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Subchapter A. Basic Manual of Rules, Rates, and Forms for the Writing of Title Insurance in the State of Texas 28 TAC §9.1

Subchapter C. Texas Title Insurance Statistical Plan 28 TAC §9.401

The Texas Department of Insurance proposes amendments to §9.1 and §9.401 which concern the adoption by reference of certain amendments to the Basic Manual of Rules, Rates and Forms for the Writing of Title Insurance in the State of Texas (Basic Manual) and to the Texas Title Insurance Statistical Plan (Statistical Plan). The amendments reflect changes to the Basic Manual and the Statistical Plan which the proposed sections will adopt by reference and which were considered at the rulemaking phase of the 2000 Texas Title Insurance Biennial Hearing. Adopting new rules and forms and modifying or replacing currently existing rules and forms in the Basic Manual and Statistical Plan facilitate the administration and regulation of title insurance in this state. The proposed amendments to the Basic Manual and Statistical Plan will clarify and standardize the rules and forms regulating title insurance. The proposed amendments to the Basic Manual and Statistical Plan are identified by item number and are a republication of items published for consideration at the 2000 Texas Title Insurance Biennial Hearing, Rulemaking Phase, Docket Number 2470, (rulemaking hearing), held on November 27, 2001, together with proposed amendments and typographical and formatting changes to the items. Republication is necessary to incorporate these items into the Basic Manual and Statistical Plan as applicable, to give notice of the withdrawal, by their respective submitters, of Items 2000-20, 2000-21, 2000-22, 2000-23, 2000-24, 2000-25, 2000-31, 2000-E, 2000-G, 2000-H, and 2000-K at the rulemaking hearing, to give notice of the changes to the various proposed items, and to give notice of the decision not to adopt Items 2000-17, 2000-F, and 2000-J, which decision is set forth in a separate Commissioner´s Order. The items which are the subject of this proposal are as follows:

Eleven proposals relate to mortgagee policy endorsements. The purpose of these endorsements is to streamline the mortgage lending process by allowing lenders to efficiently and economically close and package real estate loans for resale in the secondary lending market. This reflects a nationwide trend regarding uniformity of these types of endorsements so lenders can readily identify the types of coverages available on each particular loan. The department has made corrective and clarifying changes to these items and has assigned form numbers to each item. A brief description of each item follows its listing:

Item 2000-1 - Submission to adopt a new First Loss Endorsement (Form T-14). This proposed endorsement would be available for mortgagee policies and would typically be used in large commercial transactions. It would allow a lender to make a claim on its policy, without having to first foreclose on its lien, if appraisals show there has been a diminution in value of at least 10%.

Item 2000-2 - Submission to adopt a new Last Dollar Endorsement (Form T-15). This proposed endorsement would be available for mortgagee policies. Normally, policy limits are reduced as the principle is paid down. With this endorsement, loan payments would be applied first against the value of any personal property or non-Texas realty securing the loan and would not reduce the policy limits unless and until the loan amount secured by those other properties has been paid down completely.

Item 2000-3 - Submission to adopt a new Mortgagee Policy Aggregation Endorsement (Form T-16). When a loan is secured by land in multiple states, this proposed endorsement for mortgagee´s policies would allow any claim on any piece of property to be paid out of the aggregate coverage from all the title policies involved. Coverage would be reduced 'pro tanto', meaning dollar for dollar.

Item 2000-4 - Submission to adopt a new Planned Unit Development Endorsement (Form T-17). This proposed endorsement for mortgagee´s policies would give expanded coverage for restrictions, assessments, rights of first refusal, and forcible removal of structures. Planned Unit Developments are organized in such a way that facilitates the sort of search/due diligence that would be required in underwriting such risks.

Item 2000-5 - Submission to amend Procedural Rule P-9, Endorsement of Owner or Mortgagee Policies. This proposed procedural rule will authorize the use of the endorsements described in Items 2000-1 through 2000-4.

Item 2000-6 - Submission to adopt a new Restrictions, Encroachments, Minerals Endorsement (Form T-19). This proposed endorsement provides coverage for losses arising out of building setback line violations and other restrictions which have established easements, provided for an option to purchase, a right of first refusal or the prior approval of a future purchaser or occupant, or provided a right of reentry, possibility of reverter or right of forfeiture because of violations of enforceable covenants, conditions or restrictions. Also covered is damage to existing buildings located or encroaching upon any portion of the land subject to any easement excepted in Schedule B that results from the future exercise of any right existing on the date of the policy to use the surface of the land for the extraction or development of minerals excepted from the description of the land or excepted in Schedule B and from a final court order or judgment requiring removal from the land adjoining the insured land of any encroachment, other than fences, landscaping or driveways, excepted in Schedule B.

Item 2000-7 - Submission to adopt a new procedural rule (P-50) for the proposed new Restrictions, Encroachments, Minerals Endorsement. This procedural rule would authorize the use of the endorsement described in Item 2000-6.

Item 2000-8 - Submission to adopt a Texas Short Form Residential Mortgagee Policy of Title Insurance (T-2R) and Addendum (T-2R Addendum). This proposed short form will aid in logistics and speed the delivery of policies by giving the insured a checklist by which to elect various endorsements and make the language more consistent with American Land Title Association forms.

Three proposals would implement the short form checklist proposal and provide clean up language in certain rules and forms as detailed herein:

Item 2000-9 - Submission to amend Procedural Rule P-1 to make reference to direct operations and the proposed new Texas Short Form Residential Mortgagee Policy.

Item 2000-10 - Submission to adopt a new procedural rule (P-51) to implement the proposed new Texas Short Form Residential Mortgagee Policy.

Item 2000-11 - Submission to amend Schedules A and B of the Commitment for Title Insurance (Form T-7) to reference application of the proposed new Texas Short Form Residential Mortgagee Policy.

Item 2000-12 - Submission to amend Procedural Rule P-17, Electronically Produced Endorsement Forms. As proposed by the department, it would allow title companies to electronically produce forms and endorsements and make allowance for electronic signatures while preserving safeguards for document retention and audit.

Item 2000-13 - Submission to amend paragraph 1 of the Conditions and Stipulations of the Texas Owner Policy of Title Insurance (Form T-1). This item would amend the definition of insureds to add limited liability companies and limited liability partnerships. Such companies were not authorized in Texas when the form was last revised.

Three proposals would amend existing leasehold endorsements to incorporate the language of recent revisions to the American Land Title Association forms, including changes in the definition of valuation of an estate:

Item 2000-14 - Submission to amend the Leasehold Owner Policy Endorsement (Form T-4).

Item 2000-15 - Submission to amend the Residential Leasehold Endorsement (Form T-4R).

Item 2000-16 - Submission to amend the Leasehold Mortgagee Policy Endorsement (Form T-5) should allow more flexibility in calculating damages in an eviction.

Two proposals concern amendments regarding the use of surveys in title insurance. Existing Procedural Rule P-2 provides that a current survey must be purchased as a prerequisite for the survey deletion, except in residential refinances in which a seven year old survey can be used. The 77th Legislature enacted Senate Bill 1707, which added Insurance Code Article 9.07C to provide that a survey of any age can be used if it is acceptable to the underwriter and an affidavit verifying the existing survey is provided. The submissions would implement the legislation and make conforming amendments to the title commitment form. Further, the department has noted on the promulgated residential real property affidavit that it may also be modified as appropriate for commercial transactions.

Item 2000-18 - Submission to amend Procedural Rule P-2, Amendment to Exception to Area and Boundaries.

Item 2000-19 - Submission to amend the Commitment for Title Insurance (Form T-7).

The following six proposals correct typographical errors, update minimum escrow requirements, clarify the good funds rule, revise the Statistical Plan, and establish document retention rules:

Item 2000-26 - Submission to amend Minimum Standards, Specific Instructions and Report Forms for Audit of Trust Funds Required of Texas Title Insurance Agents, Direct Operations, Title Attorneys and Attorneys Licensed as Escrow Officers. This proposed amendment to the Minimum Escrow Procedures clarifies issues related to escrow accounts and copies of checks and clarifies reporting deadlines.

Item 2000-27 - Submission to amend Procedural Rule P-22 to be more consistent with Procedural Rules P-1 and P-24. This proposed amendment clarifies issues related to the payment of fees for examination and closing and also accommodates multi-county transactions.

Item 2000-28 - Submission to amend Procedural Rule P-27, Disbursement from Trust Fund Accounts. This proposed amendment clarifies "good funds" requirements to aid in preserving the integrity of escrow accounts.

Item 2000-29 - Submission to amend Procedural Rule P-28 to correct an address of the department.

Item 2000-30 - Submission to adopt new Procedural Rule P-32 regarding document retention. This proposed amendment clarifies document retention requirements in light of emerging electronic data storage technologies, while maintaining the department´s ability to audit and verify information. Title policies must be kept indefinitely; hard copies of evidence of insurability must be kept for 3 years and thereafter can be electronically scanned and kept for the remainder of the 15 year retention period as required by Article 9.34, and escrow documentation is subject to a 3 year retention schedule. Read in conjunction with the proposed amendments to P-17 (Agenda Item 2000-12), documents which are initially computer generated or electronically produced may be retained in that medium.

Item 2000-32 - Submission to amend the Texas Title Insurance Statistical Plan is necessary to update and revise reporting codes.

Item 2000-A - Submission to adopt a new Procedural Rule P-52 regarding delivery of pro forma policies and promulgated forms. This proposed procedural rule would allow companies to issue pro forma policies in commercial transactions in excess of $500,000.

The following three proposals are designed to allow consumers to obtain title insurance on manufactured housing characterized as real property pursuant to recent legislative changes:

Item 2000-B - Submission to adopt a Supplemental Coverage Manufactured Housing Unit Endorsement (Form T-31.1).

Item 2000-C - Submission to amend Procedural Rule 9.b.(7) to implement the adoption of the proposed Supplemental Coverage Manufactured Housing Unit Endorsement (Form T-31.1).

Item 2000-D - Submission to amend Procedural Rule 9.a. to implement the adoption of the proposed Supplemental Coverage Manufactured Housing Unit Endorsement (Form T-31.1).

Item 2000-I - Submission to amend Procedural Rule P-24 concerning the division of premiums between entities performing title services. Current Procedural Rule P-24 specifies the percentages of an agent´s premium to be shared among agents for performing various services. This proposed amendment would eliminate a provision whereby agents can agree in writing to different percentages not prescribed by the Commissioner and would clarify the application of the payment of the percentages.

The department has filed a copy of each of the proposed items with the Secretary of State´s Texas Register section. Persons desiring copies of the proposed items can obtain them from the Office of the Chief Clerk, Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas, 78714-9104. To request copies, please contact Sylvia Gutierrez at 512/463-6327.

Robert R. Carter, Jr., deputy commissioner for the title division, has determined that, for each year of the first five years the amendments are in effect, there will be no fiscal impact on state or local government as a result of enforcing or administering the amendments. Mr. Carter has also determined that there will be no effect on local employment or the local economy that is separate from any impact of legislation.

Mr. Carter has also determined that for each year of the first five years the amendments are in effect there are a number of public benefits anticipated as a result of the amendments to the Statistical Plan and Basic Manual. Providing more uniform endorsements for mortgagee policies will allow for more efficient closing of transactions. The updating and revising of the minimum escrow requirements, good funds rule, and Statistical Plan, allow for consistent administration, facilitate the efficiency of the department and the closing of transactions. The proposals adapt the Basic Manual to changing business practices. Clarifying the division of payments between agents should make dealings between agents more efficient and should result in a larger percentage of the premium remaining in the county in which expenses related to maintaining and furnishing title evidence are incurred. The new and updated promulgated forms will impose no additional regulatory costs on companies that decide to participate in the title insurance market, and the costs of reproducing such forms, estimated to be no more than $.15 per form for the cost of a photocopy, should be fully compensated by the existing premium schedule. The public benefit anticipated as a result of administering and enforcing the survey proposals will be to clarify the circumstances under which area and boundary or survey coverage is provided as required by the 77th Legislature in SB 1707. There are anticipated costs to those title insurance companies and title agents required to comply with these survey proposals in the form of affidavits which title agents and title companies must provide for consumers to execute in lieu of new surveys. To the extent that title companies and title agents already provide such affidavits pursuant to the residential refinance requirements in Procedural Rule P-2, the department expects the current premium schedule to fully compensate for such costs. Further, the proposals impose no uncompensated regulatory costs on companies that decide to participate in the title insurance market. Any additional costs associated with those proposals implementing legislation are due to the legislation and are not a result of the administration of the rule. As to all the proposals, the department anticipates no differential impact between small, large, and micro-businesses. The cost per hour of labor should not vary between small, large, and micro-businesses. Further, it is neither legal nor feasible to exempt small or micro-businesses or to waive compliance considering the purpose of the efficient regulation of title insurance for which the amendments are to be adopted.

To be considered, written comments on the proposal must be submitted no later than 5 p.m. on January 28, 2002, to Lynda H. Nesenholtz, General Counsel and Chief Clerk, Mail Code 113-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. An additional copy of the comments must be submitted simultaneously to Robert R. Carter, Jr., Deputy Commissioner, Title Division, Mail Code 106-2T, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. Request for a public hearing should be submitted separately to the Chief Clerk's office. It is noted that any comments received during the previous rulemaking hearing will be considered part of the record regarding the proposed amendments.

These amended sections are proposed pursuant to Insurance Code Articles 9.07, 9.07C, 9.21, and §36.001, and House Bill (HB) 1869 concerning changes to the Texas Manufactured Housing Standards Act and the Texas Property Code. Article 9.07 authorizes and requires the commissioner to promulgate or approve rules and policy forms of title insurance and otherwise to provide for the regulation of the business of title insurance. Article 9.07C provides that a survey of any age can be used if it is acceptable to the underwriter. Article 9.21 authorizes the commissioner to promulgate and enforce rules prescribing underwriting standards and practices, and to promulgate and enforce all other rules necessary to accomplish the purposes of chapter 9, concerning regulation of title insurance. HB 1869 establishes new requirements for "permanently affixed" manufactured homes that allow a loan on a manufactured home and a loan on real property to be combined. Section 36.001 authorizes the Commissioner of Insurance to adopt rules for the conduct and execution of the duties and functions of the Texas Department of Insurance only as authorized by statute.

The following statutes are affected by this proposal: Articles 9.07, 9.07C, and 9.21

Subchapter A. Basic Manual of Rules, Rates, and Forms for the Writing of Title Insurance in the State of Texas

§9.1. Basic Manual Of Rules, Rates, and Forms for the Writing of Title Insurance in the State of Texas. The Texas Department of Insurance adopts by reference the Basic Manual of Rules, Rates, and Forms for the Writing of Title Insurance in the State of Texas as amended effective February 28, 2002 [ June 5, 2000]. The document is available from and on file at the Texas Department of Insurance, Title Division, Mail Code 106-2T, 333 Guadalupe Street, Austin, Texas 78701-1998.

Subchapter C. Texas Title Insurance Statistical Plan

§9.401. The Texas Department [ State Board] of Insurance adopts by reference the rules contained in the Texas Title Insurance Statistical Plan as amended effective February 28, 2002 [ October 1, 1991]. This document is published by the Texas Department of Insurance and is available from the Property and Casualty Data Services [ Statistical and Rate Development] Division, Mail Code 105-5D [ 109-1A], Texas Department of Insurance, William P. Hobby , Jr. State Office Building, 333 Guadalupe Street, P.O. Box 149104, Austin, Texas 78714-9104.



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