Title Commitment and Policy Issuance PDF

Let's now discuss issuing the title commitment and policy. Of course, your transaction begins with the real estate contract, where you are appointed as the closing agent and assigned duties and responsibilities to the parties therein. You're also probably appointed as the escrow agent, and again, yo...

Let's now discuss issuing the title commitment and policy. Of course, your transaction begins with the real estate contract, where you are appointed as the closing agent and assigned duties and responsibilities to the parties therein. You're also probably appointed as the escrow agent, and again, your duties and responsibilities are stated in the contract. Consider also when you agree to close a loan transaction with a lender, you have a contract with that lender via your loan closing instructions. As previously mentioned, as our title agent, you also have a contract with us as your underwriter through your agency agreement. Now, if you're not familiar with that agreement, I've included in your study guide a few bullet points listing some of those duties imposed by the agreement, such as following our underwriting guidelines, contacting underwriting counsel for guidance and approval, if doubt exists as to marketability, or insurability, and timely furnishing the insured with the title policy after closing. Regularly refer to all of these contracts I've just mentioned, especially if there's a question about your duties and obligations. Remember, if you cannot meet an obligation imposed on you, do not proceed until that matter is resolved. If there are changes, those should be in writing. To clarify your duties and issue the policy, you must meet the commitment Schedule B1 requirements. Those requirements are the roadmap or checklist of what must happen in the title for the transaction to close and for you to issue the policy. We have general requirements for all transactions, such as payment of the purchase price, payment of premium, outstanding assessments, and taxes. Then, we have specific requirements relating to your transaction, so relating to your parties and your insured property. Those would be requirements to prepare the deed and the mortgage, obtain a release of prior mortgages, and release liens. If a requirement is met, it will be deleted from the commitment and not shown in the final policy. If a requirement cannot be met but the parties agree to close, it will be moved to Schedule B and the policy as an exception. In that case, it's a best practice to have the parties sign a written consent that the item will be an exception, or in the alternative, you could have them simply sign off on the commitment that it will be moved to an exception in the policy. If you encounter a requirement that may affect whether the title is marketable or possibly indicate that there might be a failure of title for whatever reason, please contact underwriting and work with us on how to resolve that requirement because that means it may not close. We need to do something before closing to address that. In your study guide, we have information on marking up the title commitment as you go because that serves as your title checklist or a to-do list. In that case, you would notate the status of each requirement in your file as you head toward closing. You would note any detail as to outstanding matters, and then you'd mark off completed requirements. As a best practice, about three days prior to closing, confirm that all your requirements have been met or you know that they will be met at closing. Here are some more important reminders as to meeting those B1 requirements in the commitment relating to mortgage payoffs because we do experience significant claims in this area. Here's what you should be looking for in a payoff statement. Payoff statements should be written. They should be addressed to you as the title agent. They should have a statement that they unconditionally bind the lender to accept this definite figure, a definite dollar amount through a definite date. Upon receipt, they will release or satisfy the mortgage lien. The payoff should also include the street address and the loan number. Remember, that loan number is particularly helpful. Please double-check that for your property because we have found that many times a borrower may have multiple loans with the same lender. We've had mix-ups with the loan number, so beware there. Also, be looking for the unpaid balance for the fund's transmittal instructions. As you all know, you must update that payoff statement prior to closing because things may have changed. Amounts may have increased for the payment that's due. Maybe a prior payment was reversed for insufficient funds. Maybe late fees, penalties, or property taxes were paid in the meantime. Remember to update prior to closing. Also, consider having the borrower sign and stamp or sign it as read and approved a copy of that payoff statement that you can keep in your file. Our claims department also told me to mention home equity lines of credit. Beware of HELOCs. We do see significant claims in this area. Even if the account is paid down to zero closing because you followed the dollar amount, your payoff instructions, and the dollar amounts therein, if it's not closed properly, the borrower can continue to draw on the credit, which is still secured by the outstanding lien of the mortgage on the property. We do not want that to happen. How do we do that? First, you need to review the language of the mortgage to determine that it is a HELOC. Be aware that it is a HELOC. That's one of your requirements. Most of the time, we'll denote that for you, but you should read your mortgages, too. You need to inform the lender of your intent to pay off and satisfy that HELOC. You need to request that the account be locked. Sometimes, the lender may require forms that the borrower must sign to block access, close the account, and satisfy the mortgage. Contact the lender to get those forms, have your borrower sign them, and return them to the lender. Also, you want to be sure that upon closing, the borrower's access to the account is blocked. Review your payoff carefully for any conditions that must occur, and follow those carefully. Meet those conditions. Also, remember to get a borrower's affidavit stating that they've made no additional withdrawals and any additional lender documents that the lender may require to close the account. Make sure they're all signed. Immediately after closing, send the payoff funds with that written request to close the account and satisfy the mortgage. Finally, be sure to have a post-closing procedure. This is really important in the HELOCs. We want to verify that satisfaction has been recorded. If it hasn't, that could mean that the account is still open, and we may have an issue. Something else to be aware of is private lenders. Be aware that these mortgages may be a little more difficult to obtain a release or satisfaction than those from an institutional lender. Because they're smaller, they probably don't have practices in place. For you, a best practice is to require receipt of a signed satisfaction prior to closing, which you would hold in escrow until the closing occurs. Also, consider obtaining the original note marked "canceled"; again, obtaining this prior to, or at least at closing, or by closing. Then, you'd want to check the back of that to be sure it wasn't sold to a different lender because that original note controls the mortgage. Remember to confirm, and reconfirm, and probably reconfirm your numbers. Payoff errors can be a significant loss; they usually can't be recouped. They also harm your relationships and your reputation. Of course, recalculating after closing takes a lot of time. Do that before closing. Be sure you're relying on a current payoff. You don't want it to be expired or old. We have a recommendation of older than 30 days, but I've been talking with agents in the field, and sometimes they don't want it older than 5, or maybe 10 days. If it is outside of that time period, whatever business risk you've decided for your best practices, if it's outside of that time period, get an update. Also, base your calculations on written instructions, not verbal instructions from the customer, such as, "Hey, I made a payment a couple of days ago, so this should change." No, it needs to be written instructions from the lender because the lender will be providing that release or satisfaction. You don't want to give them a reason not to provide that to you after you've sent the funds. You all know this, but we'll go through it again. As a reminder, collect enough funds for interest based on when the funds will arrive, and be sure that late charges are accounted for. Review for any amounts that may change prior to closings, like attorney's fees, stopped payments, or maybe escrow shortages. Look for prepayment penalties. Also, don't interpret unclear instructions. If anything is confusing or seems unclear, ask for clarification and further instructions in writing. I think I've already mentioned this but double-check your math. Let's now turn to your duty in evaluating Schedule B-2 exceptions. The title matters listed in Schedule B-2 will not be insured against when the policy is issued. These title matters affect the property. They'll remain in the final policy. However, there may be times when you determine an exception does not affect your property. In that case, it may be deleted. Remember, by deleting an exception, you're insuring that that title matter does not affect your insured property. Make that determination carefully. You may have also encountered a lender requesting that all Schedule B-2 exceptions be deleted. That's virtually impossible to do. However, some exceptions may be deleted, so you should understand when and why they can be and are deleted. Let's break these exceptions into standard exceptions and specific exceptions. Standard exceptions in your commitment may be eliminated when certain conditions occur at closing. We'll start with the example of gap coverage. The policy will insure the gap if you disperse closing funds under the Florida statutes. The gap is the time period between the effective date of the commitment, or its latest update, and the recording of the insured document, which would be your deed or mortgage. This highlights the importance of your pre-closing commitment update. Three days before closing, that update will be performed, revealing if an instrument has been recorded in that gap period. If it has, you must deal with that title matter before closing. That pre-closing update reduces the risk of a document being recorded as much as possible in that gap time period. Remember, again, under the statutes, that gap standard exception is gone if you disperse. Next up, survey coverage. If an acceptable survey is completed within 90 days before closing, the policy may only accept coverage for matters shown on the survey. The standard exception from the commitment must be modified according to your survey review. That standard exception cannot remain in the policy. Again, it must be modified according to the survey provided to you. The seller's or borrower's affidavit. If the seller or borrower signs this affidavit regarding a couple of things, one being no parties in possession and another being that there have been no improvements made to the property in the last 90 days for which payment hasn't been made, then the policy may not accept coverage for those issues. That standard exception must be deleted or modified. This is a good time to remind you of the importance of those closing affidavits. Review those affidavits with the parties at the closing table. This dialogue may reveal the existence of title matters that were not disclosed by our search. An example might be new construction. When I was in private practice, I had a phone call with a client a few days before closing, and he told me they began erecting a fence the week before. That's a problem. We need to deal with it before closing, not after. Discuss those affidavits with your parties at the closing table. We have more information on the standard exceptions in your study guide for this presentation. Also, check out UGuide because it has many more details if you want to research that topic further. Moving on to these specific exceptions in the policy. Based on the commitment, they generally will remain in the final policy unless they don't affect the property. Let's see an example, there might be-- There's an exception for an easement that after you get a survey, it's determined that the easement is not on your property. That could be removed from the commitment so it wouldn't be shown in the final policy. Remember that these exceptions, for the most part, will remain in the policy, even if you provide affirmative coverage through an endorsement. If they affect the property, the exception remains. To state it slightly differently, if you were to delete that exception, you'd be insuring that the property's not subject to it. Be aware of what you're doing in those situations by deleting a specific exception. Recently, we have seen new cases coming down across the nation assigning liability for fraud in this area of wired funds diversion. We're dealing with fraudsters. In other words, some kind of security breach occurs, where the fraudster poses as the closing agent, attaching fake wire instructions. Then, the escrow funds are sent to a fraudulent account, and many times, those funds are never recovered. The courts are now analyzing who bears the responsibility for that escrow fraud. They're attempting to balance the closing agent's duty and the parties' duty to the transactions. Various courts across the country have assigned duties to the closing agent, such as a duty to warn customers about the wire fraud risks, a duty to protect the escrow funds, a duty to implement proper security measures, and a duty to verify information. Again, that balances the parties' duty to recognize spoofs and simply avoid being duped. Several of these cases refer to the title agent's duty to adhere to your underwriter's guidelines as a standard of care. Meaning that if you don't follow our guidelines, you could be held liable for that failure. As a reminder, we have several bulletins and training sessions on the virtual learning portal on wire fraud with more information. So utilize those resources.