- June 06, 2001
- All Issuing Offices in Colorado, Idaho, Montana, North Dakota, South Dakota, Utah, Wyoming
- Insuring Where There Are Multiple Mortgages Recorded Simultaneously
The Company is frequently faced with an underwriting decision to insure the
priority of a third party mortgage, deed of trust or trust indenture where
there is recorded
simultaneously a vendor ("seller") mortgage, deed of trust or trust indenture
on the same land. This circumstance poses a special risk to the Company that
the agent making additional requirements or take additional precautions before
insuring the priority of the third party purchase money mortgage over that
of the vendor purchase money mortgage.
Typically, agents rely upon the recording statutes to determine priority. The Company has not been successful making this argument based upon who recorded first. The
Court usually determines that since both came out of the same transaction
that the vendor should be protected and the third party purchase money lender
There have been situations where a title agent, attorney or closer has simply held the vendor purchase money mortgage without recording allowing a significant period of time to elapse between the recording of the third party purchase money mortgage and the vendor purchase money mortgage. The courts have treated such situations quite harshly in some cases pointing to such holding of the vendor mortgage as being an intervening fraud. The result is then that the vendor is elevated in priority over the third party purchase money mortgage, even though a forced period of time existed between the recording time of the mortgages. The courts look at both mortgages as coming out of the same transaction and still favor the vendor.
To resolve the issue, agents must require a subordination agreement executed by the vendor acknowledging the lower priority and recognition of the third party purchase money mortgage as being senior. Both legal treatises and case law on the subject have supported this notion. The subordination agreement and its provisions is an area that deserves its own special treatment and will not be addressed here. Simply stated, such an agreement would need to acknowledge the priority of the third party purchase money mortgage and contain an acknowledgment that the vendor has reviewed the senior mortgage and promissory note. As with any subordination, should there be terms, conditions and limitations contained or inferred from the agreement, there should be an exception added to Schedule B of the policy. Additionally, you must consider that such actions are not in violation of any closing instructions from any lenders concerned in the transaction.
Any questions or concerns should be directed to your underwriting contacts.
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.