The Texas Title Insurance Industry had a very successful legislative session in 2011. Ten bills created and worked on by Stewart Title Guaranty Company and the TLTA passed and became law. This bulletin will discuss those bills.
HB 8 Private Transfer fees Effective date: June 17, 2011: Texas adopted the first generation regulation/prohibition of private transfer fees in 2007. The programs morphed several times and ways since that time and a Coalition of real estate industry groups coalesced into passing a model act more completely regulating and banning private transfer fees that do not have a direct connection to the property. As of July 1, 2011, Texas joined 36 other states (more pending) in severely curtailing private transfer fees.
HB 1821 Property Owner Association Information Effective date: January 1, 2012: Section 5.012, Property Code was amended to make it clear that a resale certificate is available at the request of the owner or purchaser or title company and is not limited to sale situations.
The property owners association is not required to conduct a full examination of the property but may provide a copy of the most recent resale certificate in the association’s records. It must include the total of all amounts due and unpaid to the property owners' association that are attributable to the owner's property. The property owners' association may require payment before beginning the process of providing a resale certificate but may not process a payment for a resale certificate until the certificate is available for delivery.
The association may not charge a fee if the certificate is not provided within 10 business days.
What you should do: Title companies continue to need to obtain resale certificates whenever they are required to insure that a lien to be insured will have priority over HOA/POA dues.
HB 2408 Texas Insurance Department rate making and other issues Effective date: September 1, 2011: This bill by Rep. Drew Darby and Senator Harris corrects a number of areas where the Legislature apparently felt that TDI has overstepped its authority.
1. Sec. 2501.009 allows the department to accept gifts, grants, and donations to enable employees of the department to participate in educational events, and for other educational purposes, related to title insurance. The commissioner may adopt rules related to the acceptance of gifts, grants, and donations described in Subsection (a).
This section allows TDI employees to attend industry functions without having to pay.
2. Section 2502.055(a), Insurance Code, is amended to read as follows:
a) The activities described in this section are not rebates. Nothing in this subchapter prohibits a title insurance company or a title insurance agent from: (1) engaging in [legal] promotional and educational activities that are not conditioned on the referral of title insurance business and not prohibited by Subchapter B, Chapter 541; . . .
(5) providing continuing education courses at market rates, regardless of whether participants receive credit hours.
This section corrects a TDI interpretation that providing continuing education courses and other promotional activities were ipso facto illegal if addressed by P-53. Now, unless an activity is expressly prohibited by the general insurance code section dealing with unfair methods of competition and unfair or deceptive practices it is allowed. It should be noted that Section 541.082 does not expressly mention title insurance companies or agents but since the law now references that section it does apply.
What you should do: Continue to provide educational courses and materials to persons interested in the title insurance and real estate industry. Check market rates for such activities in your area and charge accordingly.
3. Section 2651.007, Insurance Code, is amended by adding Subsections (d), (e), (f), and (g). This section deals with a practice by the department of not promptly responding to a renewal application for an agency license. The law now provides that the TDI has 20 business days after a renewal application is filed to inform the applicant that the application is incomplete. Once corrections are made, the TDI has 5 business days in which to agree that the application is complete. 30 business after the license is complete, the application is deemed renewed unless the TDI provides written notice stating a factual basis why the application is not approved.
What you should do: Work with your ASM and our licensing specialist in Austin to make sure your renewal application is complete. Promptly answer any TDI inquiries. Keep careful track of the business days.
4. New Section 2651.3015 deals with the TDI practice of withholding a license renewal to force a settlement of a complaint.
Sec. 2651.3015. PROHIBITED GROUNDS FOR REJECTION, DELAY, OR DENIAL.
(a) Except as provided by Subsection (b) or (c), the department may not reject, delay, or deny a notice of appointment under Section 2651.009 based wholly or partly on a pending department audit or complaint investigation or a pending disciplinary action against a title insurance agent or appointing title insurance company that has not been finally closed or resolved by a final order issued by the commissioner on or before the date on which the notice is received by the department.
(b) The department may reject a notice of appointment under Section 2651.009 if the department determines that the appointing title insurance company or the title insurance agent intentionally made a material misstatement in the notice of appointment or attempted to have the appointment approved by fraud or misrepresentation.
(c) The department may delay approval of a notice of appointment if:
(1) the title insurance agent or the appointing title insurance company is the subject of a criminal investigation or prosecution; or
(2) the deputy commissioner of the title division of the department makes a good faith determination that there is a credible suspicion that there are ongoing or continuing acts of fraud by the title insurance agent or appointing title insurance company.
(d) Except as provided by Subsection (e) or (f), the department may not delay or deny a renewal application under Section 2651.007 based wholly or partly on a department audit or complaint investigation of, or disciplinary or enforcement action against, an applicant or license holder that is pending and has not been finally closed or resolved by a final order issued by the commissioner on or before the date on which the application is complete.
(e) The department may deny a renewal application under Section 2651.007 if the department determines that the applicant or license holder intentionally made a material misstatement in the renewal application or attempted to obtain the license renewal by fraud or misrepresentation.
(f) The department may delay a renewal application if:
(1) the applicant or license holder is the subject of a criminal investigation or prosecution; or
(2) the deputy commissioner of the title division of the department makes a good faith determination that there is a credible suspicion that there are ongoing or continuing acts of fraud by the applicant or license holder.
5. New Sec. 2651.303. NOTICE OF DISCIPLINARY OR ENFORCEMENT ACTION; AUTOMATIC DISMISSAL. This section requires the TDI to promptly provide notice to a title insurance agent that TDI intends to prosecute an enforcement action. Failure to do so will cause the enforcement action to be automatically dismissed. The department shall notify a license holder in writing of a disciplinary or enforcement action against the license holder not later than the 30th business day after the date the department assigns a file number to the action except in the case of a criminal complaint or determination of on-going fraud.
A disciplinary or enforcement action is automatically dismissed with prejudice, unless the department serves a notice of hearing on the license holder not later than the 60th business day after the date the department receives a hearing request from the license holder. The department may provide information about an enforcement action, including a copy of a notice issued under this section, to each title insurance company with which a title insurance agent has, or proposes to obtain, an appointment.
What you should do: Nothing unless you receive notice of an enforcement action. Should you receive such notice, we suggest that you contact your ASM immediately and consider retaining counsel to assist you.
6. At the end of the 2008 rate case, in a matter that as of the date of this bulletin is the subject matter of litigation in a Travis County district court., the Commissioner imposed a 2% credit against an owner’s policy premium whenever the title company decided to use a general mineral exception, even though the commissioner had previously approved the T-19.2 and T-19.3 endorsements and a rate for them. Some lenders have been requiring both an intact T-19 and a T-19.2 or .3 endorsement. New Section 2703.0515 provides that a title insurance company may not be required to issue a T-19.2 or .3 endorsement simply because of the use of a general exception. The law further provides that there is no charge for a T-19.2 or T-19.3 endorsement.
NOTE: We would anticipate that the commissioner will have to promulgate a new rate rule to comply with this section of the bill effectively eliminating the 2% credit. Do not change your practices regarding minerals until notice from us or TDI.
Rate hearing issues:
The title insurance industry has been concerned for some time about the cost of rate hearings as well as lack of timely decisions, overly aggressive use of discovery, quality of information gathered as part of the statistical plan and frequency of the hearings (including who can request a hearing). Accordingly, section 11 of the bill addresses these concerns.
A rate hearing must be called at the request of:
(1) a title insurance company;
(2) an association composed of at least 50 percent of the number of title insurance agents and title insurance companies licensed or authorized by the department;
(3) an association composed of at least 20 percent of the number of title insurance agents licensed or authorized by the department; or
(4) the office of public insurance counsel
Once the commissioner receives a request to call a hearing, a number of deadlines kick in:
30 days to call the hearing.
60 days before any data is required
120 days to start the heari
30 days after the hearing ends to close the hearing
(150 days after the call)
60 days for the commissioner to render a decision.
In order to insure prompt compliance with these deadlines, the bill also provides:
A party may petition a district court in Travis County to enter an order requiring the Commissioner to comply with the deadlines described by this section if the commissioner fails to meet a date requirement. Subject to Subsection (m), if the commissioner fails to comply with the requirements under Subsection (g) or (h)(6), a combination of at least three associations, persons, or entities listed in Subsection (b) may jointly petition a district court of Travis County to adopt a rate based on the record made in the hearing before the commissioner under this section.
Finally, as regards rate hearings, the bill changes the biennial hearing to a periodic hearing subject to call by one of the parties discussed above or every 5 years whichever is sooner. The cost of rate hearings to the industry as well as the State of Texas should be greatly reduced although a rate hearing is available should economic conditions warrant one.
What you should do: At this point, individual offices and agents do not need to do anything except remain a member of TLTA or another title association. Stewart expects to remain active as a party to the rate case and will keep you apprised of hearings and changes.
HB 2604 Solvency Deposits Effective date: June 17, 2011
As you will recall, the 2009 Legislature passed sweeping changes requiring title insurance agents to prove their solvency. One feature of that law was to allow agents to build capital over time or to buy a surety bond. An affordable market for a surety bond has been difficult to make. Accordingly, the 2011 Legislature has amended Section 2651.012(a)(2), Insurance Code to allow for money to be placed in a solvency account. The solvency account must be in a federally insured institution located in Texas, in an account accessible only by the department under order by the commissioner and subject to the same audit as all other agency accounts.
The solvency account must be funded with a minimum deposit in the amount for each policy of title insurance issued by the agent that is equal to the greater of $5 or one percent of the agent's portion of the retained premium received by the agent rounded to the nearest whole dollar. Deposits to the account must be made at least quarterly and must be made from and based on the agent's portion of retained premiums collected during the calendar quarter during which premiums were collected.
Interest remains in the account until solvency limits are reached. Thereafter, interest may be paid to the agent or direct operation.
An agent that ceases business in the appropriate way may apply to receive the solvency deposit back as provided in the law.
Solvency rules now expressly apply to direct operations of an underwriter.
What you should do: Determine whether you prefer to build cash assets within your company, obtain a bond or build the solvency account allowed by this bill. You should seek counsel from your financial advisor as to the best method for you given your particular situation. We expect the commissioner to conduct a hearing and implement this procedure fairly soon.
If you decide to open a solvency account, it must be in a federally insured institution. Work with your bank to determine the best way to name the account so that you have access to the balance and activity information (for you and your auditor) but which limits access to only the commissioner.
We would expect that escrow accounting systems will be modified to create the amount of required deposit for each policy. ($10 for a simultaneous issued file).
SB 322 Reinsurance and Creditor’s Rights Effective date: September 1, 2011
(Creditor’s Rights only SB 735 also effective September 1, 2011)
This bill covers 2 different underwriter issues that have little to no effect on title agents.
- Reinsurance: This section of the bill (Sec. 2551.305, Ins. Code) allows a Texas licensed title insurance company to purchase reinsurance from a title insurer not admitted in Texas as long as the reinsurer has at least $25 million in assets and the ceding company provides the TDI with 30 days advance notice of its intent to cede to the non-admitted company.
What you need to do: Nothing. This is an underwriter responsibility
- Creditor’s Rights: This section of the bill (a floor amendment to SB 322 incorporating SB 775 which also passed) adds a new section adding Section 2502.006 providing that the Texas Insurance Commissioner can prohibit any title insurance company licensed in Texas from providing creditor’s rights coverage anywhere unless required by the law of that state. The reason that the commissioner has this power is that creditor’s rights coverage could affect the solvency of a title insurer licensed in Texas and other states. The Texas Title Insurance Guaranty Association would have liability to Texas policyholders should the underwriter fail because of this extra-hazardous coverage.
- Note: Texas has never allowed creditor’s rights endorsements.
What you need to do: Nothing. This is an underwriter responsibility.
SB 1187 dealing with the indexing of lis pendens notices Effective date: September 1, 2011
S.B. 1187 amends the Property Code to specify that the time at which notice of lis pendens becomes effective is when the notice is filed for record and the notice recorded in the lis pendens record is indexed by the county clerk in the manner provided by law. The bill adds the indexing of a notice of lis pendens to the recording of that notice as a condition that prevents a transfer or encumbrance of real property involved in a proceeding by a party to the proceeding to a third party who has paid a valuable consideration and who does not have actual or constructive notice of the proceeding from taking effect.
The bill corrects a recent case that said that the lis pendens notice was effective once the notice was given to the County Clerk even if it was never actually recorded.
What you need to do: Continue to comply with Section 11.24.1 under Virtual Underwriter
SB 1229 Contract Examiners Effective date: May 28, 2011
A number of states have engaged firms to which the state insurance department has outsourced market conduct examinations. It is our belief that these firms have in some cases created the market for their services and examined the same companies and their subsidiaries over many of the same activities and the same documentation several times. The contract examiners are paid by the company being examined with no controls over what is examined, how many times or the types of expenses being incurred. The Texas Insurance Code provides that before any contract examiners for any other state may examine a Texas domiciled insurer, the contract examiner must register with the Texas Insurance Department and provide information about the company and the individuals doing the examination. This bill amends several sections of the code (including Section 401.107) to add to the registration materials:
(6) an estimate of the examination costs to be charged to the insurer to be examined
(7) a copy of any contract between the person and the state regulatory body that initiated the examination and a letter authorizing the examination; and
(8) a list of the previous examinations conducted on the same insurer on behalf of any state within the last three years.
What you need to do: Nothing. This is an underwriter issue.
SB 1496 Correction of Instruments Effective date: September 1, 2011
This bill was necessary to correct a recent Texas Supreme Court decision about what types of errors can be corrected after a document has been recorded and the effectiveness of such correction instruments. The bill addresses corrections of legal descriptions and other non-material issues by adding new sections to the Property Code (Sections 5.027, 5.028, 5.029, 5.030, and 5.031)
- A correction instrument can correct an incorrect or ambiguous legal description as long as the correction instrument does not attempt to add new property that was not originally conveyed. In other words, you can file a document that corrects a metes and bounds description but not one that adds an omitted tract. A new but not corrected instrument is required to add property.
- Non material Changes:
- A person who has personal knowledge of facts relevant to the correction of a recorded original instrument of conveyance may execute a correction instrument to make a nonmaterial change that results from a clerical error, including a correction of an inaccurate or incorrect element in a legal description, such as a distance, angle, direction, bearing or chord, a lot, block, unit, building designation or section number, an appurtenant easement, a township name or number, a municipality, county, or state name, a range number or meridian, a certified survey map number, or a subdivision or condominium name; or
(2) an addition, correction, or clarification of:
(A) a party's name, including the spelling of a name, a first or middle name or initial, a suffix, an alternate name by which a party is known, or a description of an entity as a corporation, company, or other type of organization;
(B) a party's marital status;
(C) the date on which the conveyance was executed;
(D) the recording data for an instrument referenced in the correction instrument; or
(E) a fact relating to the acknowledgment or authentication. If the correction document isn’t signed by the parties to the document, then the party signing the document must provide a copy of the corrected document to the parties by first class mail or other reasonable method.
The parties to a transaction can make material changes by executing a correction document that adds:
(A) a buyer's disclaimer of an interest in the real property that is the subject of the original instrument of conveyance;
(B) a mortgagee's consent or subordination to a recorded document executed by the mortgagee or an heir, successor, or assign of the mortgagee; or
(C) land to a conveyance that correctly conveys other land;
(2) removes land from a conveyance that correctly conveys other land; or
(3) accurately identifies a lot or unit number or letter of property owned by the grantor that was inaccurately identified as another lot or unit number or letter of property owned by the grantor in the recorded original instrument of conveyance.
Sec. 5.030. CORRECTION INSTRUMENT: EFFECT. Provides:
(a) A correction instrument that complies with Section 5.028 or 5.029 is:
(1) effective as of the effective date of the recorded original instrument of conveyance;
(2) prima facie evidence of the facts stated in the correction instrument;
(3) presumed to be true;
(4) subject to rebuttal; and
(5) notice to a subsequent buyer of the facts stated in the correction instrument.
(b) A bona fide purchaser of property that is subject to a correction instrument may rely on the instrument against any person making an adverse or inconsistent claim.
What you should do: Examiners and closers should both become familiar with this law. Title company personnel must know which errors are material and which are not. Title company personnel can, but do not have to, execute corrections for non-material errors provided that they send the required notice to the parties. Parties may make non-material changes. Only the parties can make material changes.
HB 558 relating to the payoff of home loans.
This bill provides that the Texas Finance Commission shall promulgate a standard payoff request and statement to be used on all home loans secured by Texas real property. It provides that once the lender or the mortgage servicer has been given 7 days to provide the payoff information, the payoff is final unless the lender makes a correction before the second day before the proposed closing date.
Sec. 343.106, Finance Code provides:
(d) The standard payoff statement form prescribed by the finance commission under Subsection (b) must require that a completed form:
(1) state the proposed closing date for the sale and conveyance of the real property securing the home loan or for any other transaction that would involve the payoff of the home loan, as specified by the title insurance company's request; and
(2) provide a payoff amount that is valid through that date.
The law further provides if the lender or servicer provides a payoff and does not correct the payoff within 2 days prior to the closing date, the lender must provide a release of lien and look to the borrower for the difference.
(g) If a mortgage servicer submits an incorrect payoff statement to a title insurance company that results in the mortgage servicer requesting an amount that is less than the correct payoff amount, the mortgage servicer or mortgagee does not deliver a corrected payoff statement in accordance with Subsection (f), and the mortgage servicer receives payment in the amount specified in the payoff statement, the difference between the amount included in the payoff statement and the correct payoff amount:
(1) remains a liability of the former mortgagor owed to the mortgagee; and
(2) if the payoff statement is in connection with:
(A) the sale of the real property:
(i) the deed of trust or other contract lien securing an interest in the property is released;
(ii) within a reasonable time after receipt of payment by the mortgagee or mortgage servicer, the mortgagee or mortgage servicer, as applicable, shall deliver to the title company a release of the deed of trust or other contract lien securing an interest in the property; and
(iii) any proceeds disbursed at closing to or for the benefit of the mortgagor, excluding closing costs related to the transaction, are subject to a constructive trust for the benefit of the mortgagee to the extent of the underpayment; or
(B) a refinance by the mortgagor of the existing home loan:
(i) the lien securing the existing home loan becomes subordinate to the lien securing the new home loan; and any proceeds disbursed at closing to or for the benefit of the mortgagor, excluding closing costs related to the transaction, are subject to a constructive trust for the benefit of the mortgagee to the extent of the underpayment
What you should do: Expect over the next several months that there will be a standard form promulgated by the Texas Finance Commission which will be approved for title companies by the Texas Insurance Commissioner. We will advise you when such form is adopted.
If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.
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