Bulletin: CA000008

Date:
October 26, 1992
To:
All California Issuing Offices
RE:
Fractional Beneficial Interests Under Trust Deeds and Mortgages, and Assignments Thereof - Title Practices

Dear Associates:

It has come to our attention that there is a great deal of confusion regarding title insurance for broker arranged financing taking the form of beneficial interests under deeds of trust. This Company has established underwriting guidelines for the issuance of title insurance covering fractionalized interests under deeds of trust which due to misapplication must be readdressed by this memo. These guidelines, as established, not only deal with assignments of fractional interests but also with the initial transaction where the beneficial interests under a mortgage have been established in undivided interests among the various investors.

All transactions involving fractional beneficial interests will require approval of an advisory title officer prior to the issuance of any title insurance. A fractional interest is defined to mean more than one assignee. A husband and wife will be considered as one. Ideally, the transactions the company would be asked to handle would either be (1) insurance of the original mortgage containing one undivided interest or (2) insurance of assignment of one beneficial interest.

The primary concern of the Company as a title insurer is in two areas: (1) possession of the note and, (2) State or Federal Securities violations. Company personnel will be required to review the particular submitted transactions to determine if potential problems exist with regard to either of these concerns. In the event that the transactions we are asked to insure involve the assignment of a beneficial interest, it is imperative that the Company be satisfied that the assignee will take possession of the note. It is anticipated that in many of these transactions the company will not wish to assume the risk for either lack of possession of the note or potential violations of State or Federal Securities Laws. In order to avoid such exposure, the following is required:

  1. Insurance of Fractional Assignments of Beneficial Interest Under a Mortgage

    a. Use of the CLTA 104.9 or CLTA 104.10 endorsements to be attached to the policy.
    Please see referenced forms at the end of this bulletin.

    b. In addition, add an exception to the policy to be placed in Schedule B which will read as follows:

    "any claim, allegation or determination that the beneficial interest insured herein, the assignment thereof, or the underlying transaction involves the sale of a Security and/or is in violation of State or Federal Securities Laws."

    c. If the fractionalized interest is of a collateral nature, the CLTA 104.11 will be added to the policy along with the exception referred to in 1b above.

  2. Insurance of the Original Mortgage Containing Fractionalized Beneficial Interests

    The following exception shall be shown in Part I Schedule B if the ALTA lenders policy is issued or in Schedule B as a matter prior to the insured mortgage in other forms of policies:

    "Any impairment, loss or failure of title to the beneficial interest of the insured in the mortgage insured by this policy resulting from:

    a. lack of possession of the original promissory note secured by the insured mortgage, or

    b. the absence from the original promissory note of a proper endorsement to the insured assignee

    c. any claim, allegation or determination that the beneficial interest insured herein, or the underlying transaction involves the sale of a Security and/or is in violation of State or Federal Securities Laws."

  3. Use of the 104.1 Endorsement

    a. To be used only for institutional assignee/lender

    b. No fractional interests transferred

    c. Confirm that the assignee/lender is in physical possession of the note

There may be transactions under which the beneficial interest is held by a trustee for numerous beneficiaries. Normally the trustee would be considered our insured and if you choose to provide insurance in such case, special care should be taken to name the trustee only as insured and not the beneficiaries of the trust.

Thank you.

THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER  AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.