be made according to the loan agreement. The Reverse Mortgage must encumber only the residence homestead. It may not cover rural agricultural homestead. Do not insure if the owners sign the documents by mail outs or by power of attorney. Require thejoinder of all owners and their spouses in the Home Equity Mortgage. The Reverse Mortgage must say that it is a Reverse Mortgage made pursuant to Subsection (a)(7) of Section 50, Article XVI, Texas Constitution. The Reverse Mortgage Note or Loan Agreement and the Reverse Mortgage must be signed in your office. Require the owners and spouse to execute the Reverse Mortgage Affidavit. (See the references section at the end of this bulletin.) The Commitment for Title Insurance covering a proposed Reverse Mortgage should include the following requirement: "Any Mortgagee Policy issued by the Company insuring a Reverse Mortgage (made pursuant to Subsection (a)(7), Section 50, Article XVI, Texas Constitution) will be subject to the terms of and insurance provided by the Texas Reverse Mortgage Endorsement (T-43). The Reverse Mortgage must be executed at the office of the Company or its title insurance agent by the owners of the land and any spouse and must disclose that it is a Reverse Mortgage made in accordance with Subsection (a)(7), Section 50, Article XVI,Texas Constitution. The owners and any spouse must execute the Reverse Mortgage Affidavit and other documents required by the Company or the lender."

Modification Endorsements or When is a new deal not a new deal?

Introduction:  Frequently, a borrower asks his lender to change or modify a loan.  A well-trained lender will then ask the title company if changing the terms of the loan will void his mortgagee title policy.  For the title company, the answer always is, "It depends."

Q:  What does the mortgagee policy insure?
A:  A mortgagee policy insures the priority and validity of a lien.  The lien secures the payment of a note.  This is sometimes called the deal.

Q:  Can a lender change the terms of the loan?
A: A lender and borrower are free to modify the terms of the loan as long as they don?t create a new deal.

Q:  What is the legal term for a new deal?
A:  At law, a deal that has been modified significantly is called a novation.

Q:   What do you mean by significant modification?
A:  Procedural Rule P-9b3 gives the title-insuring rule for Texas .  It says that the following matters are not sufficient to cause a novation:

  1. Release of property as collateral
  2. Release of one of the borrowers from liability for repaying the loan
  3. Release additional collateral that was covered by the deed of trust
  4. Reinstate the lien
  5. Enter into a modification agreement that doesn't:
    1. Create a new lien or power of sale
    2. Create a new note
    3. Secure additional indebtedness other than accrued interest
    4. Cover new property.

Q:   Ok. If the deed of trust covers 6 acres and the modification agreement releases 2 acres, can I issue the T-38 modification endorsement? 
A:  Yes [see (a) above]

Q:   A man and his daughter bought the house together. She has been making the payments for 3 years and just got married.  The lender has agreed to release the father from the note. Can I issue the T-38 modification endorsement? 
A. Yes [see(b) above]

Q:  On a commercial deal, the property description included 3 tracts.  The borrower has sold one of them to his partnership.  The lender has agreed to release that tract.  Can I issue the T-38 modification endorsement?   
A: Yes [see(c) above]

Q:  The borrower on my $78,250 deed of trust failed to make payments and the lender posted the property for foreclosure.  The lender and the borrower have worked out a deal to keep the borrower in the property.  The lender has filed a reinstatement agreement. Can I issue the T-38 modification endorsement? 
A: Yes [see (d) above]

Q: My lender client has sold the loan to a new lending institution.  The new lender wants by borrower to sign a new note on the new lenders form. No terms will be different.  Can I issue the T-38 modification endorsement?
A:  No.  [see (e (2)) above.]

Q:  A west coast lender just bought out my local bank.  They insist that they know more than we locals do so they have required my borrower customer to sign a new deed of trust. Can I issue the T-38 modification endorsement?
A:  No. [see(e(1)).

Q:  My lender?s attorney has been studying P-9b3.  He believes that he has found a way to get around having to get a new policy.  He has drafted a modification agreement that ?restates? the note and changes the terms. He has also ?restated? certain terms of the deed of trust as they related to the foreclosure.  Can I issue the T-38 modification endorsement?
A: No.  If by restating the terms he has created a new note or new power of sale, he has created a novation and a new policy is required.

Q:  My lender wants to advance an additional $1000 to cover new pictures in my doctor client?s office.  Can I issue the T-38 modification endorsement?
A: No [see (e(3)) above].

Q:  Rosepetal National Bank is willing to give my good customer the money to buy a lake lot but they want to use his existing hunting land as collateral and just put the two properties into the same loan. Can I issue the T-38 modification endorsement? 
A: No [see (e (4)) above]

Q:  You've said no to all of these creative and innovative financing ideas.  Does this mean that the existing coverage is gone? 
A:  No, it simply means that the changes create a new deal that to be covered require a new policy.  To the extent that the existing policy hasn?t been changed, it is still in effect.

Q:  Ok, so a new policy is required and no new money has been advanced.  What rate rule do I use to provide the new policy and the new coverage? 
A:  It depends.  You will need to look at R-8 and R-6B to  see which applies to your situation and which is the cheapest for the borrower.  R-6 b) may be required if the loan is more than 7 years old.

Q:  What if new money has been advanced? 
A: Again, you have to look at both R-8 and R-6.  Most likely, R-8 is the appropriate rule but R-6 could apply.  Let's compute the premium and see: MTP dated 1-1-2003 in an amount of $50,000.  The unpaid balance of the loan is $45,000.  The lender wants to advance an additional $1000.  Under R-8, you would compute the premium for $46,000 MTP ($491) and the on $45,000 ($484) and then give a 30% credit on the $484 or a credit of $145.  The premium is then $491 less $145 or $346.

Since the MTP is dated more than 3 years (today?s date is 1-23-06) R-6 and R-8 would produce the same result (both giving 30% credits).  If the MTP is dated 6 years ago, R-6 may be a better credit since R-8 would only produce a 2-% credit.  Just be certain that the modification doesn?t state that it is in renewal and extension of the original lien.

Attorney General Opinion Regarding Tax Liens on Manufactured Homes - Summary

A tax lien for taxes owed on a manufactured home attaches to the specific manufactured home and a taxing unit may perfect a tax lien on the home by filing a notice of the lien with the Manufactured Housing Division (the "MHD") not later than six months after the end of the year for which the tax is owed, even though the notice may reflect the name of the prior owner rather than the current owner as shown by the MHD's records. Notice of tax lien on a manufactured home properly designated as real property need not be filed with the MHD to be enforceable.

http://www.tdhca.state.tx.us/mh/ag-opinion.htm

Q. I am interested in opening a title company in Texas. What do I need to do?
A. Many things are required to open a title insurance agency in Texas. Among these things are:

  1. Ownership or lease of a title plant (geographic index of county records for at least 25 yrs)
  2. Plant costs in Dallas County are approximately $3 million plus about $20,000 month in maintenance costs
  3. Plant costs in Collin County are about $200,000 and about $5000 per month
  4. A person must demonstrate to the underwriter and the Texas Insurance Department that they possess sufficient knowledge of the title insurance business to obtain a title insurance agent's license.
  5. Pass a fingerprint background check done by the insurance department
  6. Pass a credit and background check done on behalf of Stewart Title
  7. Obtain a closing and escrow system (there are various suppliers and the costs range from about $1000 to several thousands dollars depending on the number of closers
  8. Prepare a 3 year pro forma business plan showing sources and amount of business. Income and expenses line item by line item.

Title insurance companies do not franchise offices. There are basically 2 types of title companies. Independent agents and agents owned by the title insurance company.

If you would like to discuss further, please do not hesitate to email or call (800) 292-5712

John Rothermel 
Vice President
Texas Agency Manager
Region B Senior Underwriter