Real Estate Law Blog

Changes to Texas Title Rules

In 2013 the Texas Commissioner of Insurance adopted a number of changes to the Texas Basic Manual of Rules, Rates and Forms for the Writing of Title Insurance in the State of Texas (the "Texas Title Manual"). Those changes became effective January 3, 2014. A few of the more significant changes are summarized below. For more information, and to subscribe to updates to the Texas Title Manual, visit the Texas Land Title Association's website.

• Procedural Rule P-57 was amended to include "Fairway language" for an optional coverage in the T-26 Additional Insured Endorsement.The amended endorsement now will allow transfer of an interest in a limited liability company without being deemed to create a new entity, thus voiding the title policy's coverage. (The reference is to Fairway Dev. Co. v. Title Ins. Co. of Minn., 621 F. Supp. 120 (N.D. Ohio 1985), in which the court held that the assignment of partnership interests to the remaining partner and a new unrelated purchaser resulted in a termination of the partnership insured by the title policy at issue and the creation of a new partnership that therefore lacked standing to bring a claim under the title policy issued to the original partnership). 
• A new Commercial Environmental Protection Lien endorsement (Form T-36.1) was adopted. Unlike many other jurisdictions, Texas previously allowed this coverage only on residential property. The new endorsement is consistent with the ALTA 8.2-06 endorsement commonly available in other jurisdictions. NOTE: Although approved, this endorsement will not be available until a Rate Rule and a Procedural Rule are proposed and adopted by the Texas Department of Insurance.
• A new Procedural Rule (P-72) and endorsement form (T-54) were adopted to address situations in which an item's status as real or personal property is disputed. The endorsement affects the measure of damages available if certain title defects cause a diminution of value or result in certain specified costs.
• Endorsement Forms T-19 and T-19.1 (Restrictions, Encroachments, Minerals) were amended to more closely conform with ALTA forms 9-06 and 9.1, and to include language insuring against covenant violations.
• Several other endorsements were amended to more closely track the corresponding ALTA forms. Included among these are T-16 (Loan Policy Aggregation), T-14 (Leasehold Owner's Policy), T-4R (Residential Leasehold), T-5 (Leasehold Loan Policy).

Again, a fuller description of the newly effective changes can be found in the update bulletin on TLTA's website. 

Laura McClellan
Thompson & Knight LLP
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Limits on Lender Insurance Requirements

When making real-estate-secured loans, lenders routinely require borrowers to maintain specified types and amounts of insurance on the property that serves as the lender's collateral. Loan document insurance provisions also typically require the borrower to provide to the lender evidence that the required insurance is in place. As a reminder, Texas law prohibits lenders from requiring a borrower to provide evidence of renewal/replacement policies any sooner than 15 days before the expiration of an existing policy (Sec. 549.054 of the Texas Insurance Code).

If you have questions about insurance requirements or other loan document provisions, feel free to contact me.

Laura McClellan
www.tklaw.com

 

Guest Post: Two Legal Implications of Appraisal Management Bonds

Danielle Rodabaugh is the editor of the Surety Bonds Insider, an online publication that takes a critical look at developments within the surety industry. As a part of the publication's educational outreach program, Danielle has recently taken an interest in writing about appraisal management bonds since they are new to both the surety and real estate industries. I thought the information Danielle offers below would be of interest to readers of this Real Estate Law Blog.

It's no secret that the housing market and its professionals have been under scrutiny as a result of business practices that took place throughout the past decade. The housing bubble burst, mortgage professionals committed fraud, and let's not forget the AppraiserLoft fiasco that stiffed so many real estate professionals. Ever since, state agencies have been looking for ways to regulate the market and protect consumer investments. As such, 10 states have set surety bond requirements for appraisal management companies. Although surety bond requirements have been used to regulate a number of industries for hundreds of years, professionals and consumers alike often remain uneducated about the legal protection provided by bonds. There are two fundamental ways that surety bonds provide legally enforceable protection to those who have a stake in the housing market.

1) Each appraisal management bond issued is a legally binding contact.

When an AMC purchases an appraisal management bond, it binds itself to two other entities in a legally enforceable contract.

1. The principal is the company that buys the appraisal management bond. As a principal, an AMC promises to fulfill whatever stipulations are found within the bond's legal language.
2. The obligee is the government agency that requires the AMC to purchase a bond. When an obligee requires a surety bond, it's doing so for two reasons: to regulate companies that work in a specific industry and to protect consumer interests.
3. The surety is the agency that issues the appraisal management bond. By executing the bond, the surety becomes legally obligated to pay for any claims made against a bond.

Each surety bond that's executed functions as a line of credit that guarantees a principal will adhere to industry regulations. As such, surety bonds aim to keep AMCs from participating in unethical business practices. For this reason appraisal management bond regulations are on the rise in today’s real estate industry.

2) Appraisal management bonds provide real estate appraisers and their clients with legal recourse.

The exact protection provided by an appraisal management bond depends on the legal language found within the bond. Most bonds allow claims to be made by any party harmed as a result of an AMCs inability to meet the bond's terms. However, bonds in some states specifically dictate that consumer claims are given priority in recovering losses (i.e. claims made by homeowners rather than real estate appraisers). The main goal of appraisal management bonds ensures AMCs are held financially accountable for their business practices. If a bonded AMC fails to meet the bond's expectations, harmed parties can make a claim on the bond to recover their losses. Appraisal management bonds essentially give harmed parties a means of legal recourse should all other recovery methods be exhausted. However, since appraisal management bonds are so new, their effectiveness remains to be seen. States that currently enforce AMC bonding requirements include Arkansas, Arizona, Georgia, Kentucky, Missouri, Nebraska, New Mexico, Oregon, Tennessee and Washington. A few of the laws don't require appraisal management companies to post a surety bond until some point in 2012. If you're a real estate appraiser or homeowner in one of these states and you believe an AMC failed to follow industry protocol, contact the company's surety bond provider to explore the claims process.

Fifth Circuit Decision Provides Lessons for Drafting Indemnity and Insurance Clauses

A recent Fifth Circuit case provides a useful tutorial for landlords and others seeking contractual indemnification and additional-insured coverage because it shows: (1) the different criteria for enforcing indemnification and insurance-procurement clauses; (2) why the indemnity is unenforceable, but the insurance clause is valid; and (3) how the "other-insurance" clauses in both parties' insurance policies may require the additional-insured's insurer to contribute to the defense and indemnity of a lawsuit, a result that is potentially troublesome.  This is a landlord/tenant case, but the insurance and indemnity issues apply with equal force to any other type of commercial contract.

 

My colleagues here at T&K have prepared a bulletin discussing the case and its implications. You can read the bulletin by clicking here. For more information, please contact David White at david.white@tklaw.com or any of the other attorneys identified in the bulletin.

Guest Blog: New Title Insurance Rules and Endorsements Regarding Minerals.

The following comes from guest blogger Thad Armstrong, one of my colleagues in the T&K real estate group. For more information, please contact Thad at 713-951-5834

or thad.armstrong@tklaw.com.

Effective November 1, 2009, Texas title companies will have the right to elect whether to exclude or except minerals from coverage. This new rule is the result of months of controversy over the recent trend of title companies to exclude minerals from coverage arguably in violation of the previous rule requiring any exceptions to coverage to be specific in nature rather than broad or general. If the title company elects to exclude minerals under the new rules, a broad "carve out" will be made from the description of the insured property. If the title company elects to except minerals from coverage, a similar broad exception will be made on Schedule B of the policy. If the title company makes either election, it will be required to offer the new T-19.2 and/or T-19.3 endorsements. These endorsements are similar to the existing T-19.1 endorsement in that each offers the insured protection against certain damages resulting, for example, from mineral exploration on the property. There are, however, significant differences. First, the new endorsements offer better coverage for damage to buildings and other improvements on the property. Second, the new endorsements are less expensive – a flat $50.00 for each parcel of land covered by the policy, whereas the cost for the T-19.1 endorsement is 10% of the policy premium.

Important Insurance Information

Company risk managers who are responsible for their companies' insurance policies should beware of the risk that subsidiaries might not be covered if the policy definition of "Insured" is not carefully drafted. One of my colleagues, David White, who practices insurance law, discussed this issue in some detail in his blog posting titled "Policy Covering 'Any Subsidiary Corporation' Does Not Cover LLC's."