Basic Manual of Title Insurance, Section IV

Title Manual Main Index | Section IV Index

SECTION IV - PROCEDURAL RULES AND DEFINITIONS

Includes Procedural Rules P-1 Effective 01/03/2014 | P-2 | P-3 | P-4 | P-5 |
P-5.1 Effective 01/03/2014

IN NO EVENT MAY ANY POLICY OR ENDORSEMENT FORMS CONTAIN COVERAGES NOT EXPRESSLY AUTHORIZED BY THESE RULES AND/OR THE STATE BOARD OF INSURANCE OF THE STATE OF TEXAS.

P-1. Definitions

Land - The land described, specifically or by reference, and improvements affixed thereto which by law constitute real property.
Company - Any Title Insurance Company and/or any Title Insurance Agent or direct operation each as herein defined.
Board - The State Board of Insurance of the State of Texas. A reference to the State Board of Insurance means the Commissioner of Insurance or the Texas Department of Insurance, as consistent with the respective power and duties of the Commissioner and the department.
Policy - Any contract of title insurance, the form for which is prescribed by the Commissioner.
Title Examination - The search and examination of a title to determine the conditions of the title to be insured and to evaluate the risk to be undertaken in the issuance of a title insurance policy or other title insurance form.
Closing the Transaction - The investigation made on behalf of a title insurance company, title insurance agent or direct operation before the actual issuance of the title policy to determine proper execution, acknowledgment and delivery of all conveyances, mortgage papers, and other title instruments which may be necessary to the consummation of the transaction and includes the determination that all delinquent taxes are paid, all current taxes, based on the latest available information, have been properly prorated between the purchaser and seller in the case of an Owner's Policy, the consideration has been passed, all proceeds have been properly disbursed, a final search of the title has been made, and all necessary papers have been filed for record.
Insuring Around - Refer to Rule P-11 for definition.
Title Insurance Agent - A person, firm, association or corporation owning or leasing and controlling an abstract plant or participating in a bona fide joint abstract plant operation, and authorized in writing by a title insurance company to solicit insurance and collect premiums and to issue or countersign policies in its behalf.
Abstract Plant - A geographically arranged plant, kept current, which is adequate for use in insuring titles, so as to provide for the safety and protection of the policyholders. An abstract plant , as further defined in Rule P-12 and as further provided for in the Insurance Code §2501.003 and Chapter 2502, must include an abstract plant for each county in which a title insurance agent or direct operation maintains an office.
Effective January 3, 2014 (Order 2806)
Endorsement - The form promulgated by the Commissioner for use in amending policies as prescribed by the rules.
Person - As used in these rules, "person" includes individuals, corporations, associations, partnerships, trusts and estates.
Title Insurance Company - Any domestic company organized under the provisions of Title 11, Insurance Code, for the purpose of conducting the business of title insurance, any title insurance company organized under the laws of another state, or foreign government meeting the requirements of Title 11, Insurance Code, and holding a certificate of authority to transact business in Texas and any domestic or foreign company having a certificate of authority to insure titles to real estate within this state and which meets the requirements of Title 11, Insurance Code.
Date of the Original Indebtedness - The date of the original indebtedness as used in Rule R-8 is the stated date of the Loan Policy of Title Insurance first issued to insure the lien securing the indebtedness described in such Loan Policy without consideration of any Endorsement subsequently placed upon such Loan Policy.
Fiscal Year - An accounting period of twelve (12) months (or less) designated in writing prior to usage and filed with the Title Insurance Section of the Texas Department of Insurance. For the purpose of audits of trust fund accounts, provided, however, no such designation shall extend any audit period beyond twelve (12) months.
Verifying The Services Rendered - As used in Procedural Rule P-22, this term shall require completion of promulgated Form T-00, Failure to substantially complete Form T-00 is a violation of Procedural Rule P-22. A copy of the completed T-00 form shall be made available to all parties to a transaction upon request.
Title Insurance - Insuring, guaranteeing or indemnifying owners of real property or others interested therein against loss or damage suffered by reason of liens, encumbrances upon, or defects in the title to said property, or the invalidity or impairment of liens thereon, or doing any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of Title 11, Insurance Code.
The business of title insurance - (1) the making as insurer, guarantor or surety, or proposing to make as insurer, guarantor or surety, of any contract or policy of title insurance or any equivalent thereof; (2) the transacting or proposing to transact, any phase of title insurance, including solicitation, title examination, except when conducted by an attorney, closing the transaction, except when conducted by an attorney, execution of a contract of title insurance, insuring and transacting matters subsequent to the execution of the contract and arising out of it, including reinsurance; (3) the making of a guaranty or warranty of a title search, a title examination, or any component thereof by a person other than the one performing the search or examination; or (4) the doing or proposing to do, any business in substance equivalent to any of the foregoing whether or not designed to evade the provisions of Title 11, Insurance Code.
Commissioner - The Commissioner of Insurance of the State of Texas.
Escrow Officer - An attorney, or bona fide employee of either an attorney licensed as an escrow officer, bona fide employee of a title insurance agent, or bona fide employee of a direct operation whose duties include any or all of the following: (1) countersigning title insurance forms; or (2) supervising the preparation and supervising the delivery of title insurance forms; (3) signing escrow checks; or (4) closing the transaction.
Foreign Title Insurance Company - A title insurance company organized under the laws of any jurisdiction other than the State of Texas.
Residential real property -
1. Any real property which has improvements thereon designed principally for the occupancy of from one to four families (including individual units of condominiums and cooperatives) and either (a) situated in a platted subdivision of record, or (b) consisting of five acres or less, or
2. Any real property which has improvements thereon designed principally for the occupancy of from one to four families and consisting of more than five acres but not more than 200 acres used for agricultural production by individual insureds (according to the information known by the Company at the time of issuance of the policy of title insurance).
  (Go to Rule P-38)
Thing of value - Includes any payment, advance, funds, loan, service, or other consideration.
Premium - The rate promulgated by the Commissioner pursuant to Chapter 2703, Insurance Code, includes the charges for title examination and for closing the transaction, whether or not performed by an attorney, and for issuance of a policy.
Effective January 3, 2014 (Order 2806)
Attorney - A person who is both licensed to practice law and a member of the State Bar of Texas, including a Texas professional corporation organized for the purpose of rendering professional legal services.
Direct Operation - The operations of a title insurance company under the authority of a license issued under Subchapter B of Chapter 2651, Insurance Code. Whenever the term "title insurance agent" is used, it shall be construed to include "direct operation" unless the context indicates to the contrary.
Furnishing title evidence - Providing information regarding instruments affecting title to a tract of land, covering a period beginning not later than January 1, 1979, or such greater period of time as is necessary to determine the ownership and appropriate liens, encumbrances upon , or defects in the title. The information must include, at a minimum, the following:
1. Grantor of each instrument;
2. Grantee of each instrument;
3. Type of each instrument;
4. Recording information of each instrument; and
5. Copy of each instrument as needed by the examiner.
It is not required that the information include:
1. Following the title to a right of way or easement, or showing instruments executed by the grantee in such right of way or easement, other than amendments to such right of way or easement; or
2. Following the title to an oil, gas, or mineral lease or interest.
In considering the necessary length of time to determine ownership and search the title, the searcher may be authorized by the title insurance company to accept what it considers prior indicia of title. Prior indicia of title include, for example, a prior title policy, a final order of a court of competent jurisdiction determining the entire title, or, on subdivision tracts, the base title of the dedicated subdivision.
Effective January 3, 2014 (Order 2806)
Directly Issued Policy - A title insurance policy issued and countersigned by a duly authorized officer, or employee, of a title insurance company, whose principal activities performed on behalf of such title insurance company take place in one or more designated offices maintained by the title insurance company located in the State of Texas, and which address is designated in writing and placed on file with the Title Insurance Section of the Texas Department of Insurance.
(Go to Rule P-31)

bb. Owner's Policy - The Owner's Policy of Title Insurance (Form T-1) or the Residential Owner Policy of Title Insurance - One-To-Four family Residences (Form T-1R). Any rule referring to the Owner's Policy shall apply to both forms unless the Rule refers to the specific Form number. Unless a rule expressly requires the use of the Owner's Policy of Title Insurance (Form T-1) a title insurance company may use the Residential Owner Policy of Title Insurance - One-To-Four Family Residences (Form T-1R) if the property has any improvements thereon designed for the occupancy of from one to four families. Each Rule, endorsement or other form, or provision in the Schedules or in an endorsement to the Owner's Policy (T-1) that refers to a term defined in Section 1 of the Conditions of the Owner's Policy (T-1) shall be deemed to refer to the term regardless of whether the term is capitalized in the Rule, endorsement or other form, or Schedule. Each Rule, endorsement or other form, or provision in the Schedules that refers to the Conditions and Stipulations of the Owner's Policy (T-1) shall be deemed to refer to the Conditions of the Owner's Policy (T-1). Wherever in the Basic Manual of Rules, Rates and Forms for the Writing of Title Insurance in the State of Texas ("Basic Manual"), including an amendment, revision or re-adoption of a provision of the Basic Manual, the term "Owner Policy" is found, it shall mean "Owner's Policy". Insuring forms and other promulgated forms may be produced with the revised term.

cc. Commitment for Title Insurance - A commitment for title insurance is a title insurance form that offers to issue a title policy subject to stated exceptions, requirements, and terms. The term includes a mortgagee title policy binder on an interim construction loan. The commitment, mortgagee title policy binder on an interim construction loan, title policy, or other insurance form is not an abstract of title. The commitment or binder constitutes a statement of the terms and conditions on which the title insurance company is willing to issue its policy. The title insurance policy or other insurance form constitutes a statement of the terms and conditions of the indemnity under the title insurance policy or other form. An abstract of title prepared from an abstract plant for a chain of title of real property described in the abstract of title is not title insurance, a commitment for title insurance or any other title insurance form.

dd. Department - The Texas Department of Insurance

ee. Loan Policy - The Loan Policy of Title Insurance (Form T-2) or the Texas Short Form Residential Mortgagee Policy of Title Insurance (Form T-2R). Any rule referring to the Loan Policy or Loan Title Policy or T-2 shall apply to both forms unless the Rule specifically refers to the Texas Short Form Residential Mortgagee Policy of Title Insurance (Form T-2R). Each Rule, endorsement or other form, or provision in the Schedules or in an endorsement to the Loan Policy that refers to a term defined in Section 1 of the Conditions of the Loan Policy (T-2) shall be deemed to refer to the term regardless of whether the term is capitalized in the Rule, endorsement or Schedule. Each Rule, endorsement or other form, or provision in the Schedules that refers to the Conditions and Stipulations shall be deemed to refer to the Conditions of the Loan Policy. Wherever in the Basic Manual of Rules, Rates and Forms for the Writing of Title Insurance in the State of Texas ("Basic Manual"), including an amendment, revision or re-adoption of a provision of the Basic Manual, the term "Mortgagee Policy" is found it shall mean "Loan Policy". Insuring forms and other promulgated forms may be produced with the revised term.

Title Manual Main Index | Section IV Index

P-2. Amendment of Exception to Area and Boundaries

General Instructions
In either an Owner or Mortgagee Policy, when the Insured desires to have amended the exception as to area and boundaries, (i.e. Item 2 of Schedule B) to delete all save "shortages in area", a title insurance company may accept an existing real property survey and not require a new survey when providing area and boundary coverage if the title insurance company is willing to accept evidence of an existing real property survey, and an affidavit verifying the existing survey, notwithstanding the age of the survey or the identity of the person for whom the survey was prepared. If the transaction involves Residential Real Property, the affidavit verifying the existing survey shall be the Form T-47 Residential Real Property Affidavit. The policy to be issued shall cover the same land as described in the evidence of the existing real property survey. The Company may, if it considers the additional hazard insurable, amend such exception (the Company may waive the requirement of a survey in connection with the issuance of its Mortgagee Policy insuring the lien on a condominium unit), by indicating same in Schedule B of the policy or by endorsement as provided herein upon payment of the premium prescribed in R-16 in the case of an Owner Policy. The survey must be acceptable to the Company.
Residential Refinance, Affidavit in Lieu of Updated Survey
This Sub-Section P-2.b. shall apply solely to transactions involving Residential Real Property in connection with a Mortgagee Policy issued on a loan to renew, extend or satisfy a lien already covered by a Mortgagee Policy. On transactions covered by this Sub-Section, the Company shall notify the borrower of the borrower's right to substitute a qualifying Affidavit in Lieu of an Updated Survey. Such notice shall be given: (i) when the application for title insurance is received; or (ii) when the commitment for title insurance is first issued. On qualifying transactions under this Sub-Section, the exception as to area and boundaries shall be amended to read: "Shortages in area" {subject to any additional exceptions, or express insurance coverage, deemed appropriate by the Company} provided that the following requirements are satisfied:
1. The borrower provides to the Company an original, or legible copy of the survey {hereinafter the "Prior Survey"} performed in connection with: (i) the transaction under which the borrower acquired title to the Residential Real Property; or, (ii) a prior loan transaction by the borrower involving the Residential Real Property. The Prior Survey shall not be dated earlier than 7 years prior to the date of the Mortgagee Policy to be issued or performed for another person, unless the Company is willing to accept evidence of an existing survey in accordance with Sub-section-P-2.a.
2. The borrower has actual knowledge of the physical condition of the Residential Real Property since the date of the Prior Survey.
3. The Mortgagee Policy to be issued in connection with the current refinance transaction will describe under item "5" of Schedule "A" the same land described in the Prior Survey.
4. The borrower executes an affidavit concerning the Residential Real Property stating that, since the effective date of the Prior Survey and up to and including the date of the affidavit, there have been no:
  1. construction projects such as new structures, additional rooms, garages, swimming pools or deckings;
  2. changes in the location of boundary fences or boundary walls;
  3. construction projects on immediately adjoining property(ies) which construction occurred near the boundary of the Residential Real Property;
  4. conveyance or replattings or easement grants or easement dedications by the borrower.
A title insurance company may not discriminate in providing area and boundary coverage in connection with residential real property solely because: (1) the real property is platted or unplatted; or (2) a municipality did not accept a subdivision plat in relation to the real property before September 1, 1975.
A title insurance company may not require an indemnity from a seller, buyer, borrower, or lender to provide area and boundary coverage.
If an affidavit is provided to the Company pursuant to this Rule and the affidavit is incorrect, whether due to the negligence or intentional act of the affiant, the area and boundary coverage given pursuant to this Rule shall be unaffected and in full force and effect; provided, however, the exclusions contained in the policy shall not be affected in any way.

Link to T-47 Residential Real Property Affidavit form in PDF

(Link to Adobe Reader)

Title Manual Main Index | Section IV Index

P-3. Exception to "Rights of Parties in Possession"

In an Owner or Mortgagee Policy, the Company shall have the right to make a general exception as to the Rights of Parties in Possession, as that term is hereinafter defined, on the condition that Insured executes a written instrument stating that Insured waives inspection of the property and that Insured is satisfied to accept the policy subject to such general exception. In all such cases, the Company must retain and preserve said written instrument. If such inspection is made by the Company, it may charge its reasonable and actual cost therefor. As used herein and in Owner and Mortgagee Policies, the term "Rights of Parties in Possession" shall mean one or more persons who are themselves actually physically occupying the property or a portion thereof under a claim of right adverse to the record owner of the property as shown in Schedule A of the policy. In no event shall the term "Rights of Parties in Possession" include any right, claim or interest which is evidenced by a document recorded in the county where all or part of the property is located.

Title Manual Main Index | Section IV Index

P-4. Restrictive Covenants Exception

When the examination does not disclose that restrictive covenants affect the applicable land, lien or estate, the Company shall delete the restrictive covenant exception prescribed in policy forms. When such are disclosed, the Company shall indicate, following the prescribed exception, the restrictive covenants by giving specific reference to the volume and page where each appears of record.

When examination of title discloses that restrictive covenants have expired by their terms, or if in the opinion of counsel, the restrictive covenants are void and unenforceable by statute, have been effectively released, or have been cancelled by final judgment of a court of competent jurisdiction binding upon all of the property owners and lienholders affected by said restrictions, the Company may delete the restrictive covenant exception prescribed in the policy forms.

Title Manual Main Index | Section IV Index

P-5. Special Exceptions

With the knowledge of the Insured, it shall be permissible for the Company to insert such special exception(s) as shall develop from the examination of the title under consideration. Such special exception(s) shall in all cases specifically describe the particular item(s) excepted to, and shall not be general in its terms.

Title Manual Main Index | Section IV Index

P-5.1. Exception or Exclusion Regarding Minerals

As used by this rule, minerals means coal, lignite, oil, gas and other minerals in, under and that may be produced from the Land, together with all rights, privileges, and immunities relating thereto. The Policy is not an abstract of title nor does a Company have an obligation to determine the ownership of any mineral interest. A Company may insert into a Policy or any other title insuring form an exception or an exclusion for minerals as provided below:
1. On Schedule A, Item 2:
  
  "subject to, and the Company does not insure title to, and excepts from the description of the Land, coal, lignite, oil, gas and other minerals in, under and that may be produced from the Land, together with all rights, privileges, and immunities relating thereto."; or
2. On Schedule B:
  
  "All leases, grants, exceptions or reservations of coal, lignite, oil, gas and other minerals, together with all rights, privileges, and immunities relating thereto, appearing in the Public Records whether listed in Schedule B or not. There may be leases, grants, exceptions or reservations of mineral interest that are not listed."
When the language described in either A.1 or A.2 above is inserted, the Company upon request by the insured and if it meets the Company's underwriting standards may issue one or more of the applicable endorsements as provided in Procedural Rule P-50.1.

Effective January 3, 2014 (Order 2806)

Continue to P-6. Co-Insurance

Title Manual Main Index | Section IV Index