INDEMNITEE the company receiving the indemnity. TERMINOLOGY SPECIFIC INDEMNITY an indemnity given on a one time basis to cover a particular problem.

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1 1 2 MASTER AND SPECIFIC INDEMNITIES Samuel A. Shiel Underwriting Counsel Title Resources Guaranty Co. FUNDAMENTALS An indemnity is a contract by which one person agrees to secure another person against an anticipated loss If Party A suffers a loss, Party B agrees to reimburse Party A for the amount of the loss. FUNDAMENTALS A title insurance policy is one form of contract of indemnity. The title underwriter agrees to indemnify the insured against loss suffered by the insured by reason of the risks covered by the policy. FUNDAMENTALS However, when evaluating whether or not to issue a policy, an underwriter may be willing to insure against a certain matter only if someone else agrees to assume a certain risk. The issuing company is still liable to the policyholder, but the other company agrees to reimburse the issuing company for any loss resulting from a claim. TERMINOLOGY INDEMNITOR the company giving the indemnity. INDEMNITEE the company receiving the indemnity. TERMINOLOGY SPECIFIC INDEMNITY an indemnity given on a one time basis to cover a particular problem. 7 BLANKET INDEMNITY an indemnity given in advance in the event of certain potential future title problems. COMMON USES FOR INDEMNITIES Unreleased Mortgage Liens Many liens securing debt that has been paid off have not been released of record. This has been an increasing problem in recent years.

2 There are a number of reasons: COMMON USES UNRELEASED MORGTAGE LIENS The payoff departments of some lenders send the release directly to the borrowers. However, borrowers often do not realize that the release should be recorded. COMMON USES UNRELEASED MORTGAGE LIENS Some lenders have gone out of business. If a new lender acquired a failed lender, the new lender may not have all of the failed lender s records. COMMON USES UNRELEASED MORTGAGE LIENS Some lenders are not as professional or as well run as others Unreleased liens of seller and other privately financed loans are common. COMMON USES UNRELEASED MORTGAGE LIENS Although some states have statutes requiring the recordation of a release within a specific time period following mortgage satisfaction, many do not. COMMON USES UNRELEASED MORTGAGE LIENS Regardless of the reason for the missing release, the title company that issued the owner policy but did not secure the release of the lien that was paid off may be called upon to issue an indemnity to another title company issuing a new policy in a transaction involving the insured, in order to facilitate the closing of the new transaction. COMMON USES MECHANIC S LIENS General Indemnity from Builder In most states, mechanic s liens have priority as of the date the work is done, not the date the lien notice is filed. Thus, a lien may be recorded after the closing of a new home, and still attach to the property. 14 COMMON USES MECHANIC S LIENS General Indemnity from Builder Always get a general indemnity agreement from your builder.

3 15 COMMON USES MECHANIC S LIENS Recorded Mechanic s Lien Affidavits If there are recorded mechanic s lien affidavits that are disputed, we often can insure over the liens with either: 16 a. A bond issued by a third party surety (which is a form of indemnity issued by the surety); or b. b. An indemnity from the owner, secured by cash held by the settlement agent, sufficient to pay any lien claims. COMMON USES MECHANIC S LIENS Liens on Removable Items Following a foreclosure of a senior lien, many states allow mechanic s lien claimants to remove any property that the claimant furnished if such property can be removed without damage to the structure or damage to the item being removed. Most new construction includes many removable items An indemnity from the lienholder who foreclosed against such claims will be required if the lienholder is not obtaining releases. COMMON USES GENERAL INDEMNITY FROM A SELLER Sellers Indemnities A seller of property generally is expected to sign an affidavit of debts and liens, which includes an indemnity to the title company against any such matters that are not disclosed to the settlement agent. WHEN INDEMNITIES WON T WORK Gaps in the chain of title Missing Heirs Defective or Missing Property Descriptions 19 WHEN INDEMNITIES WON T WORK Lis Pendens filings Survey issues Violations of Restrictive Covenants

4 20 21 As mentioned earlier, paid but unreleased liens have become an increasingly common problem. Requiring a specific letter of indemnity each time an unreleased lien is found creates tremendous paperwork for title companies, delayed closings for customers, and frustration for all involved. In response to this problem, the concept of an Inter-Underwriter Blanket Indemnity was created. It was first introduced in Florida in 1998, and is now known there as the Second Revised Mutual Indemnification Agreement. In 2009, the American Land Title Association approved a model form for inter-underwriter indemnities. 22 In Texas, it is known as the Master Indemnity Agreement, and has been approved for use since November 1, It is Form T-29, and can be found in Section V of your Basic Manual. 23 Illinois is the latest state to approve an inter-underwriter indemnity. It is known as the Inter- Underwriter Indemnification Agreement and has been approved for use since December 6, The concept also is in use in: Alabama Louisiana California New Jersey Georgia New York

5 25 WHAT IS THIS BLANKET INDEMNITY? It is an agreement most underwriters in a particular state have with the other underwriters in that state It sets forth certain types of title issues against which each underwriter will indemnify the other underwriters. WHAT IS THIS BLANKET INDEMNITY? The Indemnity is self-executing If it applies, no special action is necessary for it to be effective. Often, the underwriter giving the indemnity doesn t even know that the indemnity has been triggered. GENERAL REQUIREMENTS FOR TRIGGERING THE OPERATION OF INTER- UNDERWRITER BLANKET INDEMNITIES 1. Another underwriter issued an Owner Title Policy to the current title holder, or a Loan Policy to a lender who later acquired the property through foreclosure. 2. The prior policy must cover the same land the new underwriter is being asked to insure. 3. The title issue must be a covered defect. The types of issues that are covered defects are discussed below. 4. The covered defect must not have been created by the current owner of the property. 5. The prior policy must not take exception to the covered defect. Unreleased consensual liens, such as: Mortgages Deeds of Trust Mechanic s Lien Contracts Home Equity Liens This is by far the most common situation. Unless: they are over $500,000 (in most states); or foreclosure proceedings are of record. 2. Abstracts of judgment, federal tax liens, and most other federal and state liens Estate and inheritance tax liens. 4. Insufficient evidence of the authority of a trustee, agent, executor or other fiduciary to convey the property.

6 Marital Rights of spouses of previous owners of the property (such as homestead rights). Types of curative requirements pertaining to prior owners that a blanket indemnity will automatically cure: - Judgments and child support liens against similar names - Tax liens against similar names - Review of trusts to determine trustees authority - Review of probates to determine executors authority - Failure of prior deeds to indicate marital status - Failure of spouse to sign prior deed - Releases of mortgages and deed of trust DEFECTS NOT COVERED Ad Valorem Taxes Municipal liens (e.g. weedcutting) Mechanic s Lien Affidavits (some states) The matters described earlier for which indemnities won t work. FLORIDA VARIATIONS - The policy must be at least one year old. - Child support liens are not covered. - The Agreement also does cover: - Due process issues arising out of past litigation. - Lack of a recorded death certificate. - Defective acknowledgements. - Certain defects in the execution of documents. NEW JERSEY VARIATIONS - Covers construction liens. - Covers tax sale certificates (with certain conditions). - Does not cover insufficient authority of a fiduciary to convey. NEW YORK VARIATIONS - Federal Tax Liens cannot exceed $250, For policies issued on or after April 1, 2005, the limit on mortgages is $750, Mechanic s Liens are covered up to $250, Old defective property descriptions are covered. - Loan policies can trigger the indemnity obligation, if certain supporting documentation is also obtained. ILLINOIS VARIATIONS - Applies only to mortgages or deeds of trust in the maximum amount of $500, Excepting mortgages/deeds of trust that are equity lines of credit, are in foreclosure, or are gap mortgages.

7 TEXAS REGULATORY MATTERS Rule P-11.b(10) authorizes insuring over unreleased liens: When a title insurance company previously issues a policy without taking exception to matters covered by the Master Indemnity Agreement (T-29) and is called upon to issue a new policy and is already obligated under such prior policy, and will not increase its liability or exposure to some matter by the issuance of such new policy. So, if an item is covered by the Master Indemnity, the same underwriter may insure over it again, without the written consent of the insured. P-11 is not completely clear as to when the written consent of the insured is required when relying on another underwriter s Master Indemnity. TRGC ADDITIONAL REQUIREMENTS We require approval from one of our underwriting attorneys to rely on the Master Indemnity if: - The amount of the unreleased lien is more than the amount of the prior policy; or - The amount of the policy to be issued is more than 25% greater than the other underwriter s policy. TRGC ADDITIONAL REQUIREMENTS The reason for this requirement is that the liability of the Indemnitor (i.e., Brand X) is limited to the amount of its policy, so the indemnity will not fully cover the potential loss However, approval typically will be given. WHAT IF ONLY A LOAN POLICY WAS ISSUED IN THE PREVIOUS TRANSACTION? Inter-Underwriter Blanket Indemnities are NOT applicable (except in NY) if only a loan policy, not an owner policy, was issued in the previous transaction... Unless the insured lender has foreclosed and is now the owner of the property. PROCEDURES: Underwriter approval is not required if the defect is covered under an inter-underwriter blanket indemnity and the two exceptions discussed earlier do not apply. You must have a copy of the other underwriter s policy in your file. 43 Proof that the prior settlement agent addressed the defect is preferred, but is not an absolute requirement. TRIVIA QUESTION WHICH MUSICAL ARTIST PICTURED IN THE INTER-UNDERWRITER MUTUAL INDEMNITY SECTION WAS NOT BORN IN THAT STATE? A. Jimmy Buffett FL E. Hank Williams AL B. Willie Nelson TX F. Gladys Knight GA

8 44 C. Louis Armstrong LA G. Brian Wilson CA D. Bruce Springsteen NJ H. Alicia Keys NY ANALYSIS Will an indemnity satisfy the curative requirement? If so, is there an Inter-Underwriter Blanket Indemnity that covers the defect? If not, look into obtaining a specific indemnity from the underwriter who previously issued. SPECIFIC INDEMNITIES Specific indemnities may be used if your state does not have an Inter-Underwriter Blanket Indemnity, or The defect is not covered under the Inter-Underwriter Blanket Indemnity. SPECIFIC INDEMNITIES A Specific indemnity generally is a written document agreeing to indemnify only against the particular defect described therein. As with blanket indemnities, the liability of the Indemnitor will never exceed the amount of the prior policy. 47 The terms of the document sometimes need to be negotiated between the Indemnitor and the Indemnitee. SPECIFIC INDEMNITIES - TEXAS Rule P-11.c prohibits the use of a specific indemnity for a matter covered by the Master Indemnity. If the matter is not covered by the Master Indemnity, Rule P-11.b allows a title insurance company (underwriter) to issue a policy without taking exception to a recorded lien if it receives an indemnity from one of the following: - Another underwriter 48 - A regulated financial institution SPECIFIC INDEMNITIES NEW ENGLAND In some of the New England states, it is customary for the attorney who closed the transaction for which the release is missing to issue an indemnity, together with an undertaking to secure the release. This typically will be acceptable in states where such indemnity and undertaking letters are customary.

9 49 PROCEDURES ACCEPTANCE OF A SPECIFIC INDEMNITY Contact one of our underwriting attorneys and let us know: The nature of the matter being indemnified against; and Who will be giving the indemnity. All specific indemnities must be in writing, and approved by one of our underwriting attorneys. Keep the original indemnity letter in your closing file, and send a copy to melinda.wirta@trgc.com PROCEDURES ACCEPTANCE OF A SPECIFIC INDEMNITY An indemnity is only as good as the financial condition of the Indemnitor. Good Bad GIVING SPECIFIC INDEMNITIES If you are asked to provide a specific indemnity to another title company, contact one of our underwriting attorneys, and send copies of: 1. The other company s title commitment, showing the defect; and Our title policy. 52 GIVING SPECIFIC INDEMNITIES Except in Colorado and Arizona, we do not issue specific indemnities if only a loan policy, not an owner policy, was issued in the prior transaction (unless the lien has been foreclosed). There is no liability of the underwriter to the owner under a loan policy GIVING SPECIFIC INDEMNITIES When asked to give an indemnity, we have to decide whether to issue an indemnity or open a claim. This is often a judgment call. THANK YOU FOR ATTENDING!