Overview
As a lender and a banker, it is important to understand the purpose of title insurance and its role in ensuring the Bank has placed a mortgage on real property that has a clear title. The American Land Title Association (ALTA) is the trade association who represents the title insurance industry. Title insurance insures both owners of real property, or lenders using real property as collateral, against loss arising out of defective or invalid titles and the existence of other liens or other legal claims against the title to a property.
What is Title Insurance?
- A contract of indemnity
- Protects against liens, encumbrances, or defects in the title to the property. It is subject to policy exclusions or exceptions.
- Covers actual damage up to the face amount of the policy, except, as a loan is paid down, the maximum amount if insurance decreases as well.
- Note: Owners should be encouraged to obtain Owner's Title Insurance in addition to the Lender's policy. This ensures they are protected for the full value of the property, and not just the loan amount, the value of which reduces as the loan is paid down.
- Title company has the right to attempt to cure title defect before paying any damages to the insured.
3 Types of Title Insurance:
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Owner's Coverage
- Purchased by the owner to protect the full value or purchase price of the property. Unlike a Lender’s Policy, the amount of coverage doesn’t decline as the loan is paid down.
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Lender's Coverage
- Protects the lender's investment. As the loan is paid down the coverage amount goes down.
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Leaseholder's Coverage
- Protects the tenant for as long as they lease the space or building.
Click here to access the Title Insurance training video.
Title Commitment
The title commitment, or binder, is a document a title company creates as a promise to issue a title insurance policy to a property owner or lender. The commitment includes a summary page detailing the date of coverage, the amount, and the insured. Other schedules issued simultaneously to the summary (Schedule A) include the requirements to insure, the exceptions from coverage, and the exclusions that will appear in the final title policy. The binder should be carefully reviewed by the lender for accuracy and any errors noted and corrected before moving forward with the loan closing. The commitment is comprised of 5 basic components.
Jacket and Commitment Conditions
The jacket, or cover, of the policy must be included with the rest of the packet as it provides the conditions of commitment, covered risk, and exclusions from coverage.
Schedule A
Schedule A is a summary of the insurance policy, and usually contains the following information:
- Commitment Date: The date must fall within 30 days of the closing date.
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Policies to be issued:
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Proposed insured:
- The borrower's name listed as the insured must be consistent with the note, mortgage, and all other documentation.
- Capital City Bank (CCB) must be listed as the insured
- Proposed policy amount: The lender's coverage should be for the full amount of the loan or line of credit. On purchase money transactions where a construction loan is being originated, the lenders coverage will be higher than the owner's coverage as the owner typically insures an amount consistent with the purchase price of the real property.
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Proposed insured:
- Interest in the land: Such as fee simple, leasehold, or joint tenancy
- Current Owners
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Legal Description: For more information refer to Exhibit A.
It is critically important to ensure the title document is signed by the title company agent.
Schedule B1
Schedule B1 is a list of requirements that must be met to qualify for the Title Insurance policy. The closing agent is responsible for complying with and satisfying all B1 requirements at or before the closing.
Some examples of the typical requirements found on Schedule B1 are:
- Transfer of Warranty Deed
- Receipt and review of the governing documents from the buyer to the seller
- Mortgage information
Schedule B2
Schedule B2 lists all the exceptions and exclusions to the policy that the title company or underwriter will not insure. On certain loan transactions, the number of exceptions noted in the binder may be lengthy, or a lender could have questions as to what the exception is related too. It is always a best practice to have a CCB legal representative review all documents associated with the exceptions listed in Schedule B2.
Things to remember when reviewing Schedule B2 and the title commitment:
- Make sure to have as many of the exceptions removed as possible.
- Obtain copies of all easements, agreements (for example: utility agreements or agreements with the Department of Transportation), restrictions, covenants, dedications, or ordinances.
- Have a CCB attorney review the title commitment exceptions to ensure:
- There is no language included that could negatively impact the Bank's collateral
- There is no language that impact's our ability to get repaid or foreclose
- The exceptions listed have been properly sited and depicted on the survey
- Note: It is especially important to on larger loans and commercial real estate (CRE) loans to have as many exceptions removed as possible and ensure that any easement or restriction is accurately depicted on the survey.
- Obtain a marked up proforma the day of closing that shows the exceptions that have been removed and those that will remain subsequent to transfer of the title/closing.
Endorsements
A title endorsement is an addition to or limitation of title insurance coverage that is attached to a standard title insurance policy. Endorsements provide coverage that tailors the policy to fit the needs of the insured for a specific transaction. According to First American Title, a major title insurer in the US, there are approximately 113 Alta Title Endorsements that can be added to a standard title policy.
The most common endorsements include:
- ALTA 6-06 - Variable Rate
- ALTA 8.1-06 - Environmental Lien
- ALTA 3 - Zoning Endorsement
- ALTA 9-06 - Restrictions, Encroachments, Minerals
- ALTA 17 - Access and Entry
- ALTA 37-06 - Assignment of Rents and Leases
- ALTA 25-06 Survey Endorsement
- FL Revolving Credit Endorsement - must have for ALL lines of credit
As a lender or lending assistant, be sure to communicate with the title agent or attorney to verify that you have required the appropriate endorsements needed to protect the Bank’s collateral.
See the HelpU article Title Endorsements for more information and definitions.
Exhibit A
Exhibit A is the legal description of the property and should be consistent with the legal description recited in the mortgage and noted on the survey that has been performed by a CCB approved surveyor.
Additional Information
Training Resource
Click here to access the Title Insurance training video.
Policies and Claims
- At the closing, request a “marked up” title commitment. There can be substantial changes that occur subsequent to the date the title commitment is initially issued and the closing date. After the loan is closed, it is prudent for the Bank to verify upon receipt of the final title policy that the marked up/proforma commitment issued prior to closing is consistent with the final title policy.
- In the event the Bank or Borrower wishes to file a claim, claims are to be filed using the address listed in the title documents.
Following Up with the Exceptions Report
Review the Exceptions Report monthly to ensure that the Bank has no non-current exceptions related to title insurance. The longer the delay in receiving the final title policy, the longer the delay in clearing up mistakes that may have been made in the policy. The report is pulled on the 1st of every month and posted to the Lending Team folder on the shared (j:) drive.
Title Companies
In an effort to mitigate the Bank’s risk related to potential title concerns or risks, CCB requires that all title agents or attorneys who close loans for the Bank be approved annually and listed on our approved vendors list, the Netinterest Vendor List, located in the Security Public Documents folder on netinterest.
Title Insurance Calculator
To assist you with estimating the cost of title insurance, a calculator can be found here.