Ask An Underwriter – ALTA 25

Dear Underwriter,

My buyer is getting a new survey. The vesting deed references a recorded plat but the lender wants an ALTA 25 endorsement referencing the new survey. Can I issue it?

— ALTAed in Aiken

Dear ALTA,

Yes, you can issue the ALTA 25 after a review of the legal descriptions and a determination that the legal descriptions are not ambiguous and, in fact, describe the same property.

The ALTA 25 series is available for both an owner and lender. It insures that the Land as described in Schedule A is legally identical with the land as described in the survey identified in the endorsement. Lenders usually request the 25 when the insured mortgage contains a legal description that varies slightly when compared with Schedule A of the Policy.

Use the ALTA 25-06 when the legal description is identical to the legal description on the survey.

Use the ALTA 25.1-06 when the legal description in the policy is one or more parcels on a survey that contains additional parcels. Typically, this is an issue in a new development when we rely on a survey of a larger development to insure less than the whole development.

I hope this helps, ALTA. As always, feel free to reach out with other questions since it’s our job to take the risk so you don’t have to.

— The Underwriter

Ask An Underwriter – Bond for Title

Dear Underwriter,

Since the big day is in a week or so, I have a real turkey. Just my luck. My client is closing on a bond for title. The lender wants to structure the loan as a cash out refinance and pay off the bond for title. My client has a judgment against her. Two questions. Is the loan a purchase money mortgage? Do I need to pay off her judgment?

— Gobble-Gobble in Georgetown

Dear Gobble,

This is a turkey! With your luck, you might want to try a ham this Thanksgiving.

I believe the loan is a purchase money mortgage as to the proceeds used to purchase the property. As you know a purchase money mortgage will have priority over a judgment. However, as to any excess loan amount (that is, the cash out portion), the loan would not have priority. The judgment would.

Pay the judgment if you want clean policies. Otherwise, except to the judgment for the lender and buyer. You can give the lender some affirmative coverage. This is an example:

This policy insures that the Insured Mortgage will have a first lien position but only as to the mortgage proceeds paid towards the actual purchase of the Land. The remaining mortgage proceeds are subject to this judgment.

I hope this helps, Gobble. As always, feel free to reach out with other questions since it’s our job to take the risk so you don’t have to.

— The Underwriter

Ask An Underwriter – Ghosts

Dear Underwriter,

Since it’s the month for ghosts, goblins, and all things creepy, I’ve got a scary one for you. My clients are buying a house that the seller tells them is haunted. Should I take exception for a haunted house?

– Ghoulish in Georgetown

Dear Ghoulish,

“If there’s something strange in your neighborhood
Who you gonna call . . ?”

Unbelievably, some courts have considered whether a haunting is a title issue. In the famous 1991 Ghostbusters ruling, a New York appellate court held that even the most meticulous review of the public records would not reveal the presence of a presence of ghosts at the property. More recently, a New Jersey court dismissed a lawsuit filed against a title insurance underwriter for unmarketability of title due to an anonymous “watcher” of the house.

Based on these two cases it’s safe to say that since hauntings or watchers don’t appear in the public records they wouldn’t fall within the insuring provisions of a title insurance policy. Therefore, I wouldn’t take an exception.

I hope this helps, Ghoulish. As always, feel free to reach out with other questions since it’s our job to take the risk so you don’t have to.

“If you’re seeing things running through your head
Who you gonna call?”
CTIC!

 – The Underwriter

Ask An Underwriter – Remote Online Notarization (RON)

Dear Underwriter:

The seller is in a foreign country and wants to use an online notary. Will Chicago Title Insurance Company insure my transaction?

– Befogged in Bluffton

Dear Befogged:

South Carolina is one of a few states that does not have online notarization legislation. As such, for us to insure the deed the notary must witness the signing in person.

Dealing with international notarization is tricky. I recommend you contact the local American consulate to notarize the deed.

If that’s not feasible, have a local notary acknowledge the deed. If the seller is in a Hague Convention country, an Apostille authenticates the acknowledgment. If the seller is in a non-Hague Convention country, either a court or the agency that regulates notaries authenticates the acknowledgment.

One final thought—ask the lender for any specific requirements and restrictions for execution of the loan documents. Get a confirmation e-mail and keep it in your file.

I hope this helps, Befogged. As always, feel free to reach out with other questions because it’s our job to take the risk so you don’t have to.

– The Underwriter

Ask An Underwriter – IRAs

Dear Underwriter:

The seller I’m searching is an IRA. Do you have a checklist to help in my review? Who signs the closing documents?

– Chagrined in Charleston

Dear Chagrined:

We don’t have a checklist. But, I have a few thoughts that may help you.

One, review the custodial agreement. Make sure the agreement allows the IRA to hold real estate. Confirm the account number and account owner.

Two, make sure the vesting deed conveyed title to the IRA custodian for the benefit of the account owner.

Three, ask for a written statement from the account owner authorizing the sale.

Four, make sure the account owner signs the settlement statement or closing disclosure.

Finally, have the custodian sign the deed. But check the custodial agreement to make sure you don’t need the account owner’s signature. If you think you do I would get tax counsel’s opinion. You don’t want to create a taxable event.

I hope this helps, Chagrined. As always, feel free to reach out with other questions because it’s our job to take the risk so you don’t have to.

– The Underwriter

Ask An Underwriter – Legal Descriptions

Dear Underwriter:

The deeds in my chain of title reference parcels on a recorded plat. The problem is the surveyor didn’t label the parcels. He only stated the individual acreages. My legal description includes parcels A, B, and C. It doesn’t include any acreage amounts. Help!

— Lost in Lexington

Dear Lost:

What a mess!

To be insurable a surveyor must be able to locate and identify the property on the ground using the recorded legal description and any information contained in the description or elsewhere in the recordable document. The description must describe a unique property (that is, unambiguous). A good legal description also delineates or references the exact boundaries of property. Vague or ambiguous legal descriptions may create marketability issues.

Unfortunately, you have to take some corrective action. Maybe you can talk to the surveyor and get a revised plat. Maybe other recorded documents will give you a clue. As a last resort, you may have to quiet title.

I hope this helps, Lost. As always, feel free to reach out with other questions because it’s our job to take the risk so you don’t have to.

— The Underwriter

 

 

Ask An Underwriter – Interest Rate Swap

Dear Underwriter:

My client is modifying its mortgage. The lender requires an interest rate swap endorsement. What is an interest rate swap? I need help.

— Rate Exchanging in Rock Hill

Dear Exchanger:

Investors use “swaps” to manage risk. Swaps are nothing more than an agreement between two parties to trade one stream of interest payments for another. An example is floating-rate payment based on LIBOR traded for fixed rate payment.

We offer four swap endorsements for lenders: the 29-06, the 29.1-06, the 29.2-06, and the 29.3-06. Each is different and you should confirm with the lender which one it wants.

The endorsements insure against the invalidity or unenforceability of the insured mortgage as security for the repayment of the swap obligation. They also insure against the lack of priority of the lien of the insured mortgage as security for the repayment of the swap obligation. As expected, each contains specific coverage exclusions.

The underwriting requirements are:

1. Confirm the mortgage expressly secures the swap obligation;

2. Confirm the existence of a master swap agreement; and

3. Confirm the mortgage establishes a maximum amount of the swap obligation.

I hope this helps, Exchanger. Swaps can be intimidating if you don’t do much work with them. As always, feel free to reach out with other questions because it’s our job to take the risk so you don’t have to.

— The Underwriter

 

Ask An Underwriter – Snagging and Clearing Estates

Dear Underwriter:

My client owns a lot subject to a clearing and snagging estate. What is that? The lender requires affirmative coverage. Can I give it? If so, what language do you recommend?

— Miffed in Myrtle Beach

Dear Miffed:

This is a new one on me. According to the USDA, clearing and snagging is a conservation practice used to remove logs, drifts, and other obstructions from a channel. The goal is to improve the flow area of the channel to enhance fish and wildlife values, aesthetics, shade trees, and other natural resources. Think of it as a right similar to a spoilage easement.

Yes, you may give the lender coverage over this exception. I suggest clause E1m. It states that the easement will not interfere with the use of the Land or improvements located on it for residential purposes.

You should also take exception W1w. You need to modify it to except to the rights or easements (recorded and unrecorded) in favor of the grantee or agencies of the grantee.

I hope this helps. As always, feel free to reach out with other questions because it’s our job to take the risk so you don’t have to.

— The Underwriter

 

 

 

Ask An Underwriter – Deficiency Judgments

Dear Underwriter:

The seller in my transaction has a deficiency judgment against him. How do I handle this?

— Deficient in Dillon

Dear Deficient:

The question I have is whether the deficiency arose from the foreclosure sale of the property in question or from the foreclosure sale of other property.

If the former, the deficiency judgment does not attach and you don’t have a problem. If the latter, the judgment would attach to all other property of the debtor other than the parcel being foreclosed on, including property acquired during the ten-year life of the lien. In this case, you should take exception to the judgment and have it satisfied or released assuming it hasn’t expired by operation of law.

I hope this helps, Deficient. As always, feel free to reach out with other questions because it’s our job to take the risk so you don’t have to.

— The Underwriter

 

 

 

Ask An Underwriter – Advantages of a Homeowner’s Policy

Dear Underwriter:

What are some of the advantages of an enhanced (a/k/a Homeowner’s) owner’s policy?

— Perplexed in Pawleys Island

Dear Perplexed:

The advantages are too numerous for an exhaustive list so I’ll just name five common ones.

First, the enhanced policy insures (in addition to the named insured) (i) anyone who inherits from the insured, (ii) a spouse who receives the insured’s title because of a divorce, (iii) the trustee of a trust to whom the insured transfers title after the policy date, and (iv) the beneficiaries of the insured’s living trust upon the insured’s death.

Second, the policy amount increases by ten percent of the policy amount each year for the first five years from the policy date up to one-hundred fifty percent. The increase happens on the anniversary date of the policy.

Third, the enhanced policy insures, based on a legal right, both vehicular and pedestrian access to and from the land. The standard policy insures a legal right of access but not vehicular or pedestrian access. Furthermore, it doesn’t insure the specific means of access, physical condition of access, or location of access.

Fourth, the enhanced policy insures the owner against forced removal based on a violation of a CCR affecting the land even if we except to the CCR in Schedule B.

Fifth, the enhanced policy insures the owner against a refusal to purchase, lease, or mortgage due to an encroachment of a structure encroaching onto the Land.

I hope this helps, Perplexed. Remember, these are just a few of the benefits of an enhanced owner’s policy. As always, feel free to reach out with other questions because it’s our job to take the risk so you don’t have to.

— The Underwriter