Bulletin: TX2009002

Date:
August 11, 2009
To:
All Texas Issuing Offices
RE:
Agent Solvency - HB 4338 re-write of Title Insurance Act

Dear Associates:

We are sending you this bulletin earlier than usual to give you greater notice of the great number of revisions to the Title Insurance Act and to give you time to adjust your practices and business to comply with the changes.

This bill was a cooperative effort by Stewart Title Guaranty Company, the Texas Land Title Association, the Texas Title Guaranty Association and the staff of the Texas Insurance Department. Most of the provisions of the bill arose from the report to the Commissioner of Insurance produced by a study committee appointed by the Commissioner in light of the impact on title agents of the severe economic downturn that began in 2008. The bill went through many revisions as the interested parties negotiated important changes to the then existing law.

In brief summary, the bill makes changes in the following areas:

1. Effective January 1, 2014, all title plants must have an inception date of January 1, 1979. Starting January 1, 2010, all new plants have to begin January 1, 1979, but all existing plants have until 2014 to go back to 1979.

2. The Texas Title Insurance Guaranty Association (TIGA) is given expanded powers to deal with impaired agents (those with escrow account shortages and those with financial difficulties).

3. Depending on the length of time an agent has been licensed and the size of the largest county in which the agent is licensed, agents have between 2 and 10 years to reach certain levels of capitalization. Agents in counties with a population of less than 10,000 are exempt other than to provide a statement of solvency annually.

4. New agents must comply with enhanced educational and experience requirements.

5. Title Insurers and the TDI may exchange information concerning agent solvency issues in a confidential manner.

6. Agents must provide the TDI with a copy of their quarterly IRS withholding statement and proof of payment.

7. All premiums held in an escrow account for a division of premium, whether to the underwriter or another agent for title evidence , is held in trust for the person to whom the money is owed. Separate accounts are not required.

8. Files kept in offices or in storage must be made available to the underwriters of an agent and to TIGA for copying during normal business hours and for up to 60 days in case an agent fails.

9. TDI must furnish an agent with a copy of an audit report before it becomes final and give the agent 10 days to respond and give an agent at least 10 days notice of a mandatory meeting.

10. TDI financial information cannot be used in rate hearings. TDI can subpoena information and conduct discovery to obtain financial information to be used in rate hearings.

11. The commissioner can conduct a hybrid rules and forms hearing as needed.

12. The commissioner must conduct a hearing to implement a number of these changes.

Turning now to a more detailed analysis of the bill and its requirements:

1. Effective January 1, 2014, all title plants must have an inception date of January 1, 1979.

Starting January 1, 2010, all new plants have to begin January 1, 1979, but all existing plants have until 2014 to go back to 1979. This provision is designed to increase the assets that an agent who subscribes to or leases an interest in a joint plant has involved in their agency. Making the plants cover a longer period of time will add value to the subscription or lease. The 25-year plant is predicated in part on the application of the 25-year statute of limitations which cures many title defects. The advent of the mineral exception controversy heightened awareness of the need for standard title plants to cover a longer time. Most of the existing joint plants have their origin a short time earlier that 1-1-1979 so this proposal is designed to cover the existing joint plants and gives any agent with a non-qualifying plant 5 years to come into compliance. According to a recent TDI study, title plants with an effective date affected by a 1-1-79 date would be as follows:


1961-1980

277

25.67%

1980 and later

31

2.87%

 

 

 

Of course only a small portion of the plants with an inception date of 1961-1980 are likely to be affected. Thus, there appear to be 31 plants most affected by this change: less than 3% of title plants reported to TDI by title agents and direct operations.

2. The Texas Title Insurance Guaranty Association (TIGA) is given expanded powers to deal with impaired agents (those with escrow account shortages and those with financial difficulties).

a. The commissioner has to notify TIGA when an agent has been determined to be impaired.
b. TIGA shall pay from guaranty fees the expenses of examination and audits by the department.
c. TIGA can also advance funds to pay the expenses of administering an impaired agent.
d. The maximum $5.00 per policy guaranty fee has been removed and the Guaranty Association now sets the amount of the fee.
e. No entity that has gone through impairment can resume business until it repays TIGA’s expenses.
f. All owners, directors and employees of a failed agent have a legal duty to cooperate with TIGA and provide access to offices, files and electronic storage. Failure to cooperate subjects the person to sanctions by the department.
g. TIGA can employ or retain persons to assist it in winding up an impaired agent to:

i. Close real estate transactions
ii. Disburse escrow funds
iii. Record documents
iv. Issue final title insurance policies.

3. Depending on the length of time an agent has been licensed and the size of the largest county in which the agent is licensed, agents have between 2 and 10 years to reach certain levels of capitalization. Agents in counties with a population of less than 10,000 are exempt other than to provide a statement of solvency annually.

a. "Unencumbered assets" means:

(A)cash or cash equivalents;
(B)liquid assets that have a readily determinable market value and that do not have any lien against them;
(C)real estate, in excess of any encumbrances;
(D)investments, such as mutual funds, certificates of deposit, and stocks and bonds;
(E)a surety bond, the form and content of which shall be prescribed by the commissioner in accordance with this code;
(F)a deposit made in accordance with Section 2651.102; and
(G)a letter of credit

b. unless the commissioner establishes lesser amounts by rule, capital is required at the following levels:

(1)if the agent maintains its principal office in a county with a population of 10,000 or more but less than 50,000: $25,000;
(2)if the agent maintains its principal office in a county with a population of 50,000 or more but less than 200,000: $50,000;
(3)if the agent maintains its principal office in a county with a population of 200,000 or more but less than one million: $100,000; and
(4)if the agent maintains its principal office in a county with a population of one million or more: $150,000.

c. An agent that maintains a principal office in more than one county must meet the asset standards for the largest county for which the agent will hold a license.

d. An agent may elect to:

(1)maintain unencumbered assets as required by this section; or

(2)place a deposit with the department as authorized by Section 2652.102.

e. Population size of the county is determined by the most recent US Census and thus changes only every 10 years.

f. An agent has from 3 to 10 years in which to reach the appropriate capitalization level based on the schedule set out in Section 2651.012 (2) (g), Insurance Code. The number of years is determined by the length of time an agent has been licensed. An agent licensed for more than 10 years has 10 years to reach the appropriate level. An agent licensed less than 3 years has 2 years to reach the appropriate levels. An agent licensed after September 1, 2009 must have the appropriate level of capital before the license will be granted.

Principal Office is defined as: a principal office of the business organization, unincorporated association, sole proprietorship, or partnership in this state in which the decision makers for the organization conduct the daily affairs of the organization. The presence of an agency or representative does not establish a principal office.

4. New agents must comply with enhanced educational and experience requirements.

a. Essentially, a new agent must provide proof of education and experience in order to be licensed. The commissioner can establish the number of hours not to exceed 30.

b. The education must be provided by the same providers established in P-28 and must cover:

(1) the basic principles and coverages related to title insurance;
(2) recent and prospective changes in those principles and coverages;
(3) applicable rules and laws;
(4) proper conduct of the license holder's title insurance business;
(5) accounting principles and practices and financial responsibilities and practices relevant to title insurance; and
(6) the duties and responsibilities of a title insurance agent.

c. An individual is exempt from the professional training requirement of this section if the individual has held in this state for at least five years a position as management personnel with a title insurance agent, or a comparable position, as determined under rules adopted by the commissioner.

(7) Unless the agent has elected to make a deposit with the department under Section 2651.012(f), the annual audit of escrow accounts must be accompanied by a certification by a certified public accountant that the title insurance agent has the appropriate unencumbered assets in excess of liabilities, exclusive of the value of its abstract plants, as required by Section 2651.012.

( b)The commissioner by rule shall establish:

(1) a procedure to be used to determine the value of categories of assets; and
(2) the method by which the certification required by this section must be made which shall not include an audit of operating accounts.

5. Title Insurers and the TDI may exchange information concerning agent solvency issues in a confidential manner.

a. Each title insurance company shall provide annually to the department a list of officers authorized to provide to the department the information under this subsection.

b. Information provided under this subsection is not subject to Chapter 552, Government Code, except that the commissioner may release information that the commissioner received under this subsection to a title insurance company that has appointed, or that is considering appointing, the title agent.

c. The commissioner may also release information that the commissioner received under this subsection to a title agent under Section 2651.206, Insurance Code, if the information is evidence on which an audit report or examination report relies.

d. A title insurance company that receives information under this subsection may not release the information except under a subpoena issued by a court of competent jurisdiction.

6. Agents must provide the TDI with a copy of their quarterly IRS withholding statement and proof of payment.

a. this is the quarterly 941.

b. proof of payment is also required.

c. agents without employees must certify quarterly that there has been no material change in the agent’s financial condition that would cause it to be unable to meet its obligations as due.

7. All premiums held in an escrow account for a division of premium, whether to the underwriter or another agent for title evidence, is held in trust for the person to whom the money is owed. Separate accounts are not required.

a. If you choose to set up a separate account for underwriter premiums, the TDI cannot audit such account other than to see the amount of funds that were placed into the account and correlate those funds to underwriting premiums earned.

b. Premiums owed for division of premium under P-24 are also held in trust.

c. The purpose of placing the funds into trust is to enhance the status of the funds in case of the failure of the agent.

8. Files kept in offices or in storage must be made available to the underwriters of an agent and to TIGA for copying during normal business hours and for up to 60 days in case an agent fails.

Sec.2651.205.TITLE AGENT RECORDS. (a) A landlord or storage facility, including electronic storage, that accepts possession of an agent's guaranty file or other records takes possession subject to:

(1)the right of access of the title insurance company involved in the transaction that the file documents, during customary business hours, for the purpose of copying the guaranty file; and

(2)the obligation to maintain the confidentiality of nonpublic information in the title insurance agent's records according to state and federal laws that govern the title insurance agent.

(b)If the title insurance agent has been designated impaired, the Texas Title Insurance Guaranty Association has the right to access the guaranty files and other records of the title insurance agent, including electronic records, for 60 days from the date of impairment, during customary business hours, for purposes of copying those records.

(c)Except for the right of access granted under Subsections (a) and (b), a lien created in favor of the landlord by contract or otherwise is not impaired.

(d)For purposes of this section, "title insurance agent" includes an agent owned wholly or partly by a title insurance company and includes a direct operation.

NOTE: This provision does not require you to change your existing office or storage leases or agency contract.

9. TDI must furnish an agent with a copy of an audit report before it becomes final and give the agent 10 days to respond and give an agent at least 10 days notice of a mandatory meeting.

a. The heading of this section sets out pertinent information.

The commissioner must adopt rules to implement this section. Among the rules he must provideprocedures to ensure that the report and any evidence regarding the report remain confidential and are transmitted only to designated representatives of the title agent or direct operation.

10. TDI financial information cannot be used in rate hearings. TDI can subpoena information and conduct discovery to obtain financial information to be used in rate hearings.

a. The heading of this section sets out pertinent information

11. The commissioner can conduct a hybrid rules and forms hearing as needed.

a. The heading of this section sets out pertinent information

12. The commissioner must conduct a hearing to implement a number of these changes.

a. The heading of this section sets out pertinent information
If you have questions related to this bulletin, please contact your local underwriting personnel or Stewart Legal Services.

For on-line viewing of this and other bulletins, please log onto www.vuwriter.com.

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.

References

Bulletins Replaced:
None
Related Bulletins:
None
Underwriting Manual:
None
Exceptions Manual:
None
Forms:
None