New Forms. The State Board of Insurance has adopted new policies of title insurance effective October 1, 1991. If you issue a policy dated on or after October 1, 1991, you must use the new forms. These policies will continue to be the "Form T-2: Mortgagee Policy of Title Insurance" and "Form T-1: Owner Policy of Title Insurance." These forms insure against loss because of lack of right of access. The forms do not insure against loss because of unmarketability of title. The State Board also amended other forms to be consistent with the new policies. The State Board promulgated or revised several rules relating to the new forms. Exhibit A is a summary of the Policy Coverages.
Mechanic's Lien Coverage. The new policies do not substantively change coverage as to mechanic's liens. If construction is ongoing, you must use the P-8 exceptions (to mechanic's liens and disbursements). You must secure reasonable evidence as to payment of all bills where construction is complete.
Access. The new policies insure against loss because of lack of right of access. Both the revised title insurance commitment and the revised binder will require evidence of right of access.
Company Policy: You may issue without exception to lack of right of access if you do one of the following:
- You examine title to an appurtenant easement of record and determine that the insured will have right of access to the land. You must except to any superior liens or encumbrances that affect that easement. For example, you could describe the lien and state "affects access easement only", if true. Do not show the appurtenant easement in Schedule A unless the insured has requested specific coverage.
- A recorded dedicated public right of way adjoins the land to be insured and there is no record limitation on right of access to that right of way.
- You secure satisfactory evidence (e.g., county records, map, survey) that the land contains substantial improvements (either a business or a residence) in use, the land adjoins a road maintained by the county for at least 25 years, the road is used in common with other people in the area, the road does not end at the insured land, and the road is not crossed by cattle guards or gates. You should secure an affidavit documenting these facts.
- If you are not as satisfied as to the access, you should add the following exception:
(Owner Policy) "Lack of a right of access to and from the land. Insuring provision number 4 is hereby deleted."
(Mortgagee Policy) "Lack of a right of access to and from the land. Insuring provision number 3 is hereby deleted."
If you determine that the land has access by an appurtenant easement, you should except to all superior encumbrances, such as liens, that affect the appurtenant easement, even if you do not specifically describe the easement in Schedule A. You should examine for taxes for those years before the easement is recorded.
You may not make an additional chain charge to insure access if the land is located within a recorded subdivision located in only one county that provides record access. You may charge an additional chain charge for each additional chain you examine to determine access if the record title to the access is not vested in the applicant at the time of the order.
Schedule B: Owner Policy. The New Owner Policy contains a "Delange" or tidelands exception. You may not delete this exception. The owner policies also contain a homestead and community property rights exception. You may not remove this exception either. The owner policies contain the following revised Paragraph No. 6:
"The following lien(s) and other matter(s) and all terms, provisions and conditions of the instrument(s) creating or evidencing said lien(s). (This exception may be deleted if no lien or other matter is set forth below).
If you do not place any exceptions after this provision you must delete the paragraph. You may not state "none".
Schedule B: Mortgagee Policy. Schedule B of the Mortgagee Policy contains the new following exception No. 4:
"Liens and leases that affect the title to the estate or interest, but that are subordinate to the lien of the insured mortgage."
If you retain this exception you need not make specific exception to other liens that are subordinate to the insured mortgage. For example, if you insure a purchase money mortgage secured by an express vendor's lien you need not except to a judgment lien against the purchaser. If another mortgage is subordinated unconditionally to the insured mortgage, you need not except to the other mortgage if you retain this exception.
However, the lender may require that you delete this exception at no charge. Pursuant to procedural rule P-1`1b(8) as revised effective October 1, 1991, you may delete this exception if requested. If there are any liens that are subordinate to the insured mortgage, you must then show those liens on Schedule B. You may then state the following:
"Company insured 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."
When you rely upon a subordination by a bank or savings institution, you must request a resolution authorizing the subordination of the specific transaction. The resolution must be placed in the permanent minutes of the subordinating lender. The resolution may not be general in nature. The subordination by a bank or savings institution may only be executed at the time the bank or savings institution receives a mortgage or at the time a construction loan is made. If the subordination has conditions or limitations on its effectiveness, you must separately except to the terms of the subordination.
Arbitration. The Owner and Mortgagee Policies contain arbitration provisions. These provisions state that the insured or the insurer may require arbitration as long as the policy does not exceed $1,000,000 and as long as the provision is enforceable by law. The insured may request that the arbitration clause be deleted. If the insured requests deletion of the arbitration clause, you should add the following provision in Schedule B:
(Mortgagee Policy) "Section 13 of the Conditions and Stipulations of this policy is hereby deleted".
(Owner Policy) "Section 14 of the Conditions and Stipulations of this policy is hereby deleted."
The insured must request deletion before the issuance of the policy. You should require that the request be in written form to prevent disputes.
Commitments. The Commitment contains the following new exceptions in Schedule B: homestead and community property rights (Owner Policy), the water and tidelands exception (Owner Policy), and subordinate liens or leases (Mortgagee Policy). You may not delete the homestead and community property rights and water rights exceptions. You may delete the exception to subordinate liens and leases in the Mortgagee Policy if you comply with paragraph 5 of this letter. New Exception 8 in Schedule B states the following:
"The following lien(s) and other matter(s) and all terms, provisions and conditions of the instrument(s) creating or evidencing said lien(s) and other matter(s). (This exception may be deleted if no lien or other matter is set forth below.)"
If you have no additional exception, you may delete this exception. You may not state "None" after this exception.
Section C contains the following new exception:
"Satisfactory evidence of legal right of access to and from the land. If satisfactory evidence is not furnished to the Company, the policy to be issued will except to the lack of right of access to and from the land."
For those commitments dated on or after July 3, 1991, you must examine for access in accordance with paragraph 3 of this letter. These Commitments may be effective until October 1991. In addition, the Commitment should note that any policy issued on or after October 1, 1991, will be the new policy in effect at that time. Therefore, in all commitments issued on or after July 3, 1991, add the following language:
"Any policy or other form of insurance issued pursuant to this Commitment on or after October 1, 1991 will be the form then promulgated by the Sate Board of Insurance."
Binders. For all Mortgagee Title Policy Binders on Interim Construction Loans, you should immediately commence examination for access. If you are not satisfied as to access, you should add the following exception in Schedule C:
"Satisfactory evidence of legal right of access to and from the land. If satisfactory evidence is not furnished to the Company, the policy to be issued will except to lack of a right of access to and from the land."
On Binders you issue on or after October 1, 1991, you do not need to examine for access. Those Binders will contain the above exception.
Assignments. Pursuant to that letter by the State Board of Insurance dated May 23, 1983, you must add additional language if you are requested to show "successors and assigns" on the Mortgagee Policy. The new Mortgagee Policy will not benefit certain assignees who are "obligors" (such as guarantors). On policies dated on or after October 1, 1991 (other than VA or HUD loans), you should add the following language if you are asked to show the "successors and assigns":
"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."
If this language is not satisfactory to the Department staff, we will notify you.