Bulletin: TX000015

Dear Associates:

The State Board of Insurance has adopted new and modified forms effective January 1, 1993.

(New) Residential Owner Policy of Title Insurance (Form T-1R)

We will have two forms of Owner Policies: The current Owner Policy (T-1) and new Residential Owner Policy (T-1R).

You must issue the new Residential Owner Policy (T-1R) if the land is residential real property. Land is "residential" only if it has one-to-four family residences.

Residential land does not include land on which construction has not yet begun. Residential land does not include an apartment complex (with more than four units).

Residential real property is land with one-to-four family residences that (1) is in a recorded subdivision, or (2) has five acres or less, or (3) has more than five acres and less than 200 acres if the insureds are individuals who intend to use it for agricultural production.

Example: XYZ Savings acquires seven lots in a recorded subdivision at foreclosure. Two of the lots have completed houses. You must issue the Residential Owner Policy (T-1R) to XYZ Savings.

Example: Jane Brown acquires a lot in Shady Acres recorded subdivision. She contracts to build a house on the lot. You must issue the current Owner Policy (T-1) if no improvements exist at time of issuance.

Example: Judy Smith acquires 175 acres of farmland that she intends to farm and that includes a house. You must issue the Residential Owner Policy (T-1R).

Example: XYZ Corporation acquires a 20-unit apartment complex. You must issue the current Owner Policy (T-1).

If the land is not residential real property, you must issue the current Owner Policy (T-1). For example, you must issue the current Owner Policy (T-1) on commercial real estate, most agricultural real estate, apartment complexes, and unimproved property that will be improved with residences.

The Residential Owner Policy (T-1R) contains:

• Information Sheet. This introduces the terms of the Policy.
  
  
• Table of Contents.
  
  
• Owner's Coverage Statement. This says the Policy applies only to one-to-four family residential property. It contains the insurance and agreement to defend.
  
  
• Covered Title Risks. These are insured matters: title, restrictions, liens, leases, contracts and options, easements, good and indefeasible title, defects, and other encumbrances. These are not new coverages. They are simply in plain English.
  
  
• Schedule A. Paragraph 1 names the insured. The insured must be the owner of the insured interest in paragraph 2. The insured and the owner must be the same person in this form (unlike the Owner Policy [T-1]).
  
  
• Schedule B.
  
  Paragraph 1 - Restrictions. You must show restrictions or delete this exception.
  
  Paragraph 2 - Area and Boundaries. You may amend this exception to say "any shortages in areas." You must receive an acceptable survey, and 15% of the basic premium, and you must except to disclosed survey problems.
  
  Paragraph 3 - Homestead and Community Property Rights. You cannot delete this exception.
  
  Paragraph 4 - Waters Exception. You cannot delete this exception.
  
  Paragraph 5 - Tax Exception. This amended exception now includes assessments.
  
  Paragraph 6 - Additional Matters (e.g., easements, minerals, liens). Do not say "none". Delete this paragraph if you make no exceptions.
  
  
• Exclusions. These are similar to the current Owner Policy (T-1) exclusions. They include: police powers and condemnation (but we must except in Schedule B if a notice of violation or condemnation appears in the real property records); unmarketability; creditors' rights; and a new paragraph (Number 8) that says we do not insure physical condition of land.
  
  
• Conditions. The Policy continues if the insured sells and takes a purchase money mortgage. The Policy covers heirs and devisees of the insured. The Policy requires notice to us of a claim. It allows us to handle the claim. Paragraph 8 says the insured and we "may agree to arbitration" when there is a claim. This Policy does not have binding arbitration. You cannot delete the arbitration provision in this Policy since the insureds are not required to arbitrate and do not need to delete if they do not want to arbitrate. This Policy has no coinsurance clause (covering only part of loss if improvements are added), unlike the Owner Policy (T-1).

(Amended) Access Exception (P-37)

The Access Exceptions in the Owner Policy (T-1) and Mortgagee Policy (T-2) do not change. If you except to access in the new Residential Owner Policy (T-1R), add the following to Schedule B:

"Lack of a right of access to and from the land. Company deletes the insurance of access under Covered Title Risks".

(Amended) Commitment

This is a revised "plain language Commitment". This is the only Commitment form for all Policies. Please destroy your old stock of Commitments.

The (Amended) Commitment contains:
Texas Title Insurance Information. This sheet describes the Commitment terms and the Salvage and Parties in Possession Exceptions.

Deletion of Arbitration Provision. You include this form when you issue a Commitment for an Owner Policy (T-1) or Mortgagee Policy (T-2). You do not include this form when you issue a Commitment for a Residential Owner Policy (T-1R) (since you cannot delete arbitration on that form).

Complaint Notice. This contains Department of Insurance and underwriter toll-free numbers.

Commitment Cover. The Commitment is still effective for 90 days. The Commitment is not valid unless you show a proposed insured and proposed policy amount.

Commitment Conditions. The insured must notify us of known matters. We may amend the Commitment upon notice of matters.

Schedule A. Paragraph 1(b) provides a new form: The Residential Owner Policy (T-1R).

Schedule B. The exceptions are substantively the same. You delete Exception 9 (Other Matters) if you add no exceptions. Do not say "none".

Schedule C. The requirements are substantively the same. You must approve the documents. You must receive proof of payment of all bills, taxes, and the sales price. You must have satisfactory evidence of legal right of access. The Commitment excepts to matters arising or filed after the Commitment Date.

Complaint Notice Information

You must insert this form in the Owner Policy (T-1), Residential Owner Policy (T-1R) and Mortgagee Policy (T-2). It has not changed.

(New) Residential Leasehold Endorsement

There are separate Leasehold Endorsements for each Owner Policy. You attach this new Residential Leasehold Endorsement to the Residential Owner Policy (T-1R) if you insure a lease. You attach the other (current) Leasehold Endorsement to the current Owner Policy (T-1).

(Amended) Increased Value Endorsement (Form T-34)

You issue this amended endorsement if you increase the coverage of either the current Owner Policy (T-1) or Residential Owner Policy (T-1R). There is only one form of Increased Value Endorsement (unlike the two separate Owner Leasehold Endorsements).

(Amended) Tax Exception

The Board amended the Tax Exception in the Owner Policy, Mortgagee Policy, Commitment, Binder, Owner Title Policy Commitment to Texas State Highway Department, Owner Title Policy Commitment for Eminent Domain Proceedings, and Assignment Endorsement Instructions.

The amended affirmative insurance on taxes (P-29) states: "Company insures that standby fees, taxes and assessments by any taxing authority for the year are not yet due and payable".

(Amended) Owner Policy of Title Insurance (Form T-1)

Schedule A, Paragraph 3, says that title is insured as vested. Schedule B contains rewritten exceptions: Paragraph 4 (Water Matters - you cannot delete this exception); Paragraph 5 (the Tax Exception now includes assessments); and Paragraph 6 (Other Matters - Delete if you have no exceptions. Do not say "none".) The Creditors' Rights Exclusion (Number 5) has changed. You cannot delete this exclusion or other exclusions. The arbitration clause (Paragraph 14 of the Conditions and Stipulations) has changed. Arbitration now is not binding on individuals.

(Amended) Mortgagee Policy of Title Insurance (Form T-2)

Schedule A, Paragraph 2, says that the estate is insured as encumbered. Schedule A, Paragraph 3, says that title is insured as vested. Schedule B, Exception 3 (Taxes) now includes assessments. The Creditors' Rights Exclusion (Number 8) has changed. You cannot delete this exclusion or other exclusions. The arbitration clause (Paragraph 13 of the Conditions and Stipulations) has changed. Arbitration now is not binding on individuals.

(New on October 30, 1992) Deletion of Arbitration Provision Form

You must deliver this form to a proposed insured under an Owner Policy (T-1) or Mortgagee Policy (T-2). You should include this form with the Commitment or separately give it to the proposed insured if you do not deliver a Commitment to that insured. You do not give this form to a proposed insured on a Residential Owner Policy (T-1R). That Policy does not have binding arbitration (and you cannot delete the arbitration provision in that form).

You must delete the arbitration provision in the Owner Policy (T-1) or Mortgagee Policy (T-2) if (before you issue):

• The proposed insured signs this form and returns it;
  
  
• The proposed insured tells you in writing to delete arbitration;
  
  
• The proposed insured tells you verbally to delete arbitration.

(Amended) Mortgagee Title Policy Binder on Interim Construction Loan (Form T-13)

The cover of the Binder has changed. The Binder is still effective one year. You can still extend it by (six-month) extensions for six times. Schedule A has changed: You still show the proposed insured (interim lender); proposed borrower (mortgagor); apparent ownership of title (Mortgagor): description of lien; and legal description. The Tax Exception (Schedule B, Part l, Number 3) now includes assessments. Schedule B, Part 2, commits to insure priority as stated on the Mortgagee Policy. Schedule C has not changed.

(Amended) Down Date Endorsements

The Board amended the "Construction" Down Date Endorsement Instructions to the Mortgagee Policy, Owner Policy and Binder. You should use these revised Down Date Endorsements on all preexisting construction loans.

Each amended Endorsement allows you to delete unnecessary exceptions. You no longer say "none" if you add no exception; instead, you delete the paragraph. For example, if you do not add Schedule B items, you delete the Binder exception regarding new Schedule B items (Paragraphs 4 and 5 of Mortgagee Down Date; Paragraphs 3 and 4 of Binder Down Date; Paragraph 4 of Owner Down Date). You delete "and except" at the end of the exception for new mechanics' liens if there are none (Paragraph 3 of Owner Down Date and Mortgagee Down Date; unnumbered paragraph in Binder Down Date). You no longer say "none" if you add no exception to paragraphs 3, 4 and 5 of the Mortgagee Down Date or paragraphs 3 and 4 of the Owner Down Date or paragraphs 3 and 4 and last paragraph of the Binder Down Date.

(Amended) Assignment Endorsement

The Amended Assignment Endorsement changes the tax exception to include assessments. It deletes the reference to the priority status of lien ("valid __________________ lien" now changes to "valid lien"). The Policy already covers that issue. If you do not add exceptions, you now delete the phrase "and the following". You no longer say "none" at the end of that paragraph.

(Amended) Waiver of Inspection and Disclosure to Owner (Please see referenced forms at the end of this bulletin.)

We recommend you use this form when issuing an Owner Policy (T-1R or T-1).