Sunday, February 8, 2009

Other Recent Competing Products with Title Insurance

Title insurance has always competed against warranties of title, title searches and title examinations, with or without abstracts of title. The advantage of title insurance over these alternatives has long been argued: a title insurer's deep pocket generally exists to pay a title insurance claim, but a deep pocket does not necessarily exist in a claim against a warrantor, searcher or examiner, although the warrantor may be financially strong or the searcher or examiner may have malpractice or errors or omissions insurance, subject to deductibles, maximum liability, and term of coverage.

More recently, two products have been offered that have competed with title insurance:

TOP (Title Option Plus). "The TOP program is embodied in three interrelated contractual agreements (furnished to Freddie Mac in lieu of a traditional title policy or attorney's title opinion)

The first contract, the Master Agreement, is a 'warranty' by NMI (Norwest Mortgage, Inc.) to Freddie Mac (and Fannie Mae) that those mortgages NMI sells to Freddie Mac (or Fannie Mae) are secured by a first lien. NMI's contractual undertakings under the Master Agreement protect Freddie Mac against any title claims or problems, including non-record risks, that may affect Freddie Mac's interest in the loan it has purchased. If a defect appears and cannot be cured, NMI agrees to repurchase the loan, if the claim cannot be otherwise resolved. (It is noted that NMI only warrants the title and priority of a lien, when the title search and title report is performed by ATI (American Land Title Company, doing business as ATI Title Company, a wholly owned subsidiary of NMI)).

The second contract is a title condition report prepared by ATI and furnished to NMI to verify that, as a matter of public record, NMI's mortgage is secured by a first lien. ATI remains liable for any on-record defects that are missed in the title search, while NMI assumes the risk of off-record defects. The third contractual arrangement is The Guarantee Agreement from Norwest (Norwest Corporation, the bank holding company which owns NMI) to Freddie Mac under which Norwest guarantees NMI's title-related obligations to Freddie Mac." TOP was generally, but not universally, determined to be title insurance transacted, sold, or marketed in violation of applicable insurance laws in most, but not all, jurisdictions that administratively or judicially considered it. The issue of the specific TOP product has apparently been rendered moot by formation in 1998 of a joint venture between First American Financial Corporation and Norwest Mortgage, Inc., involving ATI Title Company and two other subsidiaries, pursuant to which ATI Title Company will issue title insurance and will no longer offer the TOP product.

Mortgage Impairment Insurance. This type of insurance provided to a lender typically insures the lender against failure by the lender to have sufficient title insurance, not due to the lender's willful fault. Some of these policies also insure matters that may be asserted to be title insurance.

For example, some polices may insure against loss resulting from (1) failure to pay real estate taxes; (2) error, neglect, omission or breach of duty in actual performance or failure to perform activities, including obtaining a tax bill showing ownership, review of credit bureau report showing liens and property address, or owner's affidavit relating to title or impairment by discovery of a previously unknown property interest in the collateral; (3) perfection of a second lien mortgage could not be obtained despite timely filing of the mortgage; (4) loss by reason of defective title, if the insured required title insurance; (5) impairment of lien, due to an unknown interest, if the lender required a tax bill showing ownership, a credit report showing liens and property address, and/or an owner's affidavit of title, and presented the (second) mortgage for recording.

Typically this type of insurance is offered on junior home equity loans. It is sometimes offered on a surplus line basis. Some of the policies are written as master policies with a stated maximum limit of liability. Some policies are called equity or lending activities policies. This coverage should be contrasted with collateral protection insurance, which provides insurance because of a consumer's failure to provide evidence of insurance, and which excludes title insurance.

1 comment:

  1. Very clear information about the first contract agreement and warranty by Norwest mortgage inc contractual undertakings under the master agreement is well about Texas Title Insurance...


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