9/24/2013 ADDITIONAL HOUSEKEEPING INFORMATION

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1 The Exotic World of Texas Title Insurance Endorsements Presented by: RICHARD L. BLACK September 13, 2013 For Escrow Officer Credit please password, attendees names, and TDI License numbers (if you have one) to for certificates (please do this as soon as possible and make sure the correct spelling of the name(s) is included as to how it should appear on the certificate). Attorneys bar card number to Ken Wrider for CLE credit. Send to your training administrator if applicable. ADDITIONAL HOUSEKEEPING INFORMATION Because of recent opinions expressed by the Texas Insurance Department concerning rebates, legal credit is available only to attorneys who own title agencies which are Stewart Title Guaranty Agents, are employed by a title insurance agent licensed with Stewart Title Guaranty, or a Stewart entity. Fee attorneys who have an Escrow Officer license through a Stewart Title Agent or entity may also obtain CLE credit. We welcome any other lawyers to listen, but cannot provide continuing education credit to you. If you are claiming legal credit for this web conference, please provide in your to Ken Wrider which category you are in. We regret any inconvenience but we must take reasonable steps to protect us and you from enforcement actions by the Texas Insurance Department. 1

2 The Exotic World of Texas Title Insurance Endorsements Presented by: RICHARD L. BLACK September 13, 2013 TexasTitle Insurance Endorsements - 2 Form T-3 General Endorsement: The Swiss Army Knife of Endorsements. -- See Endorsement Instructions, Section II, Pages 62 66, Basic Manual. -- Basic Endorsement uses: - Correction of Policy or Binder (Subsection IV); - ICB 6-Month Extension (Subsection I); - Post-Policy Area-and-Boundaries Amendment (Subsection VI); - Loan Policy, ICB, and Owner s Policy Construction Downdates (Subsections V, VII, and VIII). TexasTitle Insurance Endorsements - 3 Form T-3 Completion Endorsement: Lots of Bang For No Bucks. -- Under Subsection II of the Endorsement Instructions, with an asbuilt survey following completion of improvements: - Deletes Rule P-8(a) Owner s Policy liability limitation or Rule P-8(b) Loan Policy Pending Disbursement Clause AND Rule P-8 involuntary lien exception from both Policies. - Optional: Schedule B area-and-boundaries amendment for the first time OR reaffirmation of area-and-boundaries amendment made in the Policy being endorsed. - Optional: First-time T-19.1 Restrictions, Encroachments, Minerals Endorsement OR reaffirming T-19.1 issued with Policy being endorsed. 2

3 TexasTitle Insurance Endorsements - 4 Form T-3 Assignment of Lien Endorsement: Quite the Bargain at MBR! -- Under Subsection III, Endorsement Instructions: - Changes the Name of Insured in an existing Loan Policy to the assignee under a recorded Assignment of Lien covering the Insured Mortgage. - Changes the Date of Policy to the date of the Endorsement (filing date of the Assignment); requires updated title search and tax information. - See Procedural Rule P(b)(1) & (2), Basic Manual: Available only to governmental agencies on one-to-four-family residential property and to anyone on any other kind of property. Texas Title Insurance Endorsements - 5 Leasehold Endorsements: Too Easy to Forget. -- These no-charge endorsements rearrange terms of Policies to fit insuring leasehold estates: - Form T-4 Leasehold Owner s Policy Endorsement for the T-1 Owner s Policy; - Form T-4R Residential Leasehold Endorsement for the T-1R Residential Owner s Policy; and - Form T-5 Leasehold Loan Policy Endorsement for the T-2 Loan Policy. -- In Schedule B of a mixed-estates Policy: The effect of the attached Leasehold Owner s Policy Endorsement is limited to Tract Three. Texas Title Insurance Endorsements 6 Form T-12 Endorsement (USA): Favorite of the Feds. -- Endorsement is limited to acquisitions by the United States of America or by the United States Postal Service. - Federal acquisition is preceded by issuance of the Form T-11. Policy of Title Insurance (USA) which initially functions as a Commitment for Title Insurance. - Post-acquisition T-12 Endorsement turns the T-11 into a functioning Owner s Policy of Title Insurance: -- Title is insured as vested in the USA; -- Insured land description is reaffirmed/refined; -- Coverage is down-dated to filing of the USA deed; -- Coverage is increased to the amount actually paid. 3

4 Texas Title Insurance Endorsements - 7 Form T-14 First Loss Endorsement: Obscure, But Cheap. --T-14 ($25 premium) is issued only with the T-2 Loan Policy and only when the insured land is NOT residential real property as defined in Procedural Rule P-1(u), Basic Manual. - When a covered loss exceeds 10% of the Loan Policy s Amount of Insurance, the T-14 entitles the Insured to payment under the Policy without first foreclosing the insured mortgage or pursuing remedies against other collateral. - When a 10%+ loss is paid, the T-14 allows the insurer to pursue subrogation rights regarding breach of warranty while subordinating those rights to the Insured s rights and remedies. Texas Title Insurance Endorsements - 8 Form T-16 Loan Policy Aggregation Endorsement: E Pluribus Unum (Out of Many, One). -- T-16 ($25 premium) is issued only with the T-2 Loan Policy. - Called a Tie-In Endorsement elsewhere, the T-16 links multiple Loan Policies together to function as one Policy with respect to payment of loss. - To qualify for the T-16, the multiple Loan Policies must: (1) be issued simultaneously and (2) insure separate mortgages securing a common indebtedness or loan. - T-16 can include Loan Policies issued in other states. Texas Title Insurance Endorsements - 9 Form T-17 Planned Unit Development Endorsement: Home, Home on the PUD. -- Issued with the T-2 Loan Policy (and by check-off with the T-2R Short Form Residential Loan Policy) at a premium cost of $25. - What is a PUD? Typical features include: Clustered smaller lots; common areas; lien-secured restrictions assessments; private streets; Homeowner s Association (HOA). - Endorsement insures against loss or damage resulting from: - Present violations of restrictive covenants; - Possibility of reversion/forfeiture under restrictions; - Priority of HOA s lien over the insured mortgage; - Forced removal of an encroaching structure; - Priority of an unobserved right of first refusal. 4

5 Texas Title Insurance Endorsements - 10 Forms T-19 & T-19.1 Restrictions, Encroachments, Minerals Endorsements: A Full Seminar by Themselves! -- Available T-19 and T-19.1 Checklists: - T-19 Survey Checklist (6/2010); - T-19 Restrictions Checklist (6/2010); - T-19 Minerals Checklist (6/2010); - T-19.1 General Checklist (4/2010)., Texas Title Insurance Endorsements - 11 Forms T-19.2 & T-19.3 Minerals and Surface Damage Endorsements: Rhododendrons Excluded. -- T-19.2 insures against loss due to damage to present or future improvements (excluding lawns, shrubbery, or trees) resulting from mineral exploration or production; -- T-19.3 insures against loss due to damage to present or future permanent structures resulting from mineral exploration or production; Texas Title Insurance Endorsements - 12 Form T-23 Access Endorsement: On the Road Again! -- T-23 is available for both Owner s and Loan Policies covering property that contains improvements AND that does NOT qualify as Residential Real Property. - Procedural Rule P-54 does not define improvements, leaving open that such improvements need not be structural. - Current survey (fresh or updated by a T-47 Affidavit) is needed to show that the insured land abuts the public road or street addressed by the Endorsement. - A single $100 premium under Rate Rule R-30 may buy more than one Access Endorsement in a particular transaction. - Private easement connects fee simple tract with the public road? Access Endorsement PLUS Contiguity Endorsement! 5

6 Texas Title Insurance Endorsements - 13 Form T-24 & T-24.1 Non-Imputation Endorsements: Complex, Complicated & Convoluted! --Endorsements are issued with a contemporaneous Owner s Policy on non-residential property at cost of 5% of Basic Rate figured on the Policy s Amount of Insurance. - T-24 protects a new entrant in an entity (shareholder in corporation, partner in partnership, member in LLC) from denial of Policy liability due to imputed knowledge of facts known to departing and remaining participants in the entity and not disclosed to the insurer prior to Policy issuance. - T-24.1 Mezzanine Financing Endorsement gives similar nonimputation assurance to a lender who acquires an ownership interest in a borrowing entity. Texas Title Insurance Endorsements - 14 Forms T-25 & T-25.1 Contiguity Endorsements: Close, But No Cigar? -- Available for T-1 Owner s Policies and T-2 Loan Policies, each requiring a current survey, $100 premium, and two or more tracts not qualifying as Residential Real Property. - T-25 insures against loss or damage caused by specified boundaries of two insured tracts failing to be contiguous and any resulting gap separating described boundaries of the tracts. - One T-25 Endorsement can address numerous tracts. - T-25.1 Endorsement provides same coverage at same cost ; available whenever insured property consists of 4 or more individual tracts or 2 or more irregular-shaped tracts. Texas Title Insurance Endorsements - 15 Form T-26 Additional Insured Endorsement: The More, the Merrier! -- Costing the greater of $25 or 10% of current Basic Rate Premium for the endorsed Policy s Amount of Insurance, the T-26 expands Owner s Policy insureds to include certain post-policy transferees: - Owner s Policy being endorsed must have been originally issued to a natural person as named insured. - Qualifying transferees are: (1) trustee or beneficiary of the original insured s living trust; (2) partner, member, or stockholder who acquires interests of other owners under an existing buy-out agreement; or (3) family partnership/corporation made up of the insured and his/her family members. 6

7 Texas Title Insurance Endorsements - 16 Form T-27 Assignment of Rents/Leases Endorsement: Cash-Flowing Collateral. --This no-cost endorsement insures against (a) any defect in execution of the Assignment of Rents/Leases and (b) existence of any prior recorded assignment of rents or leases. - T-27 is available with a currently-issued Loan Policy issued on property that does not qualify as Residential Real Property. - Exception to the recorded Assignment of Rents/Leases must be placed in Loan Policy Schedule B because the T-27 cites the Assignment by document name and Schedule B item number be cited. Texas Title Insurance Endorsements - 17 Form T-28 Condominium Endorsement: Mondo Condo! -- The no-cost T-28 is available for contemporaneously-issued Loan Policies on units qualifying as Residential Real Property and insures against loss or damage resulting from: - lack of legal existence as a condominium unit; - present violations of restrictions or failure to comply with right of first refusal (with assurance against any reversion of title); - priority of assessment liens over the insured mortgage; - failure of the unit to be separately assessed for taxes; - forced removal of improvements due to encroachment; --Endorsement is NOT available for office condominiums or in tandem with a T-17 PUD Endorsement. Texas Title Insurance Endorsements - 18 Form T-30 Tax Deletion Endorsement: Rollin, Rollin, Keep Those Taxes Rollin. -- The T-30 Endorsement ($20 premium) can be used to provide rollback tax coverage in a Loan Policy or Construction Binder. - Endorsement removes the phrase and subsequent taxes and assessments by any taxing authority for prior years due to change in land usage or ownership. - Provides an alternative (usually after policy issuance) to check-thebox or line-out deletion of the same language in the Policy or Binder itself. - Same basic Rule P-20(B) requirement applies: Proof that the insured land is free of agricultural or open-space valuation for the current tax year. 7

8 Texas Title Insurance Endorsements - 19 Form T-31 Manufactured Housing Endorsement & Form T-31.1 Supplemental Coverage Manufactured Housing Unit Endorsement: Presto, Change-o! -- T-31 ($20 premium): Loan Policy only; expands Policy s definition of land to include an MHU by specific serial number. -- T-31.1 ($50 premium) is available for Owner s and Loan Policies for a generic MHU located on the land at Date of Policy, and insures against loss or damage from: - covered MHU not being physically on the land, not part of the land by law, or not owned by the owner of the land; - pre-attachment personal property liens against the MHU; or - insured mortgage not being enforceable by a single foreclosure procedure (Loan Policy only). Texas Title Insurance Endorsements - 20 Form T-33 & T-33.1 Variable Rate Endorsements: Up, Up, and Away! -- T-33 Variable Rate Endorsement insures the lender against mortgage invalidity or unenforceability or any loss of priority arising from interest-rate changes under the terms of the promissory note. -- T-33.1 Variable Rate Mortgage Negative Amortization Endorsement provides the same coverage as the T-33, but expanded to include invalidity or unenforceability or loss of priority resulting from charging interest on interest or capitalizing interest (negative amortization) into the principal of the secured note. -- Both Endorsements exclude coverage against usury and violation of consumer credit or truth-in-lending laws. Texas Title Insurance Endorsements - 21 Form T-34 Increased Value Endorsement: Some is Good and More is Better! -- The T-34 is used to increase the coverage amount of an Owner s Policy purely in response to market-value appreciation (NOT addition of improvements), but has no other effect on coverage. - Issuing the T-34 requires proof of the current value of the estate or interest insured by the Policy being endorsed. - Rate Rule R-15(a), Basic Manual: Cost of the T-34 is the greater of (1) Minimum Basic Rate (currently $238) or (2) the difference between Basic Rate Premium for the current appraised value and the amount of premium paid for the Owner s Policy being endorsed. 8

9 Texas Title Insurance Endorsements - 22 Form T-35 Future Advances/Revolving Credit Endorsement: Round and Round It Goes! -- Provides Loan Policy coverage for funds paid out by the insured lender to the borrower after Date of Policy. - Amount of Insurance must include the future advances. - Advances must be made under the terms of a note or loan agreement. - Insures against insured mortgage s invalidity or lack of priority with respect to each future advance. - Not covered: Loss of security for advances after borrower s bankruptcy filing; loss of priority to property taxes, certain federal tax liens, and environmental protection liens; violation of usury laws. Texas Title Insurance Endorsements - 23 From T-36 Environmental Protection Lien Endorsement: Glowing in the Dark? Not a Problem! -- At a cost of $25, the EPL Endorsement is issued with Loan Policies covering land used or to be used primarily for residential purposes, which is a broader category than Residential Real Property. -- The T-36 insures against loss or damage resulting from failure of the Insured Mortgage to have priority over: (1) any notice of an environmental protection lien properly on record on Date of Policy or (2) any environmental protection lien arising under a state law not itemized and excluded in the Endorsement. Texas Title Insurance Endorsements - 24 Form T-38 Loan Policy P-9.b.(3) Endorsement: Threading an Endorsement Needle. -- A/K/A a non-prejudice endorsement, T-38 involves no check-todate of title or taxes (Bottom of the form: -NOTICE- No title search is performed in connection with the issuance of this endorsement form ). - Affirms ongoing Loan Policy coverage after partial release of lien or personal liability or modification or reinstatement agreement. - NOT available when the document in question: (1) expressly grants/creates a new lien or power of sale; (2) converts insured mortgage s debt to a new promissory note; (3) adds new principal indebtedness to existing principal; or (4) modifies the insured mortgage to cover other real estate. 9

10 Texas Title Insurance Endorsements - 25 Form T-39 Balloon Mortgage Endorsement: Made Out of Lead? --The T-39 insures the lender against loss or damage resulting from any Conditional Right to Refinance in the insured mortgage. - The Conditional Right allows the borrower to extend the note at the time when the balance balloons (early full maturity), to a preagreed new maturity and with an interest rate change. - The Endorsement protects against invalidity of the insured mortgage because of the Conditional Right as well as loss of priority of the insured mortgage when the Conditional Right is exercised, so long as the original mortgagor remains the owner-occupant and no liens, defects, encumbrances, or other adverse matters have intervened. Texas Title Insurance Endorsements - 26 Form T-42 & T-42.1 Equity Loan Mortgage Endorsements: Home Equity Borrowing Made Easy! -- 50(a)(6), art. 16, TEX. CONSTITUTION is considered to be a consumer credit protection or truth in lending law within the meaning of No. 5 of the Loan Policy s Exclusions From Coverage. -- Home Equity Loan Endorsements add in specific covered matters that would otherwise be excluded: - T-42 Endorsement covers 6 specific matters, including 2(b) insuring that the collateral has no agricultural tax designation. - T-42.1 Endorsement covers 12 specific matters, including 2(i) assurance that none of the collateral is non-homestead and 2(l) insuring that borrowers received a copy of the final Settlement Statement at least one day ahead of closing. Texas Title Insurance Endorsements - 27 Form T-43 Reverse Mortgage Endorsement. -- Like the T-42 and T-42.1 Endorsements, the T-43 covers matters otherwise automatically excluded under the Loan Policy. - Paragraph No.1 is similar to the Rule P-8(b) Pending Disbursement Clause. - Paragraph No. 2 deals with priority of advancements, insuring all as having equal priority as of Date of Policy with exceptions for bankruptcy of the debtor and property taxes. - Paragraph No. 3 resembles Home Equity Endorsements, insuring against loss/damage from mechanical defects in documentation or procedure which are generally within the control of the closing entity (joinder of both spouses, one borrower being 62 years of age, etc.). 10

11 Texas Title Insurance Endorsements - 28 Form T-45 & T-46 Limited Coverage Junior Loan Policy Endorsements: Orphaned Endorsements? -- All of these endorsements modify the Form T-44 Limited Coverage Junior Mortgagee Policy issued on subordinate Home Equity Loans of $100,000 or less on platted lots or tracts of 5.0 acres or less with 1-to-4-family residential improvements. - Additional Coverage Endorsement goes on the Form T-3 with the T-44 Policy to affirmatively insure tax designation. - One or more T-45 Down Date Endorsements can be issued within the first year after the T-44 Policy is issued. - One T-46 Home Equity Line of Credit/Variable Rate Endorsement can be issued within the first year following issuance of the T-44 Policy. Texas Title Insurance Endorsements - 29 Form T-99 Limited Pre-Foreclosure Policy Down Date Endorsement: A Little Too Pricey? --T-98 Limited Pre-Foreclosure Policy and T-99 Policy Down Date Endorsement function similarly to T-11 and T-12 USA forms. - Lien being foreclosed must be covered by a Loan Policy, and the secured debt must be in default when the T-98 Policy is requested. - No Commitment is issued for a T-98 (Policy + T-99s function as insured pre-foreclosure information for the foreclosing lienholder). - No more than 4 T-99 Down Date Endorsements are allowed per T- 98, and none beyond 24 months after the T-98 Date of Policy. - T-99 Endorsement costs $50, BUT T-98 Policy premium itself is 40% of Basic Rate figured on lesser of note balance versus value of the land. THANK YOU! For Escrow Officer Credit please password, attendees names, and TDI License number (if you have one) to ken.wrider@stewart.com for the certificate (please do this as soon as possible and make sure the includes the name(s) as it should appear on the certificate). Please be aware that due to TDI's strict policies on issuing credit, you must pay close attention to the password given at the end of the webinar as we are unable to give it out once the presentation has been terminated off of Webex. Attorneys bar card number to Ken Wrider for CLE credit Next Texas TIPS Online October 17, 2013, Spooky Claims 2013 by Susan Withers. Questions/Comments? john.rothermel@stewart.com Visit for presentation materials within 5 business days of the webinar. 11