Bulletin: SLS2011006

Date:
March 18, 2011
To:
All Issuing Offices
RE:
Gap Coverage and Reducing the Gap

Dear Associates:

There are a number of circumstances that may create a "gap" - unknown title matters in the period between the examination of title (the Effective Date of the commitment) and the Date of Policy coverage. The following are examples:

• The recorder's office may delay in recording instruments after the instruments are filed or presented to the recorder for recording.

• At the time of the examination, there may be a lag in the posting of instruments to the title company's plant.

• The Issuing Office may close a transaction, file the documents for record or issue a policy, without down dating, extending or continuing its prior search to the extent practicable.

• The Issuing Office may close the real estate transaction but fail to file the instruments promptly.

• The Issuing Office may not continue the examination of title when a mortgage is filed for record after a three day right of rescission expires on an applicable residential loan.

Some gaps may be unavoidable. For example, if there are backlogs in recorder's office, intervening matters affecting the title may be awaiting recording or indexing, but may be unavailable for review.

Some gaps can be avoided or reduced. For example, the gap between the closing and the filing of the instruments can be reduced by promptly presenting the documents to the recorder's office for recording. Where permitted by the recorder's office, submitting the documents electronically, by eRecording, can reduce this gap to hours or even minutes, rather than days. Prior to the closing, the gap between the date of examination and the closing can be reduced or eliminated by continuing (bringing down) the search. In some jurisdictions, it is possible to continue the search to the actual time of recording, or within a few hours of that time. Even in jurisdictions where there is a significant recording lag, the act of continuing the search to the extent practicable reduces the exposure to intervening matters.

Gap Coverage in Policy Forms

The ALTA Commitments do not provide gap coverage, unless modified. They are subject to defects, liens, encumbrances and other matters created, first appearing in the public records or attaching subsequent to the Effective Date of the commitment.

However, the following forms, where available, automatically provide or require gap coverage, unless a specific exception is included:

• ALTA Short Form Residential Loan Policy (6/16/07)

• ALTA Homeowner's Policy of Title Insurance

• ALTA Expanded Coverage Residential Loan Policy

• ALTA Owner's Policy 2006 and ALTA Loan Policy 2006, and Texas Owner's Policy (T-1) and Texas Mortgagee Policy (T-2)

• ALTA Junior Loan Policy Endorsement JR 1 (optional gap coverage)

• A "markup" of the commitment at closing to delete the exception to subsequently recorded or attaching matters

• Gap coverage required by regulation

• Gap endorsement

Gap practices vary, depending on the state, size of transaction and parties. It is customary to require gap indemnities in some areas in order to provide gap coverage, but indemnities are not requested in other jurisdictions.

Company Policy

• Whether you provide gap coverage or not, prior to the closing, you should bring down the title (e.g., date down, bring down, continue your search, check to date, etc.) to a date and time as current as practicable.

• You should cause or require prompt filing for record of all applicable instruments. Where permitted by the recorder's office, you should utilize eRecording in order to minimize the gap between closing and recording.

• Follow the customary procedure in your jurisdiction for gap coverage. Where customary, require a gap indemnity from the seller or borrower on commercial transactions. However, you may waive or modify any gap indemnity in your sole discretion without securing approval from the Company. We do not require a gap indemnity for gap coverage on one-to-four family residential transactions. 

If you have questions related to this bulletin, please contact Stewart Legal Services or your local underwriting personnel.

For on-line viewing of this and other bulletins, please log onto www.vuwriter.com.  

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.