| The following is a review of certain, but not all of | | | | lender’s instructions to escrow/title. |
| the title insurance issues which you may encounter in a | | | | 2) If additional proceeds are to be |
| loan transaction, and of procedures that may be | | | | disbursed, have titlecompany disburse them |
| considered in dealing with title insurance coverage or | | | | |
| the general processing and closing of loan | | | | Loan Servicing Issues |
| transactions. This is only a highlighting of certain steps | | | | |
| to be taken, and may not be comprehensive. | | | | 1) Attempt to avoid any deviation from the |
| In all title insurance related dealings / actions, keep in | | | | terms of the loan. (Any deviation, even slight, from |
| mind that there are two separate and distinct | | | | the terms of the loan documents may be raised by |
| contracts in existence in each insured loan | | | | the title insurer as grounds to deny coverage.) |
| transaction: (This does not include a third contract, | | | | 2) For any modification of loan terms, obtain |
| with the escrow agent.) | | | | appropriateendorsement from title insurer. (Usually |
| | | | | CLTA form 110.5) |
| - The contract between the lender and the borrower | | | | 3) Give written notice to insurer when modifying |
| - The contract between the insurer (title co) and the | | | | alteringany aspect of the loan agreement. |
| insured (lender) | | | | |
| | | | | Foreclosure / REO Issues |
| There’s often a tendency to underwrite a loan with | | | | |
| the thought that you’ve received and reviewed a | | | | 1) Deeds in lieu of foreclosure: Don’t |
| preliminary title report, possibly addressed any | | | | take a deed in |
| questionable items on that report, and that your | | | | lieu of foreclosure unless you obtain |
| primary remaining concern with respect to title | | | | appropriate |
| insurance is being sure the actually policy is being | | | | policy of title insurance. This would |
| obtained at closing. | | | | mean obtaining |
| Knowing that title insurers may attempt to deny | | | | an owner’s policy of title insurance |
| coverage, there are a number of steps that can be | | | | and a CLTA form |
| taken to improve your chances of getting coverage. | | | | 107.11 (non merger endorsement) Note |
| Certain seemingly normal actions or omissions by a | | | | the problem |
| loan originator may have a significant impact on the | | | | with deeds in lieu is that liens, |
| insurer’s ability to “wiggle out of providing | | | | judgements, taxes, and |
| coverage.” When Originating New Loans | | | | other recorded notices against the |
| 1) Expand your loan application to include a | | | | owner all attach to the |
| “property addendum,” which may include, | | | | property. |
| among other things: | | | | |
| - a clearly spelled out description of the property, | | | | 2) During foreclosure, operate with awareness that |
| including a description of the improvements (i.e. a 10-unit | | | | actionstaken during the foreclosure are all |
| apartment house, consisting of five two-bedroom units | | | | “post-policy” and insurer may take the position |
| and five one-bedroom units, located at 123 Elm | | | | that they are not coveredby the policy. |
| Street, Los Angeles, CA.) offered as collateral, including | | | | |
| the complete street address (Obtain endorsement to | | | | 3) A TSG (Trustee’s Sale Guarantee) is only an |
| title policy including full description, where possible.) | | | | opinion ofthe insurer, not a policy of title insurance. |
| (CLTA 116 endorsement) | | | | Loan policydoesn’t insure validity of your |
| - the complete legal description, and what document or | | | | foreclosure. |
| information the borrower relied upon to provide that | | | | Where possible, obtain TSG from |
| information | | | | same company that |
| - the property tax assessor’s parcel number | | | | insured original loan origination. |
| Have the borrower(s) separately sign and | | | | |
| date this description. | | | | 4) Obtain an owner’s policy o title insurance after |
| 2) Add an addendum to your application, where | | | | fore-closure sale. This could eliminate or minimize all |
| borrowermakes a specific, written representation as to | | | | ofthe problems outlined in the last two points. |
| who is on title, and in the case of an entity holding title, | | | | (Remember that your loan policy only provides |
| who the authorized signers are for that entity. | | | | coverageto the extent that there’s an unpaid loan |
| 3) Watch item 3A, “items created, etc., by the | | | | balance. Whether you’re going to sell or keep the |
| insured” | | | | property, you’llneed title insurance. |
| 4) Watch item 3B, “items neither known to the | | | | |
| insurer,recorded in the public records, but known to the | | | | Title Insurance Claims |
| insured” | | | | |
| 5) Obtain proper Endorsements. | | | | 1) Immediately tender to the title company any |
| 6) Appropriate disbursement of loan proceeds. | | | | borrowercomplaint that questions the validity or |
| Parties to aloan transaction always have compelling | | | | enforceability of your deed of trust. |
| reasons for disbursement of loan proceeds to | | | | |
| someone other than the holder of title or the | | | | 2) Notify title insurer in writing by Fed Ex or |
| lienholders. It leaves you open for a multitude of title | | | | othertraceable delivery service (that obtains a |
| coverage (and other) problems. | | | | signature ofreceipt of delivery) if you have any reason |
| 7) Construction loans: (or any loan, for that | | | | to believethat you have a claim. |
| matter) Be sure | | | | |
| no work has commenced at time title | | | | 3) Obtain your own counsel, rather than |
| policy is issued. | | | | relying on thecounsel hired by title company to |
| Request true “Seattle Endorsement” | | | | “represent you.” |
| for construction loans. | | | | Where they “represent |
| Look for wording, “insurer will not raise | | | | you,” they get a large amount |
| the fact that | | | | of business from the title insurer |
| insured has undisbursed loan funds, as a | | | | and generally act in |
| defense against a claim,” as opposed to wording | | | | the best interest of the insurer. |
| that says “insurer will not raise the fact that the | | | | |
| lender has undisbursed loan funds, provided that those | | | | 4) Watch for acts on the part of the insurer, |
| funds are handed over to the title insurer.” | | | | such asconducting protracted and unnecessary |
| 8) Permanent loans (non-constructions loans): | | | | “investigations,” (which serve only to delay |
| How do you | | | | paymentof the claim), or filing of unnecessary litigation, |
| know that no construction has commenced | | | | orinappropriately modifying your loan documentation, |
| and no mater- | | | | without obtaining the correct endorsements to cover |
| ials have been delivered to the site, and that | | | | new risk. |
| loan pro- | | | | |
| ceeds aren’t, unbeknownst to you, going | | | | 5) If obtaining any appraisals of the collateral, |
| to construction? | | | | considerhaving your attorney order the appraisal, with |
| | | | | him/herbeing named as client. This makes the |
| When closing a loan | | | | appraisal “privileged,” and unavailable to other |
| 1) Post closing review: On receipt | | | | parties of thelitigation. |
| of title policy, check title policy issued against | | | | |