Bulletin: TX000043

Date:
June 30, 1998
To:
All Texas Issuing Offices
RE:
Current Home Equity Questions

Dear Associates:

We have received many questions concerning Home Equity Mortgages. Some issues are discussed in our Bulletin TX000040 (December 29, 1997).

CURRENT TITLE INSURANCE ISSUES

Refinances

If the borrow refinance with the same lender and receive a refund at closing of their prior impound or escrow account, we require that the refund be applied to reduce the new loan or pay closing costs.

On all refinances, obtain our refinance affidavit.

On all refinances, do not allow payment of unsecured debt with loan proceeds unless the loan is a home equity loan.

Surveys

We will accept old surveys (or copies) of any age on Home Equity Loans to amend the area and boundary exception, so long as the borrower affirms that the survey remains accurate.

Mobile Homes

We will no longer insure refinances on Mobile Homes that pay off a security interest on a mobile home located on the homestead, unless the new loan is a Home Equity Loan.

You must still have the mobile home title surrendered and a certificate of attachment must be recorded.

Agricultural Assessment

If the land has been assessed for open space or agricultural use, we require that the outstanding assessments be paid for all prior years (unless our requirements below are met) and that the land not be specially assessed for the current year. Our revised Home Equity Affidavit (available through the reference sections at the end of this bulletin) affirms that the land has not been assessed for agricultural purposes within the last five years (unless additional assessments were paid) and that the affiants will not claim special assessment during the current year.

We will not insure (unless we delete paragraph 2(b) of T-42 endorsement) if the rollback taxes for the last 5 years (if open space) are not paid, even if the land is not specially assessed for the current year, unless (1) the owners sign a waiver of the special tax assessment pursuant to Section 23.20, Tax Code for all taxing authorities; and (2) the tax assessor's office agrees to the waiver for the current year for all taxes; and (3) you secure a copy of the waiver and the tax assessor's approval of the waiver; and (4) the land does not exceed 25 acres unless you secure underwriter approval; and, (5) the owners swear that they will not seek revocation of the waiver and during the term of the loan. [The Home Equity Affidavit can add the following: "Affiants have waived assessment for tax purposes of the Land as Open Space, Agricultural and/or Timber Land by all taxing authorities and will not seek such special assessment for tax purposes during the term of the Loan by Lender."]

If a separate parcel, (a) is part of a larger agricultural tract, (b) has not been specially assessed for agricultural use in the current years, (c) has been given a homestead exemption, and (d) was not separately described, we require that:

(1) the parcel have a separate description;

(2) the parcel have direct access (not over remaining land that is agricultural assessed for the current year); and,

(3) the tax appraiser's office agrees in writing that the described tract is the homestead exempt parcel for tax purposes.

We will not rely on the dairy farm (milk production) exception for agricultural assessed land if the actual milk production, dairy barn and equipment are not located on the borrower's land to be mortgaged.

We will not rely on a "springing easement" over agricultural assessed land to provide access to the homestead tract.

We will treat land assessed as "timber land" as subject to agricultural assessment for purposes of the constitutional amendment. We cannot issue the Policy on a Home Equity Loan covering land subject to timber land assessment unless we delete paragraph 2(b) of the T-42 Endorsement.

Refinance

We do not require renewal and extension language in Home Equity deeds of trust that refinance prior liens. We do not require an assignment of the prior mortgage. On refinances that are not Home Equity Loans, continue to verify that the Deed of Trust has renewal language.

You still must give the R-8 credit if applicable.

Excess Acreage (Example: Urban Tract Over 1 Acre; Rural Land Over 100 Acres if Single Person Not a Constituent of a Family); Other rural land over 200 acres)

We do not insure whether the land includes both homestead and non-homestead land (such as a 1.5 acre urban tract would), or whether the land is homestead. Therefore, we can insure a parcel that exceeds 1 acre. If you know that the parcel exceeds 1 acre, you may wish to accommodate the lender by disclosing the issue. [Example: "Note: The Policy to be issued will not insure that the Land is homestead or that part of the Land is not homestead. Consult with your attorney regarding the effect of the amount of Land exceeding applicable homestead limits."]

We will not insure an option to the lender to purchase adjoining excess acreage over the 1 acre urban homestead limit if the lender gets a mortgage on only one acre and the entire tract exceeds one acre.

Possible Non-Homestead

If the land may be homestead or may not be homestead (such as with "temporary rental" property), we will insure a Home Equity Mortgage, provided all of our other requirements are met.

Revocable Family Trust

Some homesteads may be vested in Family Trusts. If so, please review the trusts and require joinder in the mortgage by all trustees, the trustors (who created the trust), all beneficiaries (including contingent beneficiaries), and all spouses.

Business Homestead

Please call our underwriting personnel if you are requested to insure a "Home Equity Mortgage" on business homestead.

Conspicuous Disclosure

Paragraph 2(e) of the Equity Loan Mortgage Endorsement insures against invalidity of the mortgage because of failure to disclose that it is "an extension of credit (that) is the type of credit defined by Section 50(a)(6), Article XVI, Texas Constitution." This language, or similar language must be used. The disclosure must be CONSPICUOUS.

Joinder in Note

We do not require that both spouse sign the promissory note. Both spouse should consent to the manner of disbursement of loan proceeds.

We do require that all owners and all spouses of owners (even spouses of cotenants who do not use the homestead) join in the Home Equity Mortgage. All owners and spouses should consent to the manner of disbursement of loan proceeds.

Cotenants

If the homestead is owned by two or more cotenants (such as a parent and children), then we require all cotenants and all spouses of cotenants to join in the Home Equity Mortgage.

Office of Lender

If the Home Equity Mortgage and note are signed in the office of the lender, we cannot provide optional paragraph 2(f) of the Equity Loan Mortgage Endorsement (T-42).

Description of Insured Mortgage in Schedule A

We prefer that the Schedule A description of the Home Equity Deed of Trust simply describe it as a "Deed of Trust" (or "Security Instrument," if that is the title), and not describe it as a "Home Equity" Deed of Trust.

Advances for Purchase of Inventory, Equipment or Stock

Some SBA purchase money loans on business homestead include substantial cash advance for inventory. You should treat this loan as a Home Equity Loan.

Mailouts

Do not issue a mortgagee policy on a Home Equity Loan based on mailout of documents, unless the mailout goes to a Texas office of a Stewart Title issuing agent for execution in that office, or unless our underwriting personnel authorize issuance.

Powers of Attorney

Please send powers of attorney on Home Equity Loans to our underwriting personnel for review and approval. The lender also must approve the power of attorney.

We require that the power of attorney name the other spouse as agent, specifically authorize a Home Equity Loan by the named lender, and state the maximum amount of the loan. The loan proceeds must be payable to both spouses, unless the power of attorney provides otherwise. You must verify that the principal is alive and has not revoked.

Allowable Fees

Our policy and the T-42 endorsement do not insure against a claim based on the fact that the fees violate the 3% limitation of fees to be paid by the borrower.

We do not have to determine whether the 3% limitation is not violated in order to issue the T-42 endorsement.

80% Limit

Our policy and the T-42 endorsement do not insure against a claim that the Home Equity Mortgage violates the 80% limit on mortgage to fair market value ratio.

Licensed Lenders

Our policy and the T-42 endorsement do not insure that the lender is a licensed lender allowed to make Home Equity Loans. You should not, however, insure Home Equity Loans made by individuals as lenders.

Foreclosures

The Foreclosure Rules are effective as of May 15, 1998. You should require that a copy of the District Court order authorizing foreclosure be recorded in the local real property records. You should verify compliance with any additional requirements of the Deed of Trust and you should verify compliance with the other requirements for foreclosure of a Deed of Trust (including those in Section 51.002, Property Code). Do not issue an owner policy to a foreclosing lender after foreclosure of a Home Equity Deed of Trust. You may issue to third parties if the borrower is no longer in possession of the land.

Not Same Person Affidavit

You must still secure this affidavit if you discover an abstract of judgment or tax lien against a person with the same name.

Be certain that no blanks appear in the affidavit when signed.

Applicable Abstracts of Judgment

Please call our underwriting personnel if you are asked to waive an abstract of judgment against the owner because the land is homestead.

Outstanding Home Equity Mortgage on Another Part of Homestead

If you are aware that there is an outstanding Home Equity Mortgage on other property also claimed to be the homestead of the borrowers when you are asked to insure on a new Home Equity Loan, do not close or insure without prior approval of the lender and of our underwriting personnel.

The T-42 endorsement does not insure on this issue, but it is appropriate to accommodate the customer by disclosing such known fact.

CLOSING ISSUES

We have developed some special closing instructions for your use. These re available from your district manager, underwriting personnel or the National Legal Department in Houston. These instructions address many of the Home Equity Loan closing issues.. We do not require that you use this form on closings where a Mortgagee Policy will be issued. You may wish to consider some of the following issues when reviewing closing instructions:

Copies

Will you make one set of copies for each owner and another set of copies for each spouse. Most instructions require the closer to make copies of documents signed in your office at closing. Our Home Equity Affidavit acknowledges receipt.

Complete Receipt for Copies

Will you complete a receipt for copies. It is easy to err by omitting a document in the list.

Excess Acreage

Will you determine whether all of the land is "the homestead." If you agree to this, you are agreeing to determine that the urban property does not exceed one acre.

Fees

Will you determine that the fees do not exceed 3% of the loan. If you agree to complete worksheets, you are making this determination for the lender.

Home Equity Liens on "the Homestead"

Do the Closing Instructions require you to determine there are no home equity liens on "the Homestead." This instruction could require you to determine liens on other land.

Maintenance Liens

Do the Closing Instructions require you to determine or insure that maintenance liens are subordinate? This generally will not be possible: maintenance liens are generally not subordinate to Home Equity Mortgages.

Blanks

Will you determine that "no documents" have blanks left to be filled in when signed by the borrowers. Some lenders will simply instruct you to determine that there are no blanks in documents you prepare (such as the HUD-1 or Affidavit of Debts and Liens).

HUD-1 or HUD-1A

Will you send the HUD-1 or HUD-1A to the lender for approval of all fees. Most lenders require this. It actually may protect you to do this.

Recording Insured Mortgage Before Right to Rescind (or Cancel) Expires

Does the lender require you to record the deed of trust before the three day right of rescission or right of cancellation has passed. If so, you should get the borrower to consent to early recordation. For example, the borrowers could agree in writing:

"The Affiants acknowledge that Title Company has been instructed by Lender to record the security instrument (deed of trust) prior to the expiration of the Right of Rescission and Right to Cancel as set out in Section 50(a)(6), Article XVI, Texas Constitution, and as provided under Federal Law. Affiants consent to such recording, instruct Title Company to record the security instrument (deed of trust) as instructed by Lender, and hold Title Company harmless from any claim because of such recording."

[Then add signature lines and jurat.]

If the borrower elects to rescind and the Deed of Trust was recorded, we should require the following in order to insure a subsequent Home Equity Mortgage within a year:

(1) the release must be recorded;

(2) the release or a separate recorded affidavit or instrument from the lender or other knowledgeable party (such as the lender's counsel or loan officer) must recite that the release was executed because the borrower elected to rescind and the loan was not funded; and,

(3) the borrowers must execute a recordable affidavit stating that the loan was not funded and the lien was released because they exercised their right of rescission.

Disbursement Before Right of Rescission Expires

Closing instructions will not allow you to disburse before the federal right to cancel or state right of rescission pass. Most say "wait until after three business days after closing." By this they generally mean three days exclusive of Sundays and holidays. Practically, the lender generally must give a funding number after that time anyway.

Credit Card Debt

You must decide whether you will pay credit cards, and, if so, how many you will pay. Some lenders will require you only to issue checks in a stated amount, to a named credit card company, on a specific credit card account. Some lenders will allow you to simply issue the check to the credit card company and give it to the borrower to mail. That avoids the problem of lost checks, returned letters and late payments for the title company. Possible solutions: (1) give the checks to the borrower to mail (with lender's consent); or (2) require (a) the exact name of the persons who are debtors on credit card, and (b) account number on the credit card, and (c) mailing address and name of creditor for payment of credit card, and (d) pay a stated agreed amount as instructed by lender but do not agree to "pay off" since the account may change, and (e) secure hold harmless and release from borrower and consent of lender in event the payment is not received or is not accepted or is not received timely or is not full payment, and (f) agree only to mail regular mail.

CHECKLIST

An Examiner's Checklist and a Closer's Checklist are available through the references section at the end of this bulletin. These Checklists address common issues for Home Equity Loans.

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.