Title Insurance Tips and Tricks. Presented by: Katie Droscha

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2 Title Insurance Tips and Tricks Presented by: Katie Droscha

3 Tips and Tricks The 2006 ALTA Loan Policy Endorsements Real Life Claims The CFPB

4 2006 ALTA Loan Policy 14 Covered Risks Validity, priority and enforceability of the insured Mortgage Access to and from the Land Title vested Defects, liens or encumbrances Limitations and Exclusions from Coverage (See Also, Exhibit A)

5 2006 ALTA Loan Policy, cont d Conditions on the ALTA Loan Policy Jacket limit the Amount of Insurance by the amount of payment See Conditions, Definition of Terms 1(a)(d) Amount of Insurance, see also Determination and Extent of Liability, 8(a) and Reduction of Insurance, 10 (a) Indebtedness: The obligation secured by the Insured Mortgage including but the Indebtedness is reduced by the total of all payments and by any amount forgiven by an Insured (See Also, Exhibit A)

6 2006 ALTA Loan Policy, cont d What does that mean?

7 Endorsements American Land Title Association (ALTA) ALTA is the voice for title insurance industry Develop endorsements adopted voluntarily by most, if not all underwriters nationwide, i.e., ALTA 9-06, ALTA , ALTA Specific Underwriter Endorsements Specific to First American, i.e., , Modification, Renewal and Extension

8 Endorsements What are They? Provides additional insurance beyond matters covered in the policy jacket Various and numerous endorsements are available and have been adopted over the years Subject to underwriting guidelines and may have additional requirements Subject to terms and provisions contained in the policy jacket

9 Endorsements, cont d Some endorsements are free of charge Some endorsements have a flat rate Some endorsements are charged based on a percentage of the premium of the Basic Rate Some endorsements have a series Most of them should be requested at the time of the order and will be issued at the time of the policy Most common exception to that is the modification endorsement series

10 Endorsements, cont d Why don t you tell me what endorsement to order?

11 Future Advance Endorsements Why do I need an endorsement if my mortgage allows for future advances? Remember: Conditions on the ALTA Loan Policy Jacket limit the Amount of Insurance by the amount of payment

12 ALTA 14; Future Advance Priority Most Commonly issued Assures the lender that pay-down and re-advances of principal made after the date of policy: Are secured by the mortgage up to the amount of insurance shown on Schedule A of the Policy. Will not result in the mortgage being invalid or unenforceable. Will not affect the priority of the lien of the mortgage. Charge is 10% (minimum $100)of the basic rate of the insured amount Some underwriters provide a free endorsement for 1-4 Family and Owner-Occupied Exceptions from coverage Advances exceeding the amount of insurance Lien for real estate taxes (See Also, Exhibit B)

13 Other Future Advance Endorsements ALTA , Future Advance-Knowledge ALTA , Future Advance Letter of Credit ALTA , Future Advance Reverse Mortgage (See Also, Exhibits C,D,E)

14 Modification Endorsements Actions after the Date of Policy involving the original note, affect the note, the mortgage and the loan policy Does coverage continue under the policy after those actions are taken?

15 ALTA 11: Mortgage Modification Issued after policy is issued; when lender enters into new agreement with mortgagor Covers the invalidity or unenforceability of the lien of the Insured Mortgage, lack of priority subject to the exceptions in the policy and on endorsement Charge is 5% of basic rate on remaining principal; basic rate for any increase, plus work fee Does not date down all provisions of loan policy Update performed to show taxes, new liens, etc. Modification Agreement must be recorded (See Also, Exhibit F)

16 Modification Endorsements Most Michigan Mortgages allow for modifications, renewals and extensions Modification endorsements are issued for Adding land Adding new money (not to be confused with the Future Advance Endorsement) Converting from short-term to permanent construction

17 Modification Endorsements First American Modification Series , Modification of Mortgage IV Additional coverage, dates-down the policy Charge is 15% of basic rate on remaining principal; basic rate for any increase, plus work fee , Modification, Renewal, Extension Assure that the validity and priority of the mortgage are not affected by: Modification of interest rate, renewal of Note, extension of terms. No additional charge. (See Also, Exhibit G, H)

18 Other Common Endorsements ALTA , Environmental Protection Lien ALTA 9-06, Restrictions, Encroachments, Minerals ALTA 18-06, Single Tax Parcel (See Also, Exhibit I, J, K)

19 The Wonderful World of Claims The Insured must have suffered a loss The Underwriter will first defend your position before paying any expenses You must provide documentation requested by the Underwriter You have to disclose those items that would affect your title insurance Claims can take years to complete!

20 Claims 2006 ALTA Loan Policy Jacket, Conditions #7, Options to Pay or Otherwise Settle Claims; Termination of Liability To Pay or Tender Payment of the Amount of Insurance or Purchase the Indebtedness To Pay or otherwise settle with other parties other than the Insured or with the Insured Claimant (See Also, Exhibit A)

21 Leading Types of Claims Equity Line Mortgages Mortgages not executed properly Legal Description problems Construction Access

22 Taxes Cover More Land The order was placed by customer who provided a legal description The commitment revealed that the taxes covered more land No coverage for tax description matching insured unless an endorsement is requested Legal description on the Mortgage and the policy covered less land than tax description

23 Taxes Cover More Land Several years pass and the borrower defaults Bank successfully forecloses and owns the property At the time of the subsequent sale, the township denies a split leaving the bank with a problem and not a valid claim

24 Taxes Cover More Land The tax parcel ID No covers more land than what we have been asked to insure. A later acquisition of fee title to the Land, via mortgage foreclosure proceedings or a deed-in-lieu of foreclosure, may not be a permissible split under Act 288 of 1967 (Land Division Act)

25 Access Claim The property is landlocked, but the title commitment and policy neglected to require and easement or show an exception Bank thinks they have a right of access to the land A couple of years pass and the bank forecloses on the property

26 Access Claim When the bank tries to visit the property, the neighbor denies them access through their property indicating they didn t have a right to They had a verbal agreement with the borrower to provide them access Bank files a claim with the underwriter Several months pass and the underwriter settled the claim with the neighbor who was paid and then granted and recorded a valid easement

27 Tips to Avoid Claims Disclose known defects, liens, encumbrances Follow the requirements on the title commitment Look for exceptions that are red-flags Don t take the easy way out to get the deal closed!

28 Dodd-Frank Wall Street Reform and Consumer Protection Act And so the CFPB was Born!

29 What is the CFPB? Consumer Financial Protection Bureau (CFPB) Mission Statement Our mission is to make markets for consumer financial products and services work for Americans whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products.

30 Integrated Mortgage Disclosure Rule Rule created to simplify and improve disclosure to consumers Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act of 1974 (RESPA) integrated into one form Proposed Rule Issued: 7/12 Final Rule Issued: 11/13 Implementation Date: 8/1/15

31 The Impact Loan Estimate 3 pages long Replaces the GFE and initial TIL Easier to identify key features and costs of the loan Must be provided to consumer no later than 3 days after application (See Also, Exhibit L)

32 The Impact, cont d Closing Disclosure 5 pages long Replaces HUD-1 and final TIL Easier to understand costs of the transaction Must be provided to the consumer at least 3 business days prior to closing (See Also, Exhibit M)

33 Choosing a Title Agency Thorough due diligence is necessary by lenders for 3 rd party vendors ALTA Best Practices Formalized best practices for title insurance companies to follow Provides lenders information about title vendors Assists with managing risks Promotes consistency and formal standardization

34 ALTA Best Practices Proper Licensing Procedures and controls for daily reconciliation of escrow trust accounts Privacy Policies, Non-Public Personal Information Settlement Procedures Title Insurance production, delivery and remittance Professional liability and theft insurance Consumer complaints processes

35 Title Insurance Needs? Katie Droscha, Director, Great Lakes Central Phone: Michigan Bankers Title of Mid Michigan, LLC Michigan Bankers Title of West Michigan, LLC Michigan Bankers Title of the Upper Peninsula, LLC MBT Title Services, LLC Cascade Title Agency, LLC

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