- February 01, 1998
- All District of Columbia Policy Issuing Agents
- Guidelines for Residential Refinance and Second Mortgage Title Searches
Stewart Title has had inquiries from agents asking that the requirements for title searches on refinances and second mortgages be reduced in order to make the residential refinance and second mortgage title insurance producer more "user friendly". In view of these requests, we have reviewed our requirements and have decided upon the following underwriting guidelines for use in residential refinance and second mortgage transactions.
PRIOR TITLE POLICY PRESENTED
If you are given an owner's title insurance policy by the prospective refinancing or second mortgage borrower, or a lender's title insurance policy from the prospective refinancing or second mortgage lender insuring the current lender and/or the current owner of property to be pledged in your transaction, you may assume title in the insured owner as of the date of the policy and do a bring-to-date from that policy date. The Schedule B exceptions should be those shown in the policy presented. Whether or not the policy presented is dated more than 10 years prior to this transaction is of no concern in determining the acceptability of the policy as long as it pertains to this borrower and this property. If, however, the borrower is seeking a re-issue rate on the premium to be charged, the owner's policy must be dated within 10 years of the time presented. If it is older than 10 years it can be used but full rates will apply. The policy given you is acceptable for assuming title is it is written on a reputable title insurer and doesn't come from an agent not in good standing with the title insurer. As always, the use of common sense in this matter is dictated. You should not routinely accept the policy simply because it is given to you. Study it when it comes in to determine if it appears acceptable. If it's acceptable, order your bring-to-date, and, if not, disregard the policy presented and see below.
NO TITLE POLICY PRESENTED
If neither the owner nor the lender presents you with an acceptable title policy, you may order a two owner search under most circumstances, but not in every case. Generally, you may assume title in the party who conveyed title to your current owners/borrowers and do a search to the present from the deed into the party who conveyed into your party. If your abstractor determines that your party bought a new home directly from the developer or builder in a platted subdivision, you may assume title in your party and do a bring-to-date, thus doing a one owner search. However, you will need to do a three owner search if your abstractor determines that your borrower obtained property in a transaction whereby the deed from the party who conveyed to your borrower is recorded concurrent with your party's vesting deed (a few examples being a "flip" transaction or a sale form an estate heir/legatee with the heir/legatee obtaining title from the PR and selling to a third party the same day or a spousal transfer incident to divorce and property settlement, to name but a few of such circumstances).
It is critical that you perform appropriate judgment and lien searches whether it is a one, two or three owner search (12 years for Maryland and DC judgments and 20 years for federal judgments where appropriate). Keep in mind that any judgments you find which are liens against the property will be superior to the refinance or second trust you will be recording.
If your judgment/lien search shows that your borrower or any deeded owner in the abbreviated search you are performing was in bankruptcy during the term when he/she/they owned this property, you must look very carefully to determine whether all liens or judgments were actually terminated during the bankruptcy through an adversary action filed in the bankruptcy case to avoid the lien or have been paid, settled, satisfied and released subsequent to the bankruptcy. Keep in mind that simply because a debtor has been "discharged" in bankruptcy and the case has been closed by the court, it is extremely likely that any judgments which were liens on this property prior to the bankruptcy are still liens on the property which would have a priority superior to your refinance or second deed of trust. Don't assume that a bankruptcy wipes out a lien, because it seldom does without work on the part of the debtor to have it avoided during the bankruptcy.
SCHEDULE B EXCEPTIONS FOR POLICY
If you are presented with a title policy at the beginning of the refinance or second mortgage process, you will have the Schedule B exceptions for use with your lender's commitment and policy. If you have no policy to work from and are doing a one, two or three owner search, you will not normally be provided with the exceptions. If you will be issuing an ALTA Short Form Residential Loan Policy, you will not need to include a list of exceptions, since this policy has a preprinted "Schedule B - Exceptions from Coverage and Affirmative Assurances" section. This preprinted section states that if there are covenants, restrictions, leases, etc. which encumber and burden the property, Stewart Title is giving the lender affirmative assurances against violations. You are now authorized to use essentially the same affirmative assurances with the standard 1992 ALTA Loan Policy as are used with the short form policy. In the event that you have a lender which is uncomfortable without a listing (and perhaps copies) of the specific exceptions, you will have to do a full search and will not be able to take advantage of this abbreviated search.
It is customary with most title companies to have the seller (in a transfer) and the borrower (in a refinance or second mortgage) sign an affidavit as to bankruptcies, liens, divorce and the like at the closing. The affidavit give the title company and insurer a bit more comfort about matters which concern us from an underwriting standpoint and are not evident from a title search. For example, a judgment only against a husband not attaching as a lien against tenants by the entirety property attaches in the event of a divorce and we would not know from the search about any foreign divorce. You will need to be especially vigilant in these refinances and second mortgages to get the borrowers to carefully study and sign your affidavits, since the underwriting process is being abbreviated.
Address any questions to State Counsel in Baltimore.
THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.