Subchapter A. Basic Manual of Rules, Rates and Forms for the Writing of Title Insurance in the State of Texas

The Texas Department of Insurance proposes new §9.2 which concerns the adoption by reference of certain amendments to the Basic Manual of Rules, Rates and Forms for the Writing of Title Insurance in the State of Texas (Basic Manual). The new section is necessary to reflect amendments to the Basic Manual. The department proposes amendments to Procedural Rule P-2, Amendment of Exception to Area and Boundaries, contained in the Basic Manual. On July 10, 2000, the department received a petition from Stewart Title Guaranty Company (Stewart), with subsequent modifications, proposing to amend Form T-7, Commitment for Title Insurance, and Procedural Rule P-2 in the Basic Manual concerning the circumstances in which a title insurance company may amend the exception as to area and boundaries to delete all of the exception save "shortages in area." Subsequent to the Stewart petition, the department received a joint petition from Texas Land Title Association and Texas Society of Professional Surveyors which represents a compromise proposal to amend Procedural Rule P-2. The department believes that the compromise proposal is a more efficient way to provide area and boundary or survey coverage in real estate transactions; therefore, the department proposes to amend Procedural Rule P-2 along the lines of the compromise proposal. Stewart or any other interested persons may present comments to advocate their position through the formal public comment process. Additionally, Stewart submitted its survey proposal in response to the department´s Call for Issues in the 2000 Texas Title Insurance Biennial Hearing, joined by the Office of Public Insurance Counsel, First American Title Insurance Company, and First American Title Insurance Company of Texas, and the proposal was listed among the proposed agenda items in the Notice of Public Hearing. However, in the Notice of Public Hearing for the 2000 Texas Title Insurance Biennial Hearing, the department reserved the right to propose for adoption at a separate hearing, any rule for the regulation of title insurance pursuant to Insurance Code Article 9.07(e) and the Administrative Procedure Act. The present proposal seeks to resolve ambiguities in the existing procedural rule P-2, add specifics such as a definition of "survey," and provide greater flexibility in the use of surveys on re-sale transactions. The proposed amendments to subsection P-2.a. clarify that a survey is required for a pending real estate transaction when the insured desires to have the exception as to area and boundaries amended to delete all save "shortages in area", or when the title insurance company insures as to area and boundaries coverage or assumes the risk of insuring an element of survey coverage. A proposed new subsection P-2.b. dealing with re-sale transactions of platted subdivision property provides that a previous survey and affidavit concerning the physical condition of the land may be used if certain requirements are met, including that the previous survey is dated no more than 24 months prior to the date of closing of the pending real estate transaction. The proposal also amends the current subsection P-2.b. by re-lettering it as subsection P-2.c. and by adding home equity and reverse mortgage transactions to the subsection which allows affidavits in lieu of updated surveys in residential refinance situations provided the prior survey is no more than 7 years old. The proposed amendments require that previous surveys, or copies thereof, must bear the original seal and signature of the Registered Professional Land Surveyor who prepared the survey. The proposed amendments also allow for the possibility of the issuance of area and boundary or survey coverage as well as the current deletion of the exception as to all save "shortages in area." A proposed new subsection P-2.d., General Conditions, sets forth the minimum standards of a survey and the requirements for the affidavits made in accordance with the procedural rule. Under the proposal, the title insurer may not deny liability to a buyer or lender (innocent insured) based on an incorrect affidavit; however, if the affiant is the insured or a principal of the insured, then the area and boundary or survey coverage under the policy shall not extend to or cover any matter as to which the affidavit is incorrect and relied upon by the company. Further, the proposed amendments prohibit an indemnification provision in an affidavit made pursuant to the procedural rule.

The department has filed a copy of the proposed amended procedural rule with the Secretary of State´s Texas Register section. Copies of the proposed amended procedural rule may be obtained from the Office of the Chief Clerk, Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas, 78714-9104. To request copies, please contact Angela Arizpe at 512/322-4147.

Consideration of proposed §9.2 will occur in a public hearing under Docket Number 2473, scheduled for 9:30 a.m. on December 12, 2000, in Room 100 of the William P. Hobby, Jr. Building, 333 Guadalupe Street in Austin, Texas.

Robert R. Carter, Jr., deputy commissioner for the title division, has determined that for each year of the first five years that the proposal will be in effect, there will be no fiscal implications for state or local government as a result of enforcing or administering the section. Mr. Carter has also determined that there will be no adverse effect on local employment or the local economy.

Mr. Carter has also determined that for each year of the first five years the proposal is in effect, the public benefit anticipated as a result of administering and enforcing the amended procedural rule will be to clarify the circumstances under which area and boundary or survey coverage is provided and to provide more flexibility on re-sale transactions. There are anticipated costs to those title insurance companies and title agents required to comply with the proposal. Title agents and title companies may provide affidavits for consumers to execute in lieu of updated surveys in a broader range of transactions, such as in home equity, reverse mortgage, and re-sale transactions. To the extent that title companies and title agents already provide such affidavits, the department expects the current premium schedule to fully compensate for such costs. Further, the sale of title insurance is voluntary and amending the procedural rule regarding survey coverage imposes no uncompensated regulatory costs on companies that decide to participate in the market. The department anticipates no differential impact between small, large, and micro-businesses that decide to participate in such sales. The cost per hour of labor would not vary between small, large, and micro-businesses. Further, it is neither legal nor feasible to exempt small or micro-businesses or to waive compliance considering the purpose of the efficient regulation of title insurance for which the amendments are to be adopted.

To be considered, all comments on the proposal must be submitted in writing no later than 5:00 p.m. on December 18, 2000, to Lynda H. Nesenholtz, General Counsel and Chief Clerk, Mail Code 113-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. An additional copy of the comments must be submitted simultaneously to Robert R. Carter, Jr., Deputy Commissioner, Title Division, Mail Code 106-2T, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104.

This new section is proposed pursuant to the Insurance Code Articles 9.07, 9.21, and §36.001. Article 9.07 authorizes and requires the commissioner to promulgate or approve rules and policy forms of title insurance and otherwise to provide for the regulation of the business of title insurance. Article 9.21 authorizes the commissioner to promulgate and enforce rules prescribing underwriting standards and practices, and to promulgate and enforce all other rules necessary to accomplish the purposes of Chapter 9. Section 36.001 authorizes the Commissioner of Insurance to adopt rules for the conduct and execution of the duties and functions of the Texas Department of Insurance only as authorized by statute.

The following statutes are affected by this proposal: Insurance Code Articles 9.07 and 9.21

§9.2. Amendments to the Basic Manual Of Rules, Rates, and Forms for the Writing of Title Insurance in the State of Texas for Matters and Subjects Relative to the Regulation of the Business of Title Insurance. In addition to material adopted by reference under §9.1 of this title (relating to Basic Manual of Rules, Rates, and Forms for the Writing of Title Insurance in the State of Texas) (Basic Manual), the Texas Department of Insurance adopts by reference, as part of the Basic Manual, procedural rules for policies of title insurance as amended and adopted effective January 20, 2001. The document is available from and on file at the Texas Department of Insurance, Title Division, Mail Code 106-2T, 333 Guadalupe Street, Austin, Texas 78701-1998.

PROPOSED

AMENDED PROCEDURAL RULE P-2

P-2. "Area and Boundaries" or "Survey" Coverage. [Amendment of Exception to Area and Boundaries]

a. General Instructions

Except as provided in Sub-Section b. or c. of this Rule, in an insuring form of title insurance or [In either] an Owner or Mortgagee Policy, when the Insured desires to have [amended] the exception as to area and boundaries amended [, (i.e. Item 2 of Schedule B)] to delete all save "shortages in area", or when the Company insures as to area and boundaries coverage or assumes the risk of insuring an element of "survey" coverage, the Company shall not amend such exception, issue such insurance coverage or assume such risk unless [the Company may, if] it considers the additional hazard insurable and it receives, and is [, amend such exception upon being] paid all expenses in connection with , a survey of the land to be insured by the policy or insuring form, and said survey is certified by a Registered Professional Land Surveyor of the Company´s selection and made for the pending real estate transaction in which the policy or insuring form is to be issued [a complete current survey made by a surveyor of its selection] (except that the Company may waive the requirement of a [current] survey in connection with the issuance of its Mortgagee Policy insuring the lien on a condominium unit) . In [, and in] that event , the Company may [shall] amend such exception or issue such insurance coverage or assume such risk upon receipt of said survey and [by indicating same in Schedule B of the policy or by endorsement as provided herein upon ] payment of said expenses, and , [the premium prescribed in R-16] in the case of an Owner Policy or owner insuring form, upon payment of the premium prescribed in Rate Rule R-16.

b. Previous Survey and Affidavit

This Sub-Section P-2.b. shall apply solely to transactions involving real property situated in a platted subdivision of record. In lieu of and as an alternative to the provisions of Sub-Section a. of this Rule, the Company, if it considers the additional hazard insurable, may amend the exception as to area and boundaries to read "Shortages in area" or insure as to area and boundaries coverage or assume the risk of insuring "survey" coverage for the pending real estate transaction [subject to any additional exceptions deemed appropriate by the Company] provided that the following requirements are satisfied:

1) The Insured provides to the Company a survey or a copy thereof, that bears the original seal and signature of the Registered Professional Land Surveyor who prepared the survey of the land to be described in the policy or insuring form and the survey has been made in connection with a previous real estate transaction [hereinafter the " Previous Survey"] for the current record owner of the land upon or after the current record owner's acquisition of the interest or estate in the land. The current record owner is a person who is a party to the pending real estate transaction in connection with which the policy or insuring form is to be issued. The Previous Survey must have been made and certified by a Registered Professional Land Surveyor acceptable to the Company. The Company shall not amend the exception as to area and boundaries or insure as to area and boundaries coverage or assume "survey" coverage risk pursuant to this Sub-Section of this Rule if the Previous Survey is dated more than twenty-four (24) months prior to the date of closing of the pending real estate transaction in connection with which the policy or insuring form is to be issued.

2) The current record owner or, if the current record owner is an entity, corporation or person other than a natural person, a principal of that entity with personal knowledge of the land, is a person who has actual knowledge of the physical condition of the land since the date of the Previous Survey.

3) The policy or insuring form to be issued in connection with the pending real estate transaction must insure only the identical land described in the Previous Survey.

4) The Company receives the premium prescribed in Rate Rule R-16 in the case of an Owner Policy or owner insuring form.

5) The current record owner(s) and their spouse(s), or principal(s) of the current record owner(s), with personal knowledge of the land to be insured by the policy or insuring form executes an affidavit concerning the land stating that the Previous Survey is a survey or a copy thereof, that bears the original seal and signature of the Registered Professional Land Surveyor who prepared the survey of the land which was made on the ground and that, since the date of the Previous Survey and up to and including the date of the affidavit, there have been no:

(i) construction projects such as new structures, additional rooms, garages, swimming pools, deckings, or perimeter fences or walls;

(ii) changes in the location of fences or walls situated on or in proximity to the perimeter of the land;

(iii) construction projects on immediately adjoining property(ies) which construction occurred near the boundary of the land; or

(iv) conveyances or replattings or easement grants or easement dedications by the current record owner.

c. [b.] Residential Refinance, Home Equity or Reverse Mortgage, Affidavit in Lieu of Updated Survey

This Sub-Section P-2.c. [P-2.b.] shall apply solely to transactions involving Residential Real Property in connection with a Mortgagee Policy or mortgagee insuring form issued on a loan to renew, extend or satisfy a lien already covered by a Mortgagee Policy or mortgagee insuring form, a lien securing an extension of credit made pursuant to Sub-Section (a)(6) of Section 50, Article XVI, Texas Constitution, or a lien securing a reverse mortgage loan made pursuant to Sub-Section (a)(7), of Section 50, Article XVI, Texas Constitution. 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 Company may amend the exception as to area and boundaries [shall be amended] to read: "Shortages in area" , or insure as to area and boundaries coverage or assume the risk of insuring an element of "survey" coverage {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 a survey or a copy thereof, that bears the original seal and signature of the Registered Professional Land Surveyor who prepared [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 Company shall not amend the exception as to area and boundaries or insure as to area and boundaries coverage or assume "survey" coverage risk pursuant to this Sub-Section of this Rule if the Prior Survey is [Prior Survey shall not be] dated earlier than 7 years prior to the date of the Mortgagee Policy or insuring form to be issued.

2) The borrower or, if the borrower is an entity, corporation or person other than a natural person, a principal of that entity with personal knowledge [has actual knowledge of the physical condition] of the Residential Real Property , has actual knowledge of the physical condition of the Residential Real Property since the date of the Prior Survey.

3) The Mortgagee Policy or insuring form to be issued in connection with the current loan transaction must insure only the identical [refinance transaction will describe under item "5" of Schedule "A" no other land other than the] Residential Real Property described in the Prior Survey.

4) The borrower , or a principal of the borrower, with personal knowledge of the Residential Real Property, 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:

(i) construction projects such as new structures, additional rooms, garages, swimming pools or deckings;

(ii) changes in the location of boundary fences or boundary walls;

(iii) construction projects on immediately adjoining property(ies) which construction occurred near the boundary of the Residential Real Property; or

(iv) conveyances or replattings or easement grants or easement dedications by the borrower.

d. General Conditions

1. As used in this Procedural Rule P-2, a survey is defined as a report in the form of a map or plat made to establish or reestablish a boundary line on the ground, showing the location of structures and other improvements if required, which is prepared by a Texas Registered Professional Land Surveyor and certified by that surveyor to such a professional and technical standard as the Company may require.

2. Nothing in this Rule shall affect the rights or requirements, if any, of a seller, buyer, borrower, lender or other party to a real estate transaction to order or require a survey.

3. If an affidavit is provided to the Company pursuant to this Rule and the affidavit is incorrect, the area and boundary or "survey" coverage given pursuant to this Rule shall be unaffected and in full force and effect as to innocent Insureds; provided however, if the affiant is an Insured or principal of an Insured, the Company shall include in the Policy an exception that the Insured´s area and boundary or "survey" coverage shall not extend to or cover any matter as to which the affidavit is incorrect and relied upon by the Company.

4. No affidavit made pursuant to this Rule shall contain any provision requiring indemnification of the Company or its title insurance agent by any Insured named in the policy or insuring form to be issued in compliance with this Rule.