Texas Title Insurance and Real Estate Questions

Transcription

1 Texas Title Insurance and Real Estate Questions Steve Lawrence, President Steven G. Lawrence, P.C., a Texas Corporation steve.lawrence@airmail.net Nationwide Toll Free Alternate Phone Nationwide Toll Free Fax Alternate Fax Mailing Address: P.O. Box 1009, Allen, Texas Express Delivery: 121 South Tennessee Street, McKinney, Texas Steve Lawrence is a Licensed Texas Attorney (since 1979) and is Board Certified by the Texas Board of Legal Specialization in: (i) Residential Real Estate Law; and, (ii) Commercial Real Estate Law. February 8, 2001 (10:58AM)

2 TOC i TABLE OF CONTENTS A. TEXAS TITLE INSURANCE TOTAL REGULATORY ENVIRONMENT General Regulatory Overview Prohibition Against Use of Non-Promulgated Insurance Forms Basic Promulgated Forms Prohibition Against Providing Coverages Outside the Policy Forms... 1 B. GENERAL ABBREVIATED OVERVIEW OF TEXAS TITLE INSURANCE COVERAGES Commitment Binder Policies Available Premium for Policy Endorsements... 3 a. Adjustable Mortgage Loan Endorsement (T-33)... 3 b. Assignment Endorsement (T-3)... 3 c. Balloon Mortgage Endorsement (T-39)... 3 d. Completion Endorsement (T-3)... 3 e. Correction Endorsement (T-3)... 4 f. Downdate Endorsement (T-3)... 4 g. Environmental Protection Lien Endorsement (T-36)... 4 h. Home Equity Endorsement (Equity Loan Mortgage Endorsement) (T-42)... 4 i. Home Equity Endorsement (Supplemental Coverage Equity Loan Mortgage Endorsement) (T-42.1)... 4 j. Leasehold Mortgagee Policy Endorsement (T-5)... 5 k. Manufactured Housing Endorsement (T-31)... 5 l. Modification Endorsement (Mortgagee Policy of Title Insurance P-9.b(3) Endorsement Form - Partial Release, Release of Additional Collateral, Modification Agreement, Reinstatement Agreement, or Release from Personal Liability) (T-38)... 5 m. (Texas) Reverse Mortgage Endorsement (T-43)... 5 n. Revolving Credit Endorsement (T-35) Optional Coverages in the Mortgagee Policy... 5 a. Arbitration b. Area and Boundary (Survey) Coverage c. Coinsurance d. Creditors Rights e. Easements and Access... 6 f. Express Insurance Encroachments g. Express Insurance Defects in Title h. Express Insurance Prior Unreleased Liens i. Gap Coverage j. Insuring Around k. Maintenance Liens l. Mechanic s Lien m. MERS n. Minerals o. Parties in Possession p. Restrictions.... 8

3 TOC ii q. Standard Exceptions and Extended Coverage r. Subordinate Liens and Leases s. Successors and Assigns t. Survey Coverage (see Area and Boundary Coverage ) u. Tax Coverage TABLE OF "ENDORSEMENTS AND COVERAGES"... 9 Additional Advance... 9 Additional Insured... 9 Adjustable Mortgage Loan... 9 Apportionment Clause Arbitration Deletion Area and Boundary Amendment Assignment Endorsement Balloon Mortgage Endorsement Binder Certificate of Title (U.S.A.) Certificate of Title for Easement (U.S.A.) Coinsurance Commitment for Title Insurance Commitment for Texas Department of Transportation Completion Endorsement Contiguity Correction Endorsement Covenants Creditor's Rights Defects in Title Downdate to Binder Downdate to Mortgagee Policy Downdate to Owner Policy Easements - encroachments Easements - insurance against enforcement Easements - insurance that easement provides access to street Easements - abutter's rights Easements - lack of access Encroachments (over private setback line; over public building line; over easement; over property line) Environmental Protection Lien Endorsement Exceptions - Special Exceptions - General Extension of Binder Immediately Available Funds Procedure Agreement (Good Funds) Increase Mortgagee Policy Increased Owner Policy Increased Value Endorsement Insured Closing Service to Lender Insured Closing Service to Purchaser/Seller Insured Owner Policy Insured Lender Insuring Around Leasehold Mortgagee Policy Endorsement Leasehold Owner Policy Endorsement Leasehold Endorsement to Residential Owner Policy (Residential Leasehold Endorsement)... 18

4 TOC iii Location Manufactured Housing Endorsement Mechanic s Liens Minerals Modification Endorsement Mortgagee Policy of Title Insurance Multiple Liens Nonmerger Option/Refusal Owner Policy of Title Insurance Owner Policy Rejection Form Owner Policy U.S.A. (Policy of Title Insurance (U.S.A.) Purchaser/Seller Insured Closing Service Letter Proof of Loss (Texas Title Insurance Proof of Loss Form) Reinsurance Agreement (Facultative Reinsurance) Reinsurance Agreement - Tertiary Reinsurance Commitment Residential Owner Policy of Title Insurance Restrictions Revolving Credit Endorsement Subordinate Liens Tax Coverage Tax Deletion U.S.A. Endorsement D TITLE INSURANCE RATE REDUCTION TABLE E. TEXAS TITLE LAWYER S PERSPECTIVE OF THE HOME EQUITY AMENDMENT F. TITLE INSURANCE ASPECTS OF JANUARY 1, 1999 TEXAS CONSTITUTIONAL AMENDMENT WITH RESPECT TO HOME EQUITY LENDING Home Equity Lending a. Important Definitions (1) Home Equity Loan Definitions i. "Traditional Home Equity Loan ii. "Home Equity Cash-Out Refinance Loan (2) Insuring Form Definitions i. T-42.1 Supplemental Equity Endorsement ii. "T-42 Endorsement" iii. "T-2 Mortgagee Policy" (3) Transactional Definitions i. Deed of Trust ii. Promissory Note iii. The Office of a Title Company or Title Company iv. Grantor(s) v. Maker(s) b. Overview (1) The Constitution (2) Mandatory T-42 Endorsement (3) Optional T-42.1 Supplemental Endorsement c. Suggested Title Insurance Underwriting Considerations For T-2 Mortgagee

5 TOC iv Policy And T-42 Endorsement And T-42.1 Supplemental Equity Endorsement Insuring a Home Equity Loan (1) How the Existing T-42 Endorsement Works with the T-2 Mortgagee Policy and the New Supplemental Equity Endorsement {T-42.1} (2) A Non-technical Description of the New Coverages and Basic Underwriting Requirements d. Premium for T-42 and T-42.1 Endorsements and the Global Regulatory Requirements for the Supplemental Coverage Equity Loan Mortgagee Endorsement T (1) Premium Charges i. T-2 Mortgagee Policy with T-42 Endorsement Only ii. T-2 Mortgagee Policy + T-42 Endorsement + T-42.1 Endorsement (2) How Rate Rule R-8 Premium Credit Affects the T-42 Endorsement and T-42.1 Supplemental Equity Endorsement Premium Calculations (3) No T-42.1 Supplemental Coverage Endorsements for Loans Prior to November 12, (4) Other Endorsements and Coverages are Still Available (5) Circumstances Requiring Mandatory Deletion of Coverages A Through H in the New T-42.1 Supplemental Equity Endorsement Not Closed at the Office of the Title Company (6) Express Insurance Availability Pursuant to Procedural Rule P (7) No T-42.1 Supplemental Equity Endorsement Is Available Without the T-42 Endorsement e. Detailed Title Insurance Underwriting Considerations (1) Signature Before Specified Date - Insuring Provision 1(a) of T (2) No Loan Proceeds Disbursement Before Fourth Day - Insuring Provision 1(b) of T (3) Execution of Election Not to Rescind - Insuring Provision 1(c) of T (4) Document Copies - Insuring Provision 1(d) of T (5) Fees - Insuring Provision 1(e) of T (6) Blanks in an Instrument - Insuring Provision 1(f) of T (7) Attachment of Appraisal or Evaluation - Insuring Provision 1(g) of T (8) Signature of Acknowledgment of Fair Market Value - Insuring Provision 1(h) of T (9) No Land in Excess of Homestead Allotment - Insuring Provision 1(i) of T (10) No Other Land with a Home Equity Mortgage - Insuring Provision 1(j) of T (11) No Other Land With Released or Paid Off Home Equity Mortgage Within Past Twelve Months- Insuring Provision 1(k) of T f. Miscellaneous Issues (1) Rate Rule R-8 and Home Equity Cash-out Refinance Loans (2) Using Powers of Attorney (3) Mail-out Transactions (4) Urban Business Homestead And Urban Residential Homestead Considerations (5) Texas Home Equity Right of Recission and Federal Right of Recission g. Exhibits G. TITLE INSURANCE COVERAGES AND REFINANCE TRANSACTIONS UNDER TEXAS CONSTITUTION SECTION 50(e) Refinance Dilemma Analogy Purpose... 58

6 TOC v 3. Legislative Background Scope of Application Past Title Insurance Practices Reasonable Refinance Costs a. For Loan Origination Fee b. For Buy Down Points and Discount Points c. For Mortgage Insurance Premium: d. For Other Refinance Costs: General Underwriting Requirements a. Lender Approval b. Partial Invalidity Clause c. Subrogation Language d. Absolutely No Cash Back to Borrower e. Release or Assignment of Prior Lien Reminder Concerning Valid Loans on Homestead a. Refinance Transactions b. Purchase Money Loan Transactions c. Mechanic Lien Contract Loan Transactions Rate Rule Reminders a. All Transactions b. Refinance Transactions A More Liberal Underwriting Paradigm For Refinance Costs Includable in Mortgagee Policy Amount of Insurance a. General Parameters b. Additional Items Which May Be Included Based Upon Percentage Limitations No Cash Back to Borrower on Traditional Refinance Transactions a. Excess Cash at Closing (1) Redraft Loan Documents (2) Principal Reduction At Closing b. Borrower Wants Reimbursement for Prepaid Refinance Costs Home Equity Cash Out Refinances How the Section 50(e) Amendment May Affect Title Insurance Coverages a. Texas Department of Insurance Commissioner s Bulletin B The 3% Safe Harbor Archetype? Are Section 50(e) Issues Covered Title Insurance Risks? a. Business Difficulties Created by Insurance Department Bulletin (1) Is Section 50(e) a consumer Credit Protection Matter? (2) Lending Community Reaction to Commissioner s Bulletin H. TITLE INSURANCE COVERAGES AND UNDERWRITING APPROACHES RELATING TO CONSTRUCTION TRANSACTIONS ON HOMESTEAD AFTER AMENDMENT TO TEXAS CONSTITUTION 50(a)(5) Scope of Application Two Categories of Mechanic Lien Contract Transactions a. Non-Affected Homestead Transaction b. Affected Homestead Transaction c. How to Determine if it is an (i) Affected Homestead Transaction; or (ii) Non-Affected Homestead Transaction Legislative Background and Constitutional Language... 73

7 TOC vi 4. Underwriting Requirements a. Non-affected Homestead Transactions b. Affected Homestead Transactions (1) Special Exception Language (2) Builder Financed Transactions (3) Three Day Right Recission (4) The Location of Executing the Mechanic Lien Contract Requirement i. Execution at the Title Company ii. Execution At Lender s or Attorney s Office iii. Execution at Another Location and Powers of Attorney (5) Twelve Day Cooling Off Period (6) Emergency Situations Exception (7) Curing of Constitutional Defects I. TEXAS RECORDING LAWS Types of Notice Types of Recording Laws Notice of Bankruptcy Place of Filing and Recording Method of Filing Required Form of Instrument a. Short Form Acknowledgment: b. Ordinary (Long Form) Acknowledgment Filing Fees ATTORNEY S TITLE CHECKLIST ABUTTER S RIGHTS OF ACCESS (see ACCESS) ACCESS (see EASEMENT) ADDITIONAL ADVANCE (see INCREASED COVERAGE) ADDITIONAL INSURED (see INSURED) ADJUSTABLE RATE MORTGAGE (see VARIABLE RATE MORTGAGE) AFFIDAVIT ALLOCATION (see COINSURANCE) APPLICATION APPORTIONMENT (see ALLOCATION, see COINSURANCE) ARBITRATION AREA AND BOUNDARY (see SURVEY) ASSIGNMENT AUTHORITY BALLOON MORTGAGE BEACH (see WATER) BINDER (see ASSIGNMENT, see MECHANIC S LIENS, see MODIFICATION) BUILDING SETBACKS (see ENCROACHMENT) CERTIFICATIONS CLOSING INSTRUCTIONS (see Exhibit "MASTER CLOSING INSTRUCTIONS") CLOSING PROTECTION (see INSURED CLOSING SERVICE) COINSURANCE POLICY (see APPORTIONMENT) COMMITMENT (see SURVEY) COMPLETION ENDORSEMENT (see MECHANIC S LIENS) CONDOMINIUMS (see MAINTENANCE LIENS) CONTIGUITY (see SURVEY)... 86

8 TOC vii CONTRACT (see TREC) CONTRACT FOR DEED (see OPTION) CREDITORS RIGHTS DATE OF POLICY DEED DIRECT ISSUE (see HOME OFFICE ISSUE) DISCLOSURE (see KNOWLEDGE) DOWNDATE (see MECHANIC S LIENS) EARNEST MONEY (REPORT BOUNCED CHECKS) EASEMENT (see ENCROACHMENT, see SURVEY, see TAXES) ENCROACHMENTS (see EXPRESS INSURANCE, see FOUNDATIONS, see SURVEY, see WATER) ENVIRONMENTAL PROTECTION LIEN ENDORSEMENT EQUITY KICKER (see VARIABLE RATE) ERRORS EXCEPTIONS EXPRESS INSURANCE (see EASEMENT, see ENCROACHMENT, see INSURING AROUND, see SURVEY) FANNIE MAE FORFEITURE AND REVERSION (see Restrictions) FORMS (see Part C. Table of Endorsements and Coverages ) FOUNDATIONS (see ENCROACHMENT, see EXPRESS INSURANCE, see SURVEY) FUTURE ADVANCE (see REVOLVING CREDIT) FUTURE INSURANCE (see EXPRESS INSURANCE, see INSURING AROUND) GAP COVERAGE (see COMMITMENTS) GOOD FUNDS HEIRSHIP (see AFFIDAVITS) HOMESTEAD (see AFFIDAVIT, see BINDER, see REFINANCE) HOME OFFICE ISSUE IMPROVEMENTS (see LEASES, see MECHANIC S LIENS) INCREASED COVERAGE (see VARIABLE RATE MORTGAGE) INDEMNITY (See AFFIDAVIT) INFLATION (see INCREASED COVERAGE) INSPECTION, WAIVER OF (see PARTIES IN POSSESSION) INSURED INSURING AROUND (see EXPRESS INSURANCE) INSURED CLOSING SERVICE KNOWLEDGE LEASES (see PARTIES IN POSSESSION) LICENSE LIENS LOCATION (see SURVEY) MAINTENANCE LIENS (see SUBORDINATE LIENS AND LEASES) MANUFACTURED HOUSING MARITAL STATUS (see AFFIDAVIT) MECHANICS LIEN (see AFFIDAVIT, see INSURING AROUND) MERS MINERALS (see AFFIDAVIT) MISTAKES (see ERRORS) MODIFICATION (see REVOLVING CREDIT, see VARIABLE RATE) MULTIPLE MORTGAGES MULTIPLE TRACTS (see ALLOCATION, see APPORTIONMENT, see HOME OFFICE ISSUE)... 99

9 TOC viii NEGATIVE AMORTIZATION (see VARIABLE RATE) NON-PRODUCTION (see AFFIDAVIT, see MINERALS) NOT SAME PERSON (see AFFIDAVIT) OIL AND GAS (see AFFIDAVIT, see EXPRESS INSURANCE, see MINERALS, see EXCEPTIONS) OPTION (see EXPRESS INSURANCE) OWNER POLICY PARTIES IN POSSESSION (see INSPECTION, WAIVER OF, see LEASES) POWER OF ATTORNEY (see AUTHORITY) PRO FORMA PRORATIONS RATES (see Part C. Table of Endorsements and Coverages ) REFINANCE (see RATES) REINSURANCE (see FANNIE MAE) RELEASE REQUIREMENTS RESOLUTIONS (see AUTHORITY) RESTRICTIONS (see EXPRESS INSURANCE, see SUBORDINATIONS) REVERSION (see RESTRICTIONS) REVOLVING CREDIT RIGHT OF FIRST REFUSAL (see OPTION) ROLLBACK (see TAXES) RULES (see Part C. Table of Endorsements and Coverages ) SEPARATE PROPERTY (see MARITAL STATUS) SHORTAGES IN AREA (see SURVEY) SIMULTANEOUS ISSUE (see Exhibit "Endorsements and Coverages") SINGLE RISK (see FANNIE MAE, see REINSURANCE) SUBDIVISION SUBROGATION SUBORDINATE LIENS AND LEASES SUBORDINATIONS SURVEY (see ENCROACHMENT, see WATER) SURVIVORSHIP TAXES (see EASEMENT) TREC (see CONTRACT) TRUTH IN LENDING UCC (see SUBORDINATIONS) USURY UTILITIES (see EASEMENTS) VARIABLE RATE (see NEGATIVE AMORTIZATION) WATER (see ENCROACHMENT, see EXPRESS INSURANCE, see SURVEY) ZONING OWNER/BORROWER QUESTIONNAIRE FOR RURAL HOMESTEAD CHARACTERIZATION

10 1 A. TEXAS TITLE INSURANCE TOTAL REGULATORY ENVIRONMENT 1. General Regulatory Overview In Texas, the business of title insurance is in all respects totally regulated by the State of Texas in accordance with: (i) Article 9.01 et. seq. of the Texas Insurance Code; and, (ii) THE BASIC MANUAL OF RULES, RATES AND FORMS FOR THE WRITING OF TITLE INSURANCE IN THE STATE OF TEXAS. The Texas Insurance Code and The Basic Manual for Title Insurance are hereinafter jointly referred to as: The Regulations. Pursuant to Article 9.01 of the Texas Insurance Code, the legislature of the State of Texas found that the business of title insurance, both the direct issuance of policies and the reinsurance of assumed risk, of every type, should in all respects be totally regulated by the State of Texas. The Texas Department of Insurance, acting pursuant to the delegation of authority contained in the Texas Insurance Code, has promulgated THE BASIC MANUAL OF RULES, RATES AND FORMS FOR THE WRITING OF TITLE INSURANCE IN THE STATE OF TEXAS {hereinafter the Basic Manual for Title Insurance } which contains: (i) all insuring forms and endorsements; (ii) rate rules for insurance coverages; (iii) procedural rules for insurance coverages; (iv) administrative rules for dealing with the Texas Department of Insurance; (v) non-policy coverage forms required to be used; (vi) claims procedures; and (vii) Texas Department of Insurance bulletins. Accordingly, all title insurance policies, and endorsements thereto, are issued on forms promulgated by the State of Texas. The Basic Manual for Title Insurance, as adopted and enforced by the Texas Department of Insurance, specifically delineates the available title insurance coverages, and rates, for Texas real estate transactions which must be insured in accordance with the Texas Title Insurance Act. 2. Prohibition Against Use of Non-Promulgated Insurance Forms Article 9.07 of the Texas Title Insurance Act provides that no policy of title insurance, reinsurance of any assumed risk under any policy of title insurance, or any guaranty of any character on Texas titles shall be issued or valid unless written by a corporation complying with the provisions of, and authorized or qualified under this chapter. The provision further provides that under no circumstances may any title insurance company or title insurance agent use any form which has not been promulgated or approved by the Commissioner of Insurance. 3. Basic Promulgated Forms Pursuant to The Regulations, all of the following forms {among others} are promulgated by the Texas Department of Insurance: (i) Commitment for Title Insurance; (ii) Owner Policy of Title Insurance; and, (iii) Mortgagee Policy of Title Insurance. Except as specifically authorized by The Regulations, none of the promulgated provisions of any insuring forms may be amended, modified, waived or deleted. Endorsements to these forms are available solely in accordance with The Regulations. The alteration, completion, amendment or issuance of a promulgated form, in a manner contrary to the coverage language required to be used under The Regulations, may have the effect of creating an illegal non-promulgated form in violation of Article 9.07 of the Texas Title Insurance Act. 4. Prohibition Against Providing Coverages Outside the Policy Forms The Basic Manual for Title Insurance prohibits Texas title insurance companies, Texas direct operations, and licensed Texas title insurance agents, from providing opinions or estoppel letters concerning the affect of various owner/lender/borrower documents upon policy coverage. Such

11 opinion or estoppel letters may have the effect of waiving or modifying the terms of a promulgated form in violation of The Regulations. Procedural Rule P-35 {prohibiting guarantees, affirmations, indemnifications and certifications} further prohibits Texas title insurance companies, Texas direct operations, and licensed Texas title insurance agents, from providing opinions or commentaries concerning the affect of various documents upon policy coverage. B. GENERAL ABBREVIATED OVERVIEW OF TEXAS TITLE INSURANCE COVERAGES The Texas Department of Insurance promulgates the Texas title insurance forms. Title companies may not use any other title insurance forms in Texas transactions. The premium is promulgated by the Texas Department of Insurance and may not be negotiated. 1. Commitment Prior to issuance of the policy, the title company may issue a commitment for title insurance. The commitment is effective for 90 days. There is no charge to the lender or buyer for issuance of the commitment. In some transactions, the Basic Manual for Title Insurance requires that a commitment for title insurance be issued (Procedural Rule P-18). 2. Binder The lender may request a Mortgagee Title Policy Binder on Interim Construction Loan ( Binder ) to cover its mortgage during construction in lieu of a Mortgagee Policy. The Binder is effective for 1 year and may be extended by Extension Endorsements six times for six months each. The premium for the Binder is $270. The premium for the Extension Endorsement is $25. The date of coverage of the Binder may be extended by Downdate Endorsements, which cost $ Policies Available The policies available on residential transactions in Texas are the Owner Policy (Form T-1), the Residential Owner Policy (T-1R) (if the insured is a natural person), and the Mortgagee Policy (T- 2). Although the Department of Insurance has adopted the Texas Residential Limited Coverage Junior Mortgagee Policy (T-44) and endorsements to that Policy for junior home equity loans, it is not available at this time because no premium charge has been promulgated. The lender, the trustee, an attorney, or the loan servicer may secure a Limited Pre-Foreclosure Policy (T-40), which insures as to record matters, prior to foreclosure for a premium of 40% of the basic rate. The title company may issue Limited Pre-Foreclosure Downdate Endorsements (T-41) for a premium of $50. The 1970 and 1992 ALTA (American Land Title Association) Policies are not available in Texas. The Texas Policies are similar to the ALTA 1992 Policies, but do not insure against unmarketability of title. The Texas Policies insure good and indefeasible title; because of the meaning of good title and because the Texas Policies insure against defects in title, the Texas coverage is not significantly different from ALTA coverage as to marketability. 4. Premium for Policy The Texas Department of Insurance promulgates the premium charge for the Mortgagee Policy. Other charges, such as recording costs, tax search or certificates, and escrow fees are not promulgated or included in the premium charge. The basic premium for a Mortgagee Policy is the same as the basic premium for an Owner Policy. If a Mortgagee Policy is issued simultaneously 2

12 with the Owner Policy and does not exceed the amount of the Owner Policy, the premium for the simultaneous Mortgagee Policy is $100. The seller customarily pays for issuance of a buyer s Owner Policy, and the buyer customarily pays for issuance of the Mortgagee Policy. Some builders agree to pay only for the Mortgagee Policy, and the buyer may pay for the additional cost of the Owner Policy. If a lender refinances a loan insured by a prior Mortgagee Policy issued by any prior title company within the last 7 years, the new Mortgagee Policy issued by any title company must be issued at a reduced rate. The reduced rate is based on a credit against the premium for the unpaid balance of the prior loan equal to 40% within the first 2 years, 35% in the 3rd year, 30% in the 4 th year, 25% in the 5 th year, 20% in the 6 th year, and 15% in the 7 th year after the date of the prior Mortgagee Policy. A refinance of a construction loan covered by a prior Mortgagee Policy must be issued for the minimum promulgated premium ($270), if the new Mortgagee Policy does not exceed the prior Mortgagee Policy. If two prior mortgages are refinanced by one new mortgage, or one prior mortgage is refinanced by two new mortgages, many title companies will give the refinance credit (of 15-40%) on the new Mortgagee Policy. The amount of the Mortgagee Policy must be the loan amount or value of the land. If the mortgage may include additional capitalized interest or if the lender otherwise requests, the policy may be issued for up to 125% of the original loan amount. There is no additional charge for this extra coverage if the amount of the Mortgagee Policy does not exceed the amount of the Owner Policy. 5. Endorsements The ALTA and CLTA (California Land Title Association) endorsements, such as the CLTA 100 ( comprehensive ) endorsement and ALTA Form 9 endorsement (restrictions, encroachments, and minerals), are not issued in Texas. The available endorsements to the Mortgagee Policy are: a. Adjustable Mortgage Loan Endorsement (T-33), which insures against loss of priority because of adjustments in the interest rate. The premium for this endorsement is $20. b. Assignment Endorsement (T-3), which insures the assignment and downdates the policy. The endorsement may be issued to Fannie Mae, Ginnie Mae, VA, or HUD, if the land is one to four family property. The endorsement may be issued only if the land is not one to four family property if the endorsement is issued to any other person. The premium for the endorsement is $270. c. Balloon Mortgage Endorsement (T-39), which insures against invalidity, unenforceability or loss of priority because of a Conditional Right to Refinance. The endorsement may be issued if the mortgage covers residential real property. The premium for the endorsement is $25, if issued at the time of issuance of the Mortgagee Policy, or $50, if issued after issuance of the Mortgagee Policy. d. Completion Endorsement (T-3), which downdates the mechanic s lien coverage and removes the mechanic s lien exception from a Mortgagee Policy after completion of improvements. There is no charge for this endorsement. 3

13 e. Correction Endorsement (T-3), which corrects errors in the Mortgagee Policy. There is no charge for this endorsement. f. Downdate Endorsement (T-3), which downdates a Mortgagee Policy insuring a construction loan mortgage. This endorsement extends the Policy only as to recorded matters. Since the Mortgagee Policy insuring a construction loan mortgage is required by Texas Procedural Rules to except to unrecorded mechanic s liens, neither this endorsement nor the Mortgagee Policy insuring a construction loan mortgage insures priority over mechanics liens recorded after the Date of Policy. The premium for this endorsement is $50. g. Environmental Protection Lien Endorsement (T-36), which insures against recorded environmental protection liens and against priority of environmental protection liens recorded after Date of Policy. Fannie Mae allows exception in paragraph (b) of the endorsement to Tex. Health & Safety Code Section ; Tex. Health & Safety Code Sections , ; Tex. Local Gov t Code Sections (b), (d), and (e), ; Tex. Nat. Res. Code Section , if applicable. The premium for this endorsement is $50. h. Home Equity Endorsement (Equity Loan Mortgage Endorsement) (T-42), which may insure against invalidity of the Home Equity Mortgage because of lack of consent of the owners and spouses, agricultural tax assessment, prior Home Equity Mortgages on the land closed within 12 months, other outstanding Home Equity Mortgages, failure of the insured mortgage to disclose that it is a Home Equity Mortgage, and failure to close at the title company. The endorsement excepts to other violations of the requirements for Home Equity Mortgages. The title company may delete a coverage if it does not consider the risk acceptable. The endorsement must be attached to a Mortgagee Policy insuring a Home Equity Mortgage. The premium for this endorsement is 10% of the Basic Premium Rate for the Mortgagee Policy. i. Home Equity Endorsement (Supplemental Coverage Equity Loan Mortgage Endorsement) (T-42.1), which may insure against invalidity of the Home Equity Mortgage because of (1) signature before specified date, (2) loan proceeds disbursement by title company before 4 th day after closing, (3) early execution of election not to rescind, (4) failure to provide document copies, (5) fees not shown on settlement statement sent to lender before closing, (6) blanks in instruments, (7) failure to attach appraisal or evaluation to written acknowledgment of fair market value, (8) failure of owner to sign acknowledgment of fair market value, (9) land in excess of homestead allotment, (10) other land with a Home Equity Mortgage, or (11) other land with a Home Equity Mortgage closed in last 12 months. The title company may delete a coverage if it does not consider the risk acceptable. The endorsement may be attached to a Mortgagee Policy insuring a Home Equity Mortgage if the lender requests the endorsement. Fannie Mae and Freddie Mac currently require that loans sold to them have a Mortgagee Policy with this endorsement and without any deletions. The title company is not required by regulation to secure a survey certifying the acreage before it may insure that there is no land in excess of the homestead allotment. If the land is in a city which is located in more than one county (such as Houston or Dallas), the title company may add or in an adjoining county to the coverage of paragraphs 1(j) and 1(k) relating to Home Equity Mortgages on other land. The premium for this endorsement is 15% of the Basic Premium Rate. 4

14 j. Leasehold Mortgagee Policy Endorsement (T-5), which defines the leasehold estate, and states the manner of computing loss and additional damages. This endorsement must be attached to the Mortgagee Policy insuring a leasehold estate. There is no additional charge for this endorsement. k. Manufactured Housing Endorsement (T-31), which includes the identified manufactured housing unit in the definition of the (insured) land. This endorsement may be issued if the unit is affixed to the land as part of the real property. The premium for this endorsement is $20, additional charges for survey and inspection may be made. l. Modification Endorsement (Mortgagee Policy of Title Insurance P-9.b(3) Endorsement Form - Partial Release, Release of Additional Collateral, Modification Agreement, Reinstatement Agreement, or Release from Personal Liability) (T-38), which acknowledges that the Mortgagee Policy coverage is not terminated or reduced by the agreement. The endorsement does not downdate the policy or insure the modification agreement. The endorsement is not available if the modification grants a new lien or power of sale, if the debt is evidenced by a new promissory note, if new principal debt other than accrued interest or advances pursuant to the original mortgage is created, or if the modification adds new collateral. The premium for this endorsement is $100 plus $10 for each 12-month period after the first year after the issuance of the Mortgagee Policy. m. (Texas) Reverse Mortgage Endorsement (T-43), which insures the priority of future advances under the reverse mortgage on homestead, and insures that the owners and spouses consented to the mortgage, and excepts to other requirements for a reverse mortgage. The endorsement must be attached to a Mortgagee Policy insuring a reverse mortgage. There is no premium charge for this endorsement. n. Revolving Credit Endorsement (T-35), which insures the priority of future advances under a revolving credit loan secured by the mortgage. Many title companies will issue this endorsement if the mortgage secures future advances, even if the mortgage does not contain a revolving credit (readvance after repayment) feature. This endorsement is not applicable to loans on homestead, since revolving credit loans are not authorized on homestead. The premium for this endorsement is $ Optional Coverages in the Mortgagee Policy a. Arbitration. The Mortgagee Policy (Form T-2) contains an arbitration provision that allows either the insured or title insurer to require arbitration if the policy does not exceed $1 million. The insured lender can request deletion in its closing instructions. The title company may then add the following to Schedule B of the policy: Section 13 of the Conditions and Stipulations of this Policy is hereby deleted. b. Area and Boundary (Survey) Coverage. The title company can delete the area and boundary exception (survey exception), except any shortages in area from the Mortgagee Policy if it is furnished a current survey. If the loan is a refinance on (one to four family) residential real property, the title company must accept a survey dated no earlier than 7 years prior to the new Mortgagee Policy if the borrower will sign an affidavit evidencing that there have not been subsequent changes. Some title companies will accept older surveys on refinances and will accept old surveys on sales. The title company may amend the survey exception without a survey if the land is a condominium. 5

15 c. Coinsurance. If two or more title insurers issue separate Mortgagee Policies to the lender on the same mortgage and land, each title insurer covers a portion of the risk and the Schedule B of each policy must state: This policy is issued contemporaneously with Policy No. of (Name of Title Insurance Company(ies)) for $. The liability of the Company hereunder is limited to (proportion) of any loss, but said liability shall not exceed the face amount of this Policy. d. Creditors Rights. The Mortgagee Policy contains a creditors rights exclusion. This exclusion may not be deleted. e. Easements and Access. The Mortgagee Policy can insure an easement, if the easement is described in Schedule A of the policy. If the policy does not describe the easement, the Mortgagee Policy only insures some legal right of access to and from the land, but does not insure the particular access that may be necessary for the land. The policy does not insure that the access complies with the requirements of Fannie Mae or Freddie Mac for access to the land. For example, Fannie Mae requires that the land front on a publicly dedicated and maintained street that meets community standards and is generally accepted by area residents. If the property is on a community-owned or privately owned and maintained street, there must be an agreement for maintenance of the street. Closing instructions may address this issue. If the land does not have a legal right of access, the title company may except in the Mortgagee Policy to Lack of a right of access to and from the land. Insuring provision number 3 is hereby deleted. This exception generally is prohibited in the lender s closing instructions. The Mortgagee Title Policy Binder on Interim Construction Loan does not commit to insure legal right of access, but can commit to insure an easement. f. Express Insurance Encroachments. If the Mortgagee Policy will except to encroachments (over building or setback lines, over easements, or over property lines), the title company may provide express (affirmative) insurance in Schedule B of the policy, if the title company believes the risk is acceptable. The title company does this by excepting to the encroachment and then adding: Company insures the insured against loss, if any, sustained by the insured under the terms of this Policy by reason of a final, nonappealable judgment of a court of competent jurisdiction that orders the removal of this improvement because it encroaches over or into. Company agrees to provide defenses to the insured in accordance with the terms of this Policy if suit is brought against the insured to require the removal of this improvement because it encroaches as herein stated. g. Express Insurance Defects in Title. If the Mortgagee Policy will except to a matter that is a defect in title (such as an adverse claim of ownership or lis pendens, a blanket easement that may not be in use, a lease or option or contract that may have expired, the right to use the surface of the land for exploration and development of excepted mineral or mineral lease rights, or a covenant or restriction that may not be enforceable due to violations), the title company may provide insurance in Schedule B of the policy, if the title company believes the risk is acceptable. The title company does this by excepting to the defect in title and then adding one of the two following alternative provisions: (1) Company insures the insured against loss, if any, sustained by the insured under the terms of this Policy by reason of a final, nonappealable judgment of a court of competent jurisdiction that divests the insured of its interest as insured because of this right, claim or interest. Company agrees to provide defense to the insured in accordance with the terms of this Policy if suit is brought against the insured to divest the insured of its interest as insured because of this right, claim or interest. [Use, for example, if adverse claim of ownership or lis pendens.]; or (2) Company insures the insured against loss, if any, sustained by the insured under the terms of this 6

16 Policy by reason of the enforcement of said rights as to the land. Company agrees to provide defense to the insured in accordance with the terms of this Policy if suit is brought against the insured to enforce said rights as to the land. [Use, for example, if adverse claim is a blanket easement or restriction.] h. Express Insurance Prior Unreleased Liens. If the title company will insure against a prior unreleased lien, it may insure against that lien by (1) insuring around without exception in Schedule B, or (2) express insurance in Schedule B of the policy, by exception to the prior lien and by then noting that (1) the exception is deleted, or (2) the title company insures against foreclosure of the prior lien and agrees to defend the insured. i. Gap Coverage. Gap coverage (insurance against matters subsequent to the date of the commitment, as updated, and prior to filing of the insured mortgage) is customarily given, when the closing is conducted by the title company. Although no gap endorsement is available in Texas, the title company will provide this coverage based on the lender s closing instructions and local practice. Frequently, the lender s closing instructions provide that no loan proceeds may be disbursed by the title insurance agent {or direct operation} unless the closing agency is in a position to issue the mortgagee policy with no additional exceptions (other than those permitted exceptions in the commitment). According to the Texas Department of Insurance, the Date of Policy of the Mortgagee Policy must be the date of recording of the insured s mortgage if a policy is issued in connection with a current loan transaction. j. Insuring Around. The title company may issue without exception to (and thereby insure against) a prior unreleased lien (such as a judgment lien, tax lien or mortgage), if it secures consent of the new insured and if it considers the risk acceptable. The title company must comply with regulatory requirements that establish circumstances when insuring around is permitted (such as holding money in escrow in some cases or securing an indemnity from another title insurer that previously issued without exception). In the alternative, the title company may protect the insured by expressly insuring against the unrecorded lien in Schedule B of the policy. k. Maintenance Liens. The Mortgagee Policy may insure that a maintenance (homeowners association) lien is subordinate to the insured mortgage by (1) retaining the exception to subordinate liens and leases in the policy and not separately excepting to the maintenance lien, or (2) excepting to the maintenance lien and then insuring that the maintenance lien is subordinate to the insured mortgage. l. Mechanic s Lien. The Mortgagee Policy insures against mechanic s liens recorded after Date of Policy that have an inception date prior to Date of Policy, unless Schedule B of the policy excepts to mechanic s liens. If the loan is a construction loan, the Mortgagee Policy must include the following exception: Any and all liens arising by reason of unpaid bills or claims for work performed or materials furnished in connection with improvements placed, or to be placed, upon the subject land. However, the Company does insure the insured against loss, if any, sustained by the insured under this Policy if such liens have been filed with the County Clerk of County, Texas, prior to the date hereof. If the policy contains this exception, it does not insure priority of the mortgage over later filed mechanic s liens. If the mortgage does not secure a construction loan, this exception may not be included in the policy. 7

17 m. MERS. If the lender s closing instructions request, MERS may be shown as an additional insured in connection with a MERS MOM loan. n. Minerals. If the Mortgagee Policy excepts to minerals or oil, gas and other mineral leases, title companies may be willing to (1) note that surface rights are waived, if a waiver appears in the instrument creating the mineral exception or in a separate waiver; or (2) note that a zoning ordinance limits or prohibits drilling, if applicable; or (3) provide express insurance against use of the surface of the land for exploration and development of the minerals, if the title company considers the risk acceptable. o. Parties in Possession. The title company may add this exception to a title policy if the insured consents in writing. However, this exception is rarely added to the Mortgagee Policy (because it is not acceptable to lenders). In some transactions, the Mortgagee Policy may include a more limited exception, such as to rights of tenants as tenants only under unrecorded leases (or under listed leases). p. Restrictions. Paragraph 1 of Schedule B of the Mortgagee Policy states The following restrictive covenants of record itemized below, but Company insures that any such restrictive covenants have not been violated so as to affect, and that future violations thereof will not affect the validity or priority of the mortgage hereby insured: The title company must delete this provision if it does not list restrictive covenants. If the Mortgagee Policy does not contain a separate exception in a later paragraph to a maintenance lien or reversionary interest, this provision insures against the priority of the mortgage over such maintenance lien or reversionary interest set forth in the restrictive covenants. This provision does not otherwise insure against existing violations of restrictions. The title company can separately insure against enforcement of restrictions by express insurance, if it considers the risk acceptable. q. Standard Exceptions and Extended Coverage. The Mortgagee Policy contains, or may include, several general standard exceptions that may be modified. Those exceptions are (1) recorded restrictions, which is deleted if no specific recorded restrictions are mentioned; (2) survey matters ( area and boundary exception), which may be amended to read any shortages in area if a current survey is furnished; (3) taxes, which may be modified to insure that taxes are not due and payable and to delete exception to possible rollback taxes; (4) subordinate liens and leases, which may be deleted upon request; (5) a general exception to mechanic s liens, which may be included only if the loan is a construction loan; and (6) parties in possession, which may be an exception only if the mortgagee agrees in writing to allow the general exception but which generally is not allowed by the lender s closing instructions. There is no standard exception in the Mortgagee Policy to water rights or wetland issues or to marital rights of the owner, and such exceptions are generally not permitted by the lender s written closing instructions. r. Subordinate Liens and Leases. Schedule B, exception number 4 of the Mortgagee Policy contains a standard exception to Liens and leases that affect the title to the estate or interest, but that are subordinate to the lien of the insured mortgage. The title company may delete the exception if requested by the lender. If a subordinate lien or lease is then specifically excepted, the title company may add Company insures the insured against loss, if any, sustained by the insured under the terms of the Policy if this item is not subordinate to the lien of the insured mortgage. 8

18 9 s. Successors and Assigns. The title company may name the insured in the Mortgagee Policy as ABC Mortgage Company and each successor in ownership of the indebtedness secured by the insured mortgage, except a successor who is an obligor under the provisions of Section 12(c) of the Conditions and Stipulations. The Mortgagee Policy may not simply say ABC Mortgage Company, its successors and assigns, but may include VA or HUD (or any other specifically named party such as MERS) as additional insureds. t. Survey Coverage (see Area and Boundary Coverage ). u. Tax Coverage. The standard exception to taxes in the Mortgagee Policy is Standby fees, taxes, and assessments by any taxing authority for the year 19 and subsequent years, and subsequent taxes and assessments by any taxing authority for prior years due to change in land usage or ownership. The title company may delete from the Mortgagee Policy or Binder the phrase and subsequent taxes and assessments by any taxing authority for prior years due to change in land usage or ownership if it considers the risk acceptable and if it is paid an additional $20 premium. The title company may add to the exception on the Mortgagee Policy Company insures that standby fees, taxes and assessments by any taxing authority for the year are not yet due and payable if the taxes are not yet billed and if the title company is paid an additional $5 premium. The title company may escrow for payment of taxes if the prior lender or owner asserts that taxes are paid, but the title company has not been able to confirm payment with collected funds. The title company may not escrow for payment of current taxes, if the current tax rolls are not certified. C. TABLE OF "ENDORSEMENTS AND COVERAGES" This section sets forth in detail, with reference to the relevant rate and procedural rule, the title insurance coverages available in Texas. Reference is also made to the owner policy forms for cases where the lender is either obtaining or providing an owner policy in connection with the sale of R.E.O. property. Coverage Form Procedural Rule Rate Rule Additional Advance T-2 (Mortgage Policy) Issue Mortgagee Policy for additional advance insuring mortgage as modified to extent it secures additional advance (except to mortgage otherwise) None Additional Insured Adjustable Mortgage Loan T-1: (Owner Policy) T-1R: (Texas Residential Owner Policy) T-2: (Mortgagee Policy) Show multiple insureds on policy (such as optionor/optionee, contract seller/buyer, lender/guarantor, collateral assignor/collateral assignee T-33 Endorsement to Mortgagee Policy insures against loss of priority because of adjustments in interest rate. None P-9b(6) Attach to adjustable mortgages R-4 Issue Mortgagee Policy for amount or "loan(s) insured" R-3: "Owner policies shall be written to protect the estate or interest in the land..." R-4: "All Mortgagee Policies shall be for the amount of the loan(s) insured." R-11-d $20 R-4 No charge if charges extra for mortgagee policy for 125% of loan.

19 Coverage Form Procedural Rule Rate Rule Add clause to Schedule B of Owner No additional charge Policy (T-1): "The liability of the Company, exclusive of the costs which the Company is obligated to pay under the Conditions and Stipulations of the Policy, shall not exceed the sum Apportionment Clause Arbitration Deletion (from T-1 [Owner Policy] and T-2 [Mortgagee Policy]) Area and Boundary Amendment Assignment Endorsement of $ as to Parcel One of the land and shall not exceed the sum of $ as to Parcel Two of the land." Add clause to Schedule B of Owner Policy (T-1): "Section 14 of the Conditions and Stipulations of this Policy is hereby deleted." Add clause to Schedule B of Mortgagee Policy (T-2): "Section 13 of the Conditions and Stipulations of this Policy is hereby deleted." Endorsement Instruction VI (or strike language) Deletes area and boundary exception, except "any shortages in area," since area is not insured. Endorsement Instruction III Endorsement to Mortgagee Policy insures assignment and downdates policy. Endorsement "shall be effective when the note or notes T-1, Section 8 of Conditions and Stipulations "8. APPORTIONMENT. If the land described in Schedule A consists of two or more parcels that are not used as a single site, and a loss is established affecting one or more of the parcels but not all, the loss shall be computed and settled on a pro rata basis as if the Amount of Insurance under this policy was divided pro rata as to the value on Date of Policy of each separate parcel to the whole, exclusive of any improvements made subsequent to Date of Policy, unless a liability or value has otherwise been agreed upon as to each parcel by the Company and the insured at the time of the issuance of this policy and shown by an express statement or by an endorsement attached to this policy." P-36: Delete Arbitration Clause from Mortgagee Policy or Owner Policy (T-1) upon request before issuance of policy. P-2: The company must be forwarded an acceptable current survey (no time limit or definition). Survey 7 years or less on residential refinance. P-9b(1) Assign to FNMA, GNMA, VA, or HUD (any property). P-9b(2) No additional charge 10 R percent of basic rate for owner Policy; no charge for Mortgagee Policy or Binder. R-11a Minimum basic premium rate ($270) or 50% of premium for original Mortgagee Policy,

20 Coverage Form Procedural Rule Rate Rule secured by the lien insured have Except one-to-four whichever is less. been delivered to the Insured named family residential herein." property, assign to other persons (cannot issue if one-to-four Balloon Mortgage Endorsement Binder (Mortgagee Title Policy Binder on Interim Construction Loan T-13) Certificate of Title (U.S.A.) Certificate of Title for Easement (U.S.A.) Coinsurance Commitment for Title Insurance P-39 Endorsement to Mortgagee Policy insures against loss because of invalidity, unenforceability, or loss of priority of insured lien because of Conditional Right to Refinance. T-13 Commitment on loan for construction which does not commit to insure priority over mechanic s liens or access and which is effective one year unless extended. T-6 A title certificate certifying that a thorough search was made and that title is indefeasibly vested. T-9 A title certificate certifying that a thorough search was made and that insures valid title to an easement was vested of record. Add Clause to Schedule B: "This policy is issued contemporaneously with Policy No. of (Name of Title Insurance Company(ies) for $. The liability of the company hereunder is hereby limited to (proportion) of any loss, but said liability shall not exceed the face amount of this Policy." T-7 A commitment is effective for 90 days. family) P-9b(10) Attach if mortgage covers residential real property and contains balloon rider. P-16 Issue on interim construction loan before completion, but can include purchase and refinance advances. R-17 May be issued to U.S.A. before acquisition of title in amount designated by U.S.A. Upon acquisition, a final certificate of Title may be issued to U.S.A. R-17 May be issued to U.S.A. before acquisition of easement in amount designated by U.S.A. Upon acquisition of easement, a final certificate of title easement may be issued to U.S.A. P-6 Add promulgated clause to each policy if two or more insurers. No joint liability. P-18 Delivery of commitment for Owner Policy on residential real property or an Owner Policy not to exceed R-11 $25 $50 if issued after policy 11 R-13 Minimum policy basic premium rate ($270) but credit available in one year on one-to-four family (½ of premium paid) on full refinance or on an Owner Policy. R-17 Basic rate. Final certificate is basic rate less prior rate paid. R-17 Basic rate. Final certificate is basic rate less prior rate paid. P-6 Basic charge (unless other credit applies) for each policy. If total of policies exceeds $15,000,000, calculate as one policy charge and divide among title insurers. R-12 No charge R-25 Commitment to FDIC or OTS if no contract is premium for $25,000 ($390).