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Source of Title Blog

A Multi-State Survey Of Title Search Requirements
by Robert Franco | 2008/07/17 |

I recently wrote a blog about the vague search standards set forth in Ohio's title insurance laws (see A Reasonable Examination Of Title). After speaking with a title professional in Arkansas about their more strict requirements, I became curious.  I wanted to know if Ohio was an anomaly.  Could it be that most states have good, solid requirements for the title evidence used to determine the insurability of title?  Not surprisingly, Arkansas turned out to be the anomaly.

Source of Title Blog ::

I found that most states do not address the title search requirements to issue title insurance at all.  However, some states do have insurance regulations that do address the issue.  I did not do a full survey of the departments of insurance regulations to see what those were. Instead, I focused on the 20 or so states that do set forth requirements in their state statutes.

Ohio was the state with the worst statute. Ohio law provides:

No policy or contract of title insurance shall be written unless it is based upon a reasonable examination of the title unless a determination of insurability of title has been made in accordance with sound underwriting practices for title insurance companies.

Apparently, the statute substantially defers to the underwriters' "practices" to determine insurability.  It seems as though the statute would allow for a determination of insurability without a reasonable examination of title, if it can be made in accordance with sound underwriting practices.  I cannot fathom how that could be possible.

By far the most common language in the statutes of the states requires both a "reasonable examination of title," and "a determination of insurability in accordance with sound underwriting practices."  The statute in Utah seems to be fairly representative of the verbiage used in these states:

No title insurance policy may be written until the title insurer or its producer has conducted a reasonable search and examination of the title and has made a determination of insurability of title under sound underwriting principles.

But, what is a "reasonable examination of title?"  One could argue that an examination of title is reasonable if it would allow for the underwriter to make a determination of insurability based on sound underwriting practices. However, that deference to the underwriters assumes that sound underwriting practices still exist... I'm not so sure they do.

Some states have additional requirements. Idaho, New Mexico and Texas also require that the examination be made from a title plant.  The New Mexico statute, for example, requires:

No title insurance policy may be written unless the title insurer or its title insurance agent has caused to be conducted a reasonable search and examination of the title using an abstract plant ... and has caused to be made a determination of insurability of title in accordance with sound
underwriting practices.

Idaho and Texas further require that the title plant be owned or leased by the insurer or its agent.

Tennessee and Pennsylvania make no mention of "sound underwriting practices," but they both require a "reasonable examination" of title.  Pennsylvania has a unique requirement that the examination be conducted by the employees, agents or approved attorneys of the title insurance company.

Wyoming requires "adequate evidence of the current condition of title certified in writing ... by a person duly authorized ... to act as a title abstractor ... or based upon the opinion of an attorney."

Missouri and Arkansas have gone further by specifying the time frame to be covered by the search.  However, Missouri has a statute that is about as clear as mud. It reminds me of Pink Floyd's The Wall.... do not attempt to understand it unless you have your bong handy!

No title insurance policy shall be written unless and until the title insurer, title agent, or agency has:

(1) Caused a search of title to be made from the evidence prepared from a title plant of the county where the
property is located as herein defined, or if no such title plant of the county exists, or the owner of such plant refuses to
furnish the title insurer, title agent, or agency desiring to insure, such title evidence at a reasonable charge and within a
reasonable period of time, then such policy of title insurance shall be based upon the best title evidence available. An
attorney licensed to practice law in this state may upon personal inspection use the best evidence available in any
county and is not subject to the provisions of the title plant requirement of sections 381.011 to 381.241. The records on
which the title plant is based on shall show all prior matters affecting the title to the property or interest therein for a
continuous period of time of at least:
    (a) The past ten years, by two years after September 28, 1987;
    (b) The past fifteen years, by three years after September 28, 1987;
    (c) The past twenty years, by four years after September 28, 1987; and
    (d) The past twenty-seven years, by five years after September 28, 1987
; and

(2) Caused to be made a determination of insurability of title in accordance with sound underwriting practices.

Huh? I much prefer the approach taken in Arkansas.

Minimum search requirements. [Effective January 1, 2008.]

(a) No title insurance report or policy shall be issued unless the title insurer or title insurance agent has caused to be made a search of the title from the evidence prepared from a title plant or files of the county where the property is located or from the records of the clerk or the ex officio recorder of land records of the county that maintains records relating to real estate and any interest in the county.

(b) The search shall include a review of all matters affecting the title to the property or interest to be insured for a continuous period of not less than the immediately preceeding thirty (30) years.

(c) No title insurance policy shall be issued until the title insurer or title insurance agent has caused to be made a determination of insurability of title in accordance with the title insurer's underwriting practices.

Arkansas has demonstrated that the states could draft legislation that would be meaningful in protecting homeowners from inferior searches and underwriter sanctioned shortcuts.  There is no vague standard like "reasonable" or "adequate" added to the examination requirement.  Instead, they simply state what the search should contain, and specify a continuous time that the search should cover.  And, while they still require a determination of insurability, the search requirements are not linked to the "sound underwriting practices" of the underwriter.

While most state's seem to leave the search requirements up to the underwriters and their "sound underwriting practices," this is a poor practice today.  When the underwriters' practices were more in line with marketable title standards, it was not really an issue. But, with the large gap we have today between insurability and marketable title, these vague laws should be updated to hold the title industry to higher, more meaningful standards that really protect the insureds.  We need that kind of protection to restore the integrity of the title industry.  It's really only a matter of time before someone realizes that the search standards have deteriorated and the fees paid by consumers have not been reduced by a comparable amount.  How would the industry explain that to the media?

Robert A. Franco
SOURCE OF TITLE




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Categories: Abstractors, Legislation, Title Standards

1915 words | 9284 views | 3 comments | log in or register to post a comment


Examination of Title

Robert: Why can't we get the Realtors/Attorneys to include language in their  purchase contracts that defines title search requirements  in order to issue a title policy? Edward

 
by edward hartung | 2008/07/18 | log in or register to post a reply

Search Requirements

The problem with arbitrary search spans, whether 30 years, 40 years, or (d) The past twenty-seven years, by five years after September 28, 1987; is the probabliity of missing significant title matters on property that is either rural or simply part of the US land grants. That includes just about everything outside the original colonies.

In the west we also have a lot of land that the government gave to the railroads as incentive/reward for building out the railroad infrastructure. All these lands are ripe with mineral, oil, gas, coal and God knows what other kinds of reservations and easements. Although these reservations and easements may have been created a hundred years ago, the government and railroads are still, today, actively marketing and leasing those rights. We recently had a rurual subdivision in Colorado where property owners were informed that a mineral rights lessee was going to do some test drilling on their properties for uranium.

The alternative to a true search is a short search reinforced with "garbage exceptions", i.e., generalized exceptions to all "covenants, conditions, restrictions, easements, and other matters of record". Without a requirement for specification of exceptions, consumers never know the condition of their title, which is a condition of their purchase contract.

 
by Samuel Humpert | 2008/07/21 | log in or register to post a reply

Good point...

Samuel:  That is a good point, but I don't think the 30 year requirement is a bad idea.  Some states have marketable title acts which clear certain defects after the passage of some period of time.  In Ohio it is 40 years.  I think setting a "minimum" search period that is in line with the marketable title standards is a fine idea.

Of course, the marketable title acts do not clear all defects.  Thus, it truly is a minimum and not a time frame that is set in stone.  A good examiner, or agent, should be familiar with their state's marketable title laws and should set higher standards when appropriate.

As for the "garbage" exceptions, you are quite right.  They should not be used.  It sometimes appears that the underwriters are taking on a huge risk with a short search, but with the use of blanket exceptions, that risk is really being pushed off on to the insured to a large extent.  I have seen at least one state (Texas, if I remember correctly) that prohibits blanket exceptions.  I think that is great - more states should do that.

Edward: I think that would be an uphill battle to get the Realtors to change their contracts to require a full search.  That might slow down the process and I don't think the Realtors would get behind such a movement.  So long as their customer is getting a title policy, they don't really care how it gets issued.

 
by Robert Franco | 2008/07/21 | log in or register to post a reply
Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco
SOURCE OF TITLE

 

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