Optional Coverage includes:
•Arbitration/Deletion. The Loan Policy contains an arbitration provision that allows arbitration if agreed to by both the insured and the title insurer and the policy does not exceed $2 million. The insured lender can request deletion in its closing instructions. The title company may then add the following to Schedule B of the policy: “Section 13 of the Conditions and Stipulations of this Policy is hereby deleted.”
•Survey or Area and Boundary (Survey) Coverage. The title company may delete the area and boundary exception (survey exception), except “any shortages in area” from the Loan Policy if it is furnished an acceptable “current survey” or “accurate survey.” If the loan is a refinance on (one to four family) residential real property, the title company must accept a survey dated no earlier than 7 years prior to the new Loan Policy if the borrower will sign an affidavit evidencing that there have not been subsequent changes. Some title companies will accept older surveys on refinances and will accept old surveys on sales. The title company may amend the survey exception without a survey if the land is a condominium.
•Creditors’ Rights. The Loan Policy contains a creditors’ rights exclusion. This exclusion may not be deleted.
•Easements and Access. The Loan Policy can insure an easement, if the easement is described in Schedule A of the policy. If the policy does not describe the easement, the Loan Policy only insures some legal right of access to and from the land, but does not insure the particular access that may be necessary for the land. The policy does not insure that the access complies with the requirements of Fannie Mae or Freddie Mac for access to the land. For example, Fannie Mae requires that the land front on a publicly dedicated and maintained street that meets community standards and is generally accepted by area residents. There is an access endorsement available which will provide this additional coverage. If the property is on a community-owned or privately owned and maintained street, there must be an agreement for maintenance of the street. Closing, instructions may address this issue. If the land does not have a legal right of access, the title company may except in the Loan Policy to “Lack of a right of access to and from the land. Insuring provision number 3 is hereby deleted.” This exception generally is prohibited in the lender’s closing instructions. The Loan Title Policy Binder on Interim Construction Loan does not commit to insure legal right of access, but can commit to insure an easement.
•Express Insurance - Defects in Title. If the Loan Policy will except to a matter that is a defect in title (such as an adverse claim of ownership or lis pendens, a lease or option or contract that may have expired ), the title company may provide insurance in Schedule B of the policy, if the title company believes the risk is acceptable. However if there is an endorsement available which would also provide coverage as to the matter, express insurance may not be utilized. The title company does this by excepting to the defect in title and then adding one of the two following alternative provisions: “Company insures the insured against loss, if any, sustained by the insured under the terms of this Policy by reason of a final, nonappealable judgment of a court of competent jurisdiction that divests the insured of its interest as insured because of this right, claim or interest. Company agrees to provide defense to the insured in accordance with the terms of this Policy if suit is brought against the insured to divest the insured of its interest as insured because of this right, claim or interest.” [Use, for example, if adverse claim of ownership or lis pendens]; or “Company insures the insured against loss, if any, sustained by the insured under the terms of this Policy by reason of the enforcement of said rights as to the land. Company agrees to provide defense to the insured in accordance with the terms of this Policy if suit is brought against the insured to enforce said rights as to the land.”
•Express Insurance- Prior Unreleased Liens. If the title company will insure against a prior unreleased lien, it may insure against that lien by (1) insuring around without exception in Schedule B, or (2) express insurance in Schedule B of the policy, by exception to the prior lien and by then noting that (1) the exception is deleted, or (2) the title company insures against foreclosure of the prior lien and agrees to defend the insured.
•Gap Coverage. Gap coverage (insurance against matters subsequent to the date of the commitment, as updated, and prior to filing of the insured mortgage) is customarily given, when the closing is conducted by the title company. Although no gap endorsement is available in Texas, the title company may provide this coverage based on the lender’s closing instructions and local practice. Frequently, the lender’s closing instructions provide that no loan proceeds may be disbursed by the title insurance agent for direct operation} unless the closing agency is in a position to issue the Loan Policy with no additional exceptions (other than those permitted exceptions in the commitment). This coverage may not be available under certain circumstances such as issuing post foreclosure. According to the Texas Department of Insurance, the Date of Policy of the Loan Policy must be the date of recording of the insured’s mortgage if a policy is issued in connection with a current loan transaction.
•Insuring Around. The title company may issue without exception to (and thereby insure against) a prior unreleased lien (such as a judgment lien, tax lien or mortgage), if it secures consent of the new insured and if it considers the risk acceptable. The title company must comply with regulatory requirements that establish circumstances when insuring around is permitted (such as holding money in escrow in some cases or securing an indemnity from another title insurer that previously issued without exception). In the alternative, the title company may protect the insured by expressly insuring against the unrecorded lien in Schedule B of the policy.
•Maintenance Liens. The Loan Policy may insure that a maintenance (homeowners’ association) lien is subordinate to the insured mortgage by (1) retaining the exception to subordinate liens and leases in the policy and not separately excepting to the maintenance lien, or (2) excepting to the maintenance lien and then insuring that the maintenance lien is subordinate to the insured mortgage.
•Mechanic’s Lien. The Loan Policy insures against mechanic’s liens recorded after Date of Policy that have an inception date prior to Date of Policy, unless Schedule B of the policy excepts to mechanic’s liens. If the loan is a construction loan, or if the current transaction involves construction or if there is ongoing construction on the land the Loan Policy must include the following exception: “Any and all liens arising by reason of unpaid bills or claims for work performed or materials furnished in connection with improvements placed, or to be placed, upon the subject land. However, the Company does insure the insured against loss, if any, sustained by the insured under this Policy if such liens have been filed with the County Clerk of County, Texas, prior to the date hereof.” If the policy contains this exception, it does not insure priority of the mortgage over later filed mechanic’s liens. If the mortgage does not secure a construction loan, of it the current transaction does not involve construction or if there is ongoing construction on the land this exception is generally not included in the policy.
•Parties in Possession. The title company may add this exception to a title policy if the insured consents in writing. However, this exception is rarely added to the Loan Policy (because it is not acceptable to lenders). In some transactions, the Loan Policy may include a more limited exception, such as to rights of tenants as tenants only under unrecorded leases (or under listed leases). To obtain this coverage the title company may require a representation as to the rights of tenants or require a review of the leases.
•Restrictions. The Loan Policy states “The following restrictive covenants of record itemized below, but Company insures that any such restrictive covenants have not been violated so as to affect, and that future violations thereof will not affect the validity or priority of the mortgage hereby insured:” The title company must delete this provision if it does not list restrictive covenants. If the Loan Policy does not contain a separate exception in a later paragraph to a maintenance lien or reversionary interest, this provision insures against the priority of the mortgage over such maintenance lien or reversionary interest set forth in the restrictive covenants. This provision does not otherwise insure against existing violations of restrictions. The title company can separately insure against enforcement of restrictions by the T-19, if it considers the risk acceptable.
•Standard Exceptions and Extended Coverage. The Loan Policy contains, or may include, several general standard exceptions that may be modified. Those exceptions are (1) recorded restrictions, which is deleted if no specific recorded restrictions are mentioned; (2) survey matters (“area and boundary” exception), which may be amended to read “any shortages in area” if a current acceptable survey is furnished; (3) taxes, which may be modified to insure that taxes are not due and payable and to delete the exception to possible rollback taxes where applicable, if there are no roll back taxes; (4) subordinate liens and leases, which may be deleted upon request; (5) a general exception to mechanic’s liens, which may be included only if the loan is a construction loan; or if there is construction as part of the current transaction and (6) parties in possession, which may be an exception only if the mortgagee agrees in writing to allow the general exception but which generally is not allowed by the lender’s closing instructions. There is no standard exception in the Loan Policy to water rights or wetland issues or to marital rights of the owner, and such exceptions are generally not permitted by the lender’s written closing instructions.
•Subordinate Liens and Leases. The Loan Policy contains a standard exception to “Liens and leases that affect the title to the estate or interest, but that are subordinate to the lien of the insured mortgage.” The title company may delete the exception if requested by the lender. If a subordinate lien or lease is then specifically excepted, the title company may add “Company insures the insured against loss, if any, sustained by the insured under the terms of the Policy if this item is not subordinate to the lien of the insured mortgage.”
•Successors and Assigns. The title company may name the insured in the Loan Policy as “ABC Mortgage Company and each successor in ownership of the indebtedness secured by the insured mortgage, except a successor who is an obligor under the provisions of Section 12(c) of the Conditions and Stipulations.” The Loan Policy may not simply say “ABC Mortgage Company, its successors and assigns,” but may include VA or HUD (or any other specifically named party such as MFRS) as additional insureds.
•Tax Coverage. The standard exception to taxes in the Loan Policy is “Standby fees, taxes, and assessments by any taxing authority for the year 20__ and subsequent years, and subsequent taxes and assessments by any taxing authority for prior years due to change in land usage or ownership.” The title company may delete from the policy or Binder the phrase “and subsequent taxes and assessments by any taxing authority for prior years due to change in land usage or ownership” if it considers the risk acceptable and if it is paid an additional premium. The title company may add to the exception on the Loan Policy “Company insures that standby fees, taxes and assessments by any taxing authority for the year _________are not yet due and payable” if the taxes are not yet billed and if the title company is paid an additional premium.