Basic Manual of Title Insurance, Section IV (continued)

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Includes Procedural Rules P-10 | P-11 | P-12 | P-13 | P-14 | P-15 | P-16 | P-17 | P-18 | P-19 Effective 06/10/2018 | P-20

P-10. Facultative Reinsurance

Unless any Company submits to the commissioner a form such Company proposes to use, the Facultative Reinsurance Agreement Form T-18.1; Tertiary Facultative Reinsurance Agreement (Type I) Form T-21.1; and Tertiary Facultative Reinsurance Agreement (Type II) Form T-21.2 shall be used by all title insurance companies authorized to do business in Texas. If the commissioner approves the form submitted by any such company, then such form may be used by the submitting Company after it has been approved by the commissioner.

The Maximum Liability which may be assumed by any title insurance company hereunder is governed by Article 9.19 of the Texas Title Insurance Act---1967, as amended.

EFFECTIVE November 1, 1999

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P-11. Insuring Around

Article 9.08 of the Texas Title Insurance Act - 1967, defines "Insuring Around" as follows:

"Insuring Around' is defined as the willful issuance of a title binder or title insurance policy showing no outstanding enforceable recorded liens while the Title Insurance Company knows that in fact a lien or liens are of record against the real property, and shall be prohibited, except under circumstances as the commissioner under his or her rulemaking powers shall approve. A title insurance company knows that an outstanding enforceable recorded matter exists if it determines that the matter is valid and enforceable based on the examination of the title pursuant to which the title binder or title insurance policy is issued. In its discretion, the title insurance company may determine the insurability of title and those matters which it considers to be insurable under the title binder or title insurance policy; provided, however, that insuring around enforceable recorded liens shall be prohibited except as allowed by regulation."

Pursuant to the authority and instruction given the commissioner by the Legislature as above stated, the commissioner hereby sets forth the following rule to be followed by all title insurance companies and title insurance agents in complying with such Article 9.08, viz.:

"Willful issuance" shall be defined as the issuance of a title insurance policy or binder with intent to conceal information by suppressing or withholding title information, the consequence of which could result in a monetary loss either to the title insurance company or to the Insured under the policy or binder.
"Insuring Around" shall not be construed as prohibiting the issuer of a title insurance policy or binder from issuing a policy or binder without taking exception to a specific lien, or liens, of record when sound underwriting standards and practices would not otherwise prohibit such issuance. Specifically, but not limited to, the term "insuring around" shall not include the issuance of a title insurance policy or binder under the following circumstances:
1. Where liens securing obligations which, though not released of record, have been discharged to the satisfaction of the title insurance company or agent, and the title insurance company or agent has evidence in its file that the lien has been paid in full;
2. Where funds are in escrow to pay same, and a recordable release is forthcoming and will be filed for record in the ordinary course of business;
3. Where liens, in the opinion of counsel, are barred by the statute of limitation;
4. Where liens are inchoate and sufficient indemnity executed by a financial institution regulated by State or Federal Government, such as a bank, savings and loan association, life insurance company or surety company has been delivered to, and accepted by, the title insurance company, or where sufficient funds have been deposited with the title insurance company or its agent to assure the ultimate payment and release of record of the liens; provided the written consent of the Insureds (owner and mortgagee) shall be delivered to the title insurance company and retained in its file;
5. Where sufficient indemnity executed by a financial institution regulated by State or Federal Government, such as a bank, savings and loan association, life insurance company or surety company is delivered to, and accepted by, the title insurance company, or where sufficient funds have been deposited with the title insurance company or its agent to protect against mechanic's liens by affidavits which are being contested or disputed; provided the written consent of the Insureds (owner and mortgagee) shall be delivered to the title insurance company and retained in its files;
6. Where a title insurance company has previously issued a policy without taking exception to a specific lien and is called upon to issue a new policy and is already obligated under such prior policy, and will not increase its liability or exposure to the lien by the issuance of such new policy; provided the written consent of the Insureds (owner and mortgagee) shall be delivered to the title insurance company and retained in its files;
7. Where a title insurance company has erred as in (6) above, and another title insurance company discovers the error in preparing to make a subsequent issuance, the second title insurance company may rely upon an indemnity agreement and/or an agreement to defend by the first company, and insure against such lien; provided the written consent of the Insureds (owner and mortgagee) shall be delivered to the title insurance company and retained in its files;
8. When issuing a Loan Policy insuring the validity and priority of a lien, the issuer shall not be required to itemize liens and leases that affect the title to the estate or interest, which are subordinate to the lien insured, either by express subordination or by operation of law, unless requested to do so in writing by the insured in which case paragraph 4 of Schedule B may be deleted, and the subordinate lien(s) and lease(s) shall be excepted in Schedule B and the Company may insure therein such lien(s) and lease(s) are subordinate; however, when issuing a Loan Title Policy Binder on Interim Construction Loan, the Company shall be required to show all subordinate liens in Schedule B-Part 2 of said binder, but a statement may be made therein that such lien(s) is subordinate. When insuring that a lien or lease is subordinate to the lien of the insured mortgage, the Company shall state: "Company insures the insured against loss, if any, sustained by the insured under the terms of the Policy if this item is not subordinate to the lien of the insured mortgage."
9. In instances where federal estate taxes and state inheritance taxes have not been paid, but the title insurance company:
  1. Examines a balance sheet of the estate and determines that the estate will have no difficulty in paying its estate and inheritance taxes, and the title insurance company takes an indemnity from responsible persons protecting itself against loss due to unpaid estate and inheritance taxes, or
  2. Requires sufficient money or other securities to pay estate and inheritance taxes to be left in escrow with it pending payment of such taxes, or pending the receipt of waivers of lien from the taxing authority or authorities, or
  3. Examines the balance sheet of the estate and determines the estate will have no difficulty in paying its inheritance and estate taxes, and the title insurance company obtains a letter from a responsible person agreeing to see that such taxes are paid out of the assets of the estate.
10. When a title insurance company previously issues a policy without taking exception to matters covered by the Master Indemnity Agreement (T-29) and is called upon to issue a new policy and is already obligated under such prior policy, and will not increase its liability or exposure to some matter by the issuance of such new policy.
11. Where a mortgage securing a loan on (1) property consisting exclusively of a one-to-four-family residence, including a residential unit in a condominium regime; or (2) property other than property described by subdivision (1), if the original face amount of the indebtedness secured by the mortgage on the property is less than $1.5 million has been released by an affidavit that is filed in compliance with all of the requirements that are specified in Section 12.017 of the Texas Property Code.
"Texas Master Indemnity Agreement (T-29)" A title insurance company may, in lieu of the execution of separate transaction specific indemnity letters or agreements, indemnify another title insurance company in accordance with P-11b(7) and/or P-11b(10) above by executing the Texas Master Indemnity Agreement (T-29). If a title insurance company elects to provide another title insurance company with a master indemnity agreement, the Texas Master Indemnity Agreement (T-29) must be used if the master indemnity agreement is intended to cover the liens and other matters set forth in the Texas Master Indemnity Agreement (T-29).

Effective January 3, 2014 (Order 2806)

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P-12. Abstract Plants

Definition: An abstract plant used as the basis for issuance of title insurance policies in the State of Texas shall consist of fully indexed records showing all instruments of record affecting lands within the county for a period beginning not later than January 1, 1979. An abstract plant that is fulfilling the licensing requirement for a title insurance agent's license on September 1, 2009, but does not on that date, cover a period beginning not later than January 1, 1979, as required by §2501.004 of the Insurance Code, is not required to comply with §2501.004 before January 1, 2014. The indices pertaining to land shall be arranged in geographic order (i.e.: Lot and Block for subdivided lands, and by Survey or Section Number for acreage tracts). Miscellaneous alphabetical indices shall be maintained according to name. Said indices, land and miscellaneous, may be stored in a computer, and as to land, be subject to retrieval by reference to description of the property under search. The records of the abstract plant shall be maintained to current date, and shall include, but not be limited to, plat or map records, deeds, deeds of trust, mortgages, lis pendens, abstracts of judgment, federal tax liens, mechanic's liens, attachment liens, divorce actions, wherein real property is involved; probate records; chattel mortgages, attached to realty and financing statements relating to items which are, or are to become, attached to realty, if available for indexing from the office of the County Clerk of the county which is covered by said plant.
(Rule P-1.i.)
Leased Abstract Plants: A lessee is not necessarily excluded from the phrase "owning and operating an abstract plant" as used in §2501.004 of Title 11 of the Insurance Code, but will be so excluded unless in actual, exclusive, physical possession and control of an abstract plant meeting the requirements of paragraph "a" above, operating it under the terms of a bona fide lease agreement, which places the lessee in exclusive possession and control of such abstract plant facilities for a determinable period and for a fixed rental.
Joint Abstract Plants: Two or more Companies may combine their operations into a single abstract plant for the purpose of increasing the efficiency and speed of producing title evidence for examination purposes. In such event, if the base plants owned or leased by the individual participants are not merged into a single plant, then the base plants and the joint abstract plant, when considered as one, must meet all the requirements of an abstract plant as set forth under paragraph "a" above. Ownership of such joint abstract plant may be by corporate ownership, joint venture or partnership agreement, but ownership must rest with the Company participants.

Effective January 3, 2014 (Order 2806)

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P-13. Truth-In-Lending

The disclosures required in "CONSUMER CREDIT PROTECTION ACT," "TRUTH-IN-LENDING," and similar acts are duties imposed on lenders and constitute no part of the issuance of title insurance policies. Therefore, the title insurance companies and agents may not prepare or pass judgment on disclosure documents and notice of right of rescission documents as required by such acts or make any computation as required thereunder. However, this rule shall not prohibit said title insurance companies or agents from performing the ministerial act of inserting in loan disclosure statements, prior to the delivery of same and at the request of and under the direction of creditors, items or figures, not readily ascertainable by creditors prior to the actual closing of the transaction, which items are not a part of the financing charge; nor shall it prohibit said title insurance companies or agents from presenting said disclosure statements and notices of rights of rescission to borrowers and having said borrowers properly acknowledge and sign said statements. All of the foregoing shall be applicable, either fully or to the extent that it is not contrary to superior law, but in no event shall the title insurance company be liable, or its policy provide such liability, to an Insured in respect of such matters, except as expressly provided and authorized by this rule.

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P-14. Owner Title Policy Commitment to Texas Department of Transportation

The Owner Title Policy Commitment to the Texas Department of Transportation shall be issued only as follows:

The Commitment shall be issued only to the Texas Department of Transportation.
As provided in Rate Rule R-23 there shall be a premium charge of $200.00 within sixty (60) days of issuance of an original Owner title Policy Commitment or Owner Title Policy Commitment for eminent domain proceedings to the Texas Department of Transportation. If title is conveyed to the Texas Department of Transportation a credit of $200.00 shall be given upon issuance of an Owner Title Policy to the Texas Department of Transportation by the Company which issued the previously issued commitment. No credit shall be allowed if title is not conveyed within thirty-six (36) months from the date of the original Commitment.
The term "negotiation of said warrant" in said form is hereby defined to include the right of the Company to refuse to negotiate the warrant in the even the release of existing liens cannot be obtained, or in the further event adverse matters affecting the title become known to it subsequent to the date of the Commitment.
The issuance of such Commitment to the Texas Department of Transportation, in those cases where there are outstanding and enforceable recorded liens which have been previously or contemporaneously disclosed to said Department, shall not be construed a violation of Rule P-11, "Insuring Around".

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P-15. Commitment for Title Insurance to or for the Benefit of the Federal Deposit Insurance Corporation, Office of Thrift Supervision or Resolution Trust Corporation

A Commitment for Title Insurance to or for the benefit of the Federal Deposit Insurance Corporation, Office of Thrift Supervision, or Resolution Trust Corporation shall be issued only as follows:

To the Federal Deposit Insurance Corporation, Office of Thrift Supervision, or Resolution Trust Corporation, or as its interest may appear, as the proposed insured.
A premium charge shall be collected as provided in Rate Rule R-25.
The Commitment Form to be used shall be the then current promulgated Commitment form, except such form shall, prior to issuance, be modified by providing in Schedule "C" of the form an expiration date of the Commitment, which expiration date shall not extend beyond one (1) year subsequent to the Commitment's effective date.
The commitment insurance amount shall be $25,000.00.

The provisions of this Procedural Rule P-15 shall not be applicable to any commitment for title insurance issued in connection with a contract of purchase and sale to which the Federal Deposit Insurance Corporation, Office of Thrift Supervision, or Resolution Trust Corporation is a party.*

*(Replaces former P-15 which was withdrawn July 1, 1979.)

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P-16. Loan Title Policy Binder on Interim Construction Loan (Interim Binder)

The Loan Title Policy Binder on Interim Construction Loan (Interim Binder) shall be used only with respect to interim construction loans in which it is contemplated in good faith that the Company issuing the Interim binder shall be asked to issue its Loan Policy or Policies; issued simultaneously with Owner's Policy or Policies of Title Insurance or at the basic rate, on a permanent loan or loans covering the identical property (in one or more parcels) when improvements are completed, but which permanent loan or loans may be made by a mortgagee or mortgagees other than the mortgagee named in the Interim binder. The use of such Interim Binder shall be limited solely to interim construction loans and pledges of the interim construction notes and liens wherein: (i) the obligor on the indebtedness is an original contractor who is also the record owner of the land upon which improvements are to be constructed; and, (ii) the security document for the indebtedness is not in the form of a Mechanic's Lien Contract.

Construction loans may include sums advanced for acquisition of land and/or to take up, renew or satisfy prior existing liens on land upon which construction is to occur.

Interim Binder shall not be issued on vacant lots or tracts, except in connection with the immediate construction of improvements thereon, nor shall such Interim Binder be issued after completion of improvements to which it relates, but this does not prohibit the issuance of Extensions after completion of improvements. In all cases not specifically enumerated in this rule, a Loan Policy shall be used.

The Company shall be required to show all subordinate liens in Schedule B-Part 2 of the Interim Binder, but a statement may be made therein that such lien(s) is subordinate.
(Rate Rule R-13 and Endorsement Instruction I)

Effective January 3, 2014 (Order 2806)

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P-17. Electronically Produced Forms

Permission to Electronically Produce

It shall be permissible for a Company to computer generate or electronically produce any Texas promulgated form. If a Company elects to use electronically produced forms, the Company shall use the appropriate promulgated language for the relevant form as set forth in the BASIC MANUAL OF RULES, RATES AND FORMS FOR THE WRITING OF TITLE INSURANCE IN THE STATE OF TEXAS. An "electronically produced form" shall be signed either with an original signature or by a safeguarded electronic signature as provided in subsection (e) of this rule and issued by the Title Insurance Agent or Direct Operation or Title Insurance Company preparing the form and shall state the name of the Title Insurance Company having liability under the title insurance form.
Permissible Changes to Promulgated Forms
1. It shall not be necessary for an electronically produced form issued by a Company to contain:
  1. the facsimile corporate execution of the Title Insurance Company; or,
  2. the facsimile corporate attest of the Title Insurance Company; or,
  3. the facsimile corporate seal of the Title Insurance Company.
2. With the permission of its Title Insurance Company, it shall be permissible for a company to make the following non-substantive changes to an electronically produced form:
  1. omit the promulgated blank for inserting an endorsement number;
  2. omit the use of endorsement numbers if the Title Insurance Company elects not to individually inventory endorsements;
  3. add accounting information (such as, without limitation, county codes, statistical code numbers, rate rule references, and premium amounts) to the top or bottom margin of an electronically produced form; and,
  4. format general identifying information to be printed in convenient locations. For purposes of this sub-paragraph, general identifying information includes such items as (i) name of Title Insurance Company; (ii) name or title of form; (iii) form "T-__" number, if applicable; and, (iv) signature blanks for the Company.
Directly Issued Policies

This rule shall not affect the requirement for countersignature of a Directly Issued Policy pursuant to Procedural Rule P-31, which policy may be computer generated or electronically produced.
Consumer Protection

The Company must comply with the provisions of the Electronic Signatures in Global and National Commerce Act, including the requirements for Consumer Disclosures set forth in Section 101 (c) of said act, and the Uniform Electronic Transactions Act, Texas Business and Commerce Code, Chapter 43, where applicable.
Electronic Safeguards

Information that is generated, scanned, or otherwise stored electronically must accurately reflect the information set forth in the document or record as of the time it was first generated in its final form and must remain unaltered and accessible for later reference and audit.
Document Retention

This rule shall not affect the requirements of document retention pursuant to Article 9.34, Texas Insurance Code and the rules promulgated thereunder, except that documents or records which are initially computer generated or electronically produced in conformity with this rule may be retained in that medium.
Due to the higher level of security and expedited recording time afforded by electronically filing or recording instruments, promulgated forms or other documents incident to real or personal property transactions, the actual charges or a reasonable estimate of charges, including actual charges or a reasonable estimate of charges by a trusted third-party provider to an authorized filer, for electronically filing or recording (e-filing) such instruments, forms or documents may be passed through to the consumer. Such actual charges or a reasonable estimate of charges may not be marked up.

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P-18. Commitment for Title Insurance

After receipt of a bona fide order for an Owner Policy of Title Insurance on residential real property or for an Owner Policy not to exceed $300,000.00, the Company must deliver to the proposed insured a Commitment in the form approved by the State Board of Insurance. Delivery may be had upon the proposed insured's authorized agent, other person in a fiduciary relationship with it, or its attorney, and if none of the aforementioned persons are available after using the Company's best efforts, then to the person designated by the person opening the order for insurance. Such Commitment shall be delivered as soon as practicable, using the Company's best efforts allowing reasonably sufficient time for review prior to the closing of the transaction.
The Commitment for Title Insurance shall be issued only as preliminary instrument in instances in which the Company has a bona fide order for the policy or policies of title insurance specified therein, to be issued within 90 days from the effective date of the Commitment as shown under Schedule A of said Commitment.
For title insurance policies not included in A. above, the Commitment must be issued if the proposed insured so requests.
The Company shall not be required to issue a Commitment on an order it is unwilling to insure or when a bona fide order for the policy is placed after the real estate transaction is closed.
The liability and obligations under the Commitment end ninety (90) days after the Commitment's effective date, or when the Policy is issued, whichever occurs first, unless the failure to issue the Policy is the Company's fault. In no event shall such Commitment for Title Insurance be used in lieu of a policy of title insurance.
Amount(s) of the policy or policies to be issued shall be as established in the same manner as to the amount of coverage as established under Rate Rules R-3 and R-4.

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P-19. Pending Disbursements

When a Loan Policy is to be issued and the full proceeds of the loan have not been disbursed by the insured therein, the "Pending Disbursement" paragraph in Procedural Rule P-8.b.(1) must be inserted as an exception to said policy.

When the full proceeds of the loan have been disbursed by the insured, the exception provided for above may be eliminated by the issuance of the promulgated endorsement form containing the appropriate language to effect such elimination.

Effective June 10, 2018 (Order 2018-5503)

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P-20. Standard Exception Relating to Taxes

Taxes for the Current Year
1. In connection with the issuance or amendment (after issuance) of any Owner's Policy, Loan Policy, or of any Loan Title Policy Binder on Interim Construction Loan (Interim Binder), an exception must be shown on Schedule B to taxes and assessments for the current tax year by any taxing authority, and the Company may not insure that taxes for the current tax year are paid, unless:
  1. Taxes are Paid or Collected at Closing. A company may insure that taxes for the current tax year are paid if:
    1. All of the taxes for the current tax year have been assessed by the taxing authorities;
    
    2. The Company has satisfactory evidence in its file that the assessed taxes for the current year have been paid by the owner or
    
    3. If all of the taxes for the current year have not been paid:
    1. The unpaid taxes are collected at closing by the Company; and
    2. The Company will pay the taxes in the ordinary course of business.
  2. Owner's Tax Reserve/Escrow Account With Payoff Lender. A Company may insure that taxes are paid for the current tax year if:
    1. The Company has satisfactory evidence in its file that the assessed taxes for the current year have been paid by the current lender from the owner's Reserve/Escrow Account held by lender, or
    
    2. In the absence of satisfactory evidence in (1) above, a Company may accept:
    1. A sufficient Indemnity executed by a responsible party,
    2. Together with a deposit of funds in an amount sufficient to pay the assessed taxes.
    3. When following provision (2) above, the Company shall:
    1. Pay the assessed taxes according to the terms of the Indemnity and before they become delinquent, or
    2. Upon receipt of satisfactory evidence that the assessed taxes for the current year have been paid, promptly pay the escrowed funds to the proper party.
2. If all taxes for the current year have not been assessed by the taxing authorities, the Company may not insure that taxes for the current year are paid.
ROLLBACK TAXES
1. In connection with the issuance or amendment (after issuance) of any Loan Policy or of any Loan Title Policy Binder on Interim Construction Loan (Interim Binder), and upon payment of the premium required under Rate Rule R-19, the words: "and subsequent taxes and assessments by any taxing authority for prior years due to change in land usage or ownership", as contained in the standard tax exception may be deleted by:
  1. Deletion of such words upon the policy or binder form, either by checking the appropriate box on a Form T-2 or T-2R or by lining through the words or by producing an electronic form with the words; or
  2. By attachment to the policy or binder of endorsement form T-30.
  The deletion of the above phrase from the standard tax exception is hereafter referred to as "insure or insuring against rollback taxes".
2. A Company may not insure against rollback taxes unless:
  1. The Company has satisfactory evidence in its file that the assessed taxes for the current year are not based on an agriculture or open-space valuation; or
  2. (i) The rollback taxes have been assessed by all of the taxing authorities;
    
    (ii) The rollback taxes are collected at closing by the Company, and
    
    (iii) The Company will pay the roll back taxes in the ordinary course of business.
TAXES NOT YET DUE AND PAYABLE

In connection with the issuance of a Loan Policy or Loan Title Policy on Interim Construction Loan (Interim Binder), upon payment of the premium in R-24, a Company may:
1. If satisfied that all taxes, standby fees and assessments by any taxing authority for the year of the issuance of the Loan Policy or Interim Binder are not yet due and payable, add the following after the standard tax exception: "Company insures that standby fees, taxes and assessments by any taxing authority for the year _____ are not yet due and payable." The addition may be made either by checking the appropriate box on a Form T-2 or by otherwise inserting the additional words into the form.
2. If a Company determines that some, but not all of the taxes are not yet due and payable, the Company may add the following after the standard tax exception: "Company insures that standby fees, taxes and assessments by any taxing authority for the year _____ are not yet due and payable, as to [insert name of applicable taxing authority/authorities] only."

Continue to P-21 Contents of Schedule D to Commitment for Title Insurance

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