It is imperative that in every home equity transaction you receive both a T-42 and a T-42.1 endorsement to your Mortgagee Title Insurance Policy without exception or deletion. These endorsements track most of the provisions set forth in Article XVI, Section 50 (a)(6) of the Texas Constitution which must be followed in order for your home equity lien to attach to your Owner’s homestead. The fee for the T-42 endorsement is 10% of the Basic Premium Rate. The fee for the T-42.1 endorsement is 15% of the Basic Premium Rate. Thus, if you have a $100,000 policy, your Basic Premium Rate will be $843 (excluding any refinance credit); the cost of your T-42 will be $84.30; and the cost of the T-42.1 will be $126.45.
The Texas Insurance Department allows lenders to buy a home equity endorsement (42.1) which insures against pre-closing fee disclosure mistakes. Mortgage lenders and title companies must continue working close together to ensure that the pre-closing fee disclosure (a/k/a final HUD-1 Settlement Statement) is properly prepared and delivered to the homestead owners at least one calendar day before the business day of loan closing and that no changes are made. This cooperation is critical because if the title company is not satisfied that these procedures have been followed precisely, they will not issue coverage.
The T-42.1 endorsement reads as follows (emphasis added):
(l) Failure of the Company or its Title Insurance Agent to provide the owner a copy of the final settlement statement prepared by the Company or its Title Insurance Agent itemizing the actual fees, points, interest, costs and charges collected or disbursed by the Company or its Title Insurance Agent at least one calendar day before the business day or subsequent calendar day that the owner executed the insured mortgage and the promissory note secured thereby. As used in this paragraph (l), the term business day shall have the meaning assigned to such term by the Texas Finance Commission and/or the Texas Credit Union Commission pursuant to the authority granted such agencies by sections 11.308 and 15.413 of the Texas Finance Code, respectively.
A lender seeking coverage should be very clear in its closing instructions that the T-42.1 endorsement (and all other title endorsements for that matter) shall be issued without exception or deletion.