Title Law Seminar

Table of Contents
MAXIMIZING THE BENEFIT OF TITLE INSURANCE IN PENNSYLVANIA
 
Part I [Morning Session]
 
TITLE INSURANCE POLICIES AND COMMITMENTS
  • The Nature of the Basic Underwriting Risk      
[ Tab 1]
  • A Lecture on the Commitment to Insure   
 [ Tab 2]
[see also: Beginners Guide to the Commitment for Owner's Title Insurance, by Jack S. Levy, esq., May/June 2000, Probate and property; ]
  • The Six Elements of a Title Insurance policy    
  1. Insuring Clauses: contain the contractual provisions which obligate the insurer for damage sustained by the insured which arise from matters listed in these clauses; Practice Aid: see Ellis, Title Insurance Law Handbook (Ellis), pp. 211-250 and 611-646; Gosdin, Title Insurance, A Comprehensive Overview (Gosdin), section 3A;
  2. Exclusions: list matters which may be included within the broad language of the insuring clauses but for which the company does not assume liability; Practice Aid: see Ellis, pp. 309-371 & 625-650 inc; Gosdin, section 3B; Burke, Law of Title Insurance (Burke), Chapter; Nielsen, Title & Escrow Claims Guide (Nielsen), Chapter 11; Palomar, Title Insurance Law (Palomar), Chapter 6
  3. Conditions and Stipulations (C&S): list matters which are interpretive of the other policy provisions that impact upon and diminish coverage; states how a claim should be made under the policy and define the extent of the company's obligation in connection with the claim; Practice aid: Ellis, Policy Tables; Burke, Chapter 5; Gosdin, Sec 3E; Palomar, Chapter 8.
  4. Schedule A: identifies the following: (i) the insured; (ii) the estate or interest being insured; (iii) the Owner; (iv) the Land; (v) the effective date of the policy; (vi) the mortgage being insured (loan policy only); Practice aid: Gosdin, sec 3C; Nielsen, Chapter 7; Palomar, Chapter 4;
  5. Schedule B: list matters which are within the insuring clause, but for which the company does not assume liability and which are not listed in the exclusions from coverage. This is where the "special exceptions" go for matters known or knowable from an examination of title; Practice Aid: Gosdin, sec. 3D;
  6. Endorsements: are attach to the policy and either extend or alter its coverage or interprets its provisions; Practice Aid: Gosdin, Exhibit 6.
 
THE SELECTION OF THE APPROPRIATE POLICY  
  • ALTA Owners and Loan Policy - 1970 (re. 10/17/84)  
[ Tab 3]
  • ALTA Owners and Loan Policy - 1992  
[ Tab 4]
  • "Covered" and "Uncovered" Causes of Action 1970 Policy  [ALTA symposium p -vii-]
 [ Tab 5]
  • "Covered" and "Uncovered" Causes of Action 1992 Policy
  • Coverage Limitations imposed by 1992 Policy Conditions and Stipulations Clause 2 [see Title Law Associates™ Website]         
[ Tab 6]
  • Definition of Insured - variance between policies   
[ Tab 7]
  • Continuation of Coverage
[ Tab 8]
  • Discussion: Gebhardt Family Investment Trust, L.L.C. v. Nations Title Insurance of NY, Inc., 2000 WL 719841 (Md. App.) and other cases; Nov. 2000 ALTA Title Counsel Meeting, Exhibit 43  
[ Tab 9]
STANDARD COVERAGE DISTINGUISHED
FROM EXTENDED COVERAGE  
[ Tab 10]
Break
TIRBOP ENDORSEMENTS FOR THE LOAN POLICY  [ Tab 11]
  • Are these endorsements confined to the loan policy alone?
  • availability and costs
  • explanation of rate rules 2.7 and 6.23                                               
    face="Arial">G.    Land Same As Survey Endorsement - see CLTA 116.1 
           (Requires special filing by underwriter);
  • H.    Contiguity or Contiguous Land Endorsement - Form Varies - 
           see CLTA 116.4 (Requires special filing by underwriter);
  • I.    Appurtenant Easements - coverage provided either in legal description 
          or by specially filed endorsement affirmatively insuring  the benefits of the easement(s).
  1. Multi-County Transaction in Pennsylvania
  • The Lapitsky Problem: Valley Trust Co. v. Lapitsky, 339 Pa. Super. 177, 488 A2d 608 (1985) and the Pennsylvania Deficiency Judgment Act (42 Pa C.S.8103).
  1. Mortgage Modifications
  • PA TIRBOP Endorsement 500 - NB risks discussed at Tab 11 (page 7) and Tab 24 of this Seminar. NJ & PA distinguished;
  1. Reinsurance
  • See TLA Website Reinsurance link for a discussion of this issue
Comment: I would like to thank David A. Ebby, Esq. of Toll, Ebby, Langer & Marvin, Philadelphia, for permission to outline the paper he presented at the CLE International Advanced Real Estate Finance Seminar, October 12 & 13, 2000, Marriott Downtown, Philadelphia, PA.
  		[Tab 12A]
Lunch
Part II [Afternoon Session]
TITLE INSURANCE - THE COMMERCIAL LENDER'S PERSPECTIVE - Mr. Murray's Article -  [ Tab 13]
                                                                
WHAT DOES THE INSTITUTIONAL LENDER WANT FROM THE TITLE INSURER? 
 
     Major Issues for Lenders:
  1. Removal of the Creditors' Right Exclusion - how can this be accomplished in Pennsylvania?
  2. Mechanic's lien Coverage - how can this be accomplished in Pennsylvania - Statutory provisions - Endorsement coverage?
  3. Coverage for foreclosures, deeds-in-lieu of foreclosure and loan modifications;
  4. recharacterization issues in connection with contingent interest and shared appreciation mortgages, sale-leaseback transactions and "off balance sheet" and "synthetic lease" transactions
  5. availability and necessity of reinsurance and co-insurance;
  6. internal risk retention limits imposed on title companies;
  7. multi-state coverage - NB "Tie-in" Endorsement only available intrastate in Pennsylvania;
  8. availability, appropriateness and cost of title endorsements
LENDERS NEED TO BE CONVERSANT WITH THE BENEFITS AND LIMITS OF TITLE INSURANCE COVERAGE
 
    Three Critical Phases of the Title Insurance
    Underwriting Process                                             [Jack Murray's Article p 16 of 28 as revised]
  1. The Loan Documentation Phase;
  2. The Loan Modification or Workout Phase;
  3. The Title Loan Litigation or Claims phase;
    1.    The Loan Documentation Phase
  • was the proper loan policy selected?
  • were the proper endorsements required?
  • were the proper arrangements made for coinsurance and reinsurance
  • was there a recognition of the risks which are not covered by title insurance?
NB see article prepared by James M. Pedowitz entitled What Title Insurance Does Not Cover,originally prepared for the NYSBA Real Property Section, reprinted with permission in Title Management Today, May 2000.
[Tab 14]
    2.     The Modification or Workout Phase        [Jack Murray's Article p 17 of 28 as revised]
  •  NB see "Loan Workouts, Modification and Foreclosure" below [ALTA Symposium X]
[Tab 22]
  1. The Litigation or Policy Claim Phase       
 [Jack Murray's Article p 17 of 28 as revised]  
  • Tender of Claim
  • The Title Insurers Acceptance of the Tender with Reservation of Rights
  • Are the Reserved Rights clearly defined?
  • The Insurers Duty to Defend: see Manneck v. LTIC, ( 1994 ) 28 Cal. App. 4th 1294    
[Tab 33]
  • Delay of the Insured in Giving Notice of a Claim to the Insurer: see Straight Creek Processing Company v. Lawyers Title Insurance Corporation, (4th Cir. 1996) 76 F.3d 375 
[Tab 34]
  • The Insured's Duty to Cooperate with the Insurer
  • The Insurer's Right to Make Title as Insured

 
What is the liability, if any, of the insurer for any damage sustained by the lender due to delay in making title as insured? see Hatch v. First American Title Ins. Co., (D. Mass. 1995) 895 F.Supp.10   
[Tab 35]
MANAGING RISK THROUGH THE USE OF ENDORSEMENTS  
  • Matters of an Exclusionary Nature for Which Endorsements may be obtained               
  • NB Endorsements listed on TLA website Endorsement Link
[Tab 15]
ALTERNATIVE ENDORSEMENTS TO THE LOAN POLICY  [Tab 16]
  • Are They Available and What is the Cost?
  • Standard Endorsement Requests
  1. Address Endorsement [CLTA Form 116];
  2. Aggregation Endorsement [ALTA Form 12];
  3. Assignment Endorsement [ALTA Form 10; CLTA Endorsement form 104.1];
  4. Assignment and Date Down Endorsement [ALTA Form 10.1]
  5. Comprehensive Endorsement [CLTA Form 100];
  6. Contiguous Land Endorsement Form [CLTA Form 116.4];
  7. Easement Endorsement [CLTA Form 103.1 and 103.3];
  8. Encroachment or Development Endorsement Forms [CLTA 102 Form series];
  9. Foundation Endorsement [CLTA 102 series];
  10. Mandatory Advance [CLTA 122 Form series];
  11. Mechanics Lien Endorsement [CLTA 101 form series];
  12. Mortgage Modification Endorsement [ALTA Form 11; CLTA Form 110.5] and Risks Involved;
  13. Optional Advance Endorsement [CLTA Endorsement 108.8]
  14. Policy Modification Endorsements [CLTA 107 Form series];
  15. Public Street Access [CLTA Form 103.7];
  16. Revolving Lines of Credit;
  17. Seattle Endorsement amending Loan Policy Ex cl. 3(a) - concerns relating to underfunded constructions costs;
  18. Subdivision Map Endorsement [CLTA Form 116.7;
  19. Survey Endorsement [CLTA form 116.1];
  20. Variable Rate Interest [CLTA Forms 111.5, 111.8, 111.10 & 111.11]
  21.  
CO-INSURANCE AND REINSURANCE ISSUES     [ Tab 17]
  • Summary of Considerations  [see TLA Website link & Jack Murray Article at p 10 of 28 as revised]
DEEDS IN LIEU OF FORECLOSURE  [Jack Murray's Article at page 5 of 28 as revised]   [ Tab 42]
  • Deletion of Creditors' Rights Exclusion
  • Failure to discharge debt in accordance with Loan Policy C&S 2(a)
  • Consideration stated for deed-in-lieu
  • Shared concerns
  • Request for non-merger Endorsement - availability in Pennsylvania
  • Title Rule & Requirements
  • Lease-back to Borrower Risk and Requirements
  • Should the Lender obtain a new Owners' Policy
 
RECHARACTERIZATION ISSUES AND CONCERNS [Jack Murray's Article(s) p 9 of 28 as revised] [ Tab 40]
TITLE INSURANCE FOR LOAN PORTFOLIO ACQUISITIONS [Jack Murray's Article p 13 of 28 as revised]
  • absent obtaining new policy or endorsement, loan portfolio purchaser will succeed to the interest of the seller in the title insurance policies issued when the loan was made;
  • in which case only defects existing at the time of the original policy are covered;
  • the purchase is charged with the knowledge of the seller unless a non-imputation endorsement is obtained;
  • possibility of the existence of a Fairway Problem;
  • Request for date down endorsement and assignment endorsement - are these available in Pennsylvania?
  • Request for Piggyback Endorsement if different title insurers were used in the original transaction - are they available in Pa?
How to obtain coverage in Pennsylvania
  • Risk of using the 1970 ALTA Loan Policy (rev. 10/17/84)
    		• [Tab 18]
    SPECIAL PROBLEMS FOR CONSTRUCTION LOANS [ ALTA symposium VII, p. iv]    [ Tabs 19-21 inc.]
    • The insured's potential duty to disclose to the insurer the date of commencement of the work of improvements
    • The lender/s potential liability for its failure to control the disbursement of the loan funds [cases listed here]
    • The lender's dilemma presented by the presence of undisbursed loan funds & mechanics liens
    LOAN WORKOUTS, MODIFOCATIONS AND FORECLOSURE [symposium X, pp. v-vi];
    • Nature of Modification: see Murray, Loan Foreclosures, Title Transfers, and Modification Structures, The Practical Real Estate Lawyer, July and September, 1996; see also:
    • Carpi, Title Insurance Following Foreclosure, presented at the Third Annual Spring CLE and Committee Meeting, Real Property Law Program Beyond the Workout: Risks for Lenders Taking Back and Owning Real Estate, Section of Real Property Probate and Trust Law, American Bar Association, May 7-9, 1992, page A-3;
    • Geisen, Routine Mortgage Modification Agreements: Lenders Beware, Real Estate Law Journal, Winter 1989;

    • Hart, Debt Restructuring Problems in the Workout of Troubled Real Estate Assets, presented at:  the New York University Real Estate Institute Conference for Attorneys, Accountants and Professionals entitled Working Out Troubled Real Estate Assets, May 20-21, 1991, The Waldorf-Astoria, New York, New York; the Land Title Institute of Maryland and Virginia Seminar entitled Virginia-Washington D.C. - Maryland Real Estate Transactions and Title Maximizing the Benefit of Title Insurance, October 24, 1997, Neumann College, Aston, Pennsylvania.

    		 

     

     

     

     

     

    [ Tab 24]

     

     
    -    Special Title Insurance Considerations in Workouts
                 -    Modification of Mortgage Issue
                 -    Available Endorsements Insuring Modification
                 -    Premium Charges Applicable to Mortgage Modification Matters [Rate Manual 5.12]
                 -    Fraudulent Cnveyance Issues and the Avoidance Principal
                 -    Special Title Ins. Concerns in Deed-in-lieu of Foreclosure 
                 -    The Issue of Recharacterization
                 -    The Equitable Subordination Problem
                 -    The Collateral Asignments Issue
                 -    Bankruptcy Alternative
                 -    The Creditors' Rights Exclusion
                 -    Should the Lender Obtain an Owners Policy
    • McNearney, Title Risks of Real Estate Purchased Via Foreclosure and Deed-in-Lieu of Foreclosure, presented at the Third Annual Spring CLE and Committee Meeating, Real Property Law Program Beyond the Workout: Risks for Lenders Taking Back and Owning Real Estate, Section of Real Property Probate and Trust Law, American Bar Association, May 7-9, 1992, page A-11;
    • Murray, What you need to Know About Workout Strategies, 1989, pub. on Firstam Web SIte;
    • Vanbuskirk, Caution is Watchword in Loan Workouts, Lawyers Title News, March/April, 1991;
    • Werner; Difference Between New Fee Coverage and the Continuation of Coverage of the Old Policy, PLI Publication no. 375, chapter 7
    • Potential Loss of Lien Priority cases:

    Resolution Trust Corporation v. BVS Development, Inc., (9th Cir. 1994) 42F.3d1026    

    		[ Tab 25]

    Kaichen's Metal Mart, Inc. v. Ferro Cast Co., (1995) 33 Cal.App.4th 8   

    		[ Tab 26]
    • Was there a "pre-negotiation agreement" to avoid the exclusion for matters "created, suffered, assumed or agreed to" by the insured?                                                                                                                             
    • Can the Creditors' Rights Exclusion be removed and how?
    • Loss of Policy Coverage for:
    		[ Tab 27]
    "Post" Policy Matters: Mark Twain Kansas City Bank v. Lawyers Title Insurance Corporation, (E.D. Missouri, 1992)  807F.Supp.85
    		[ Tab 28]
            "Created, Suffered, Assumed or Agreed To": Transamerica Title Ins. v Alas rights under separate Assignment of rents 
  • Other  
    		•  [ Tab 31]
    [ Tab 39]
    [ Tab 32]
     [ Tab 41]
    • In the event of foreclosure or deed-in-lieu of foreclosure, should the lender obtain a new owner's policy or should the lender rely on on the continuation of coverage under the original loan policy?
    • How can creditor's Rights coverage be obtained if a new owners policy is purchased? and what are the requirements?
    • What is meant by the language stating the creditors' rights exclusion applies to the instant transaction only?
    • Can an "open" commitment be obtained if the lender desires to resell the property shortly after acquisition?
    CONCERNS DEALING WITH TITLE AGENTS    [Jack Murray's Article p 24 of 28 as revised]
    • Closing Protection Letters                     [Jack Murray's Article p 24 of 28 as revised]
    • Legal Issues and Court Decisions          [Jack Murray's Article p 25 of 28 as revised]
    • Change to Section 7.5 of the Rate Manual & new TIRBOP Closing Service Letter 
    		[ Tab 43]
    • Title Agent Liability for Non-Title Problems - the Bortz Case (1997)
    		[ Tab 44]
    FRAUD, FORGERY AND FUND DIVERSION       [Mr. Murray, Mr. Nielsen][Symposium XIV]
    • Summary of Issues
    • Lack of Enforceable Obligation
    1. see Bank of Miami Beach v Fidelity & Casualty of N.Y., (fla. 1970) 239 So.2d 97
    2. see Fidelity National Title Insurance Company of NY et al v. Consumer Home Mortgage, Inc., (May 22, 2000) 708 N.Y.S.2d 445   [Title Counsel, Nov. 2000, Exhibit 44] 
    		[ Tab 36]
    [ Tab 38]
    • Faulty Fund Disbursement by thre Lender: see National Mortgage v. American Title Insurance Company, (N.C. 1980) 299 N.C. 369; 261 S.E.2d 844                                                   
    		[ Tab 37]
    • Defects which Attach or are created subsequent to date of policy; see Mark Twain Kansas City Bank v. LTIC, supra
    		[Tab 28]
    Comment: I would like to thank John ("Jack") Murray, Vice President and Special Counsel, First American Title Insurance Company, Chicago, for permission to include within these program materials his paper entitled Title Insurance - The Commercial Lenders Perspective, appearing at Tab 13.                                                                                                                                        

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