"The situation is this: A builder buys a lot from a subdivider but the builder does not have the cash to pay for the lot until he makes the first draw on his interim construction loan, which he is obtaining in order to build a house on this lot. In turn, the subdivider has previously placed a large mortgage on the entire subdivision, and can only obtain a release for this lot by making a specified payment on the note. To accommodate these two parties, a title company agrees to issue immediately the interim construction binder to the interim financier showing no outstanding liens. The subdivider-seller leaves a check with the title company for the amount which he must pay to the previous lienholder to obtain partial release, and the title company holds the check. Then several weeks later, after the builder has made one or more draws on this interim construction loan, he deposits with the title company the total purchase price for the lot, and the title company sends the builder's check together with the executed partial release to the previous lienholder, at the same time paying the subdivider for the lot. The release is executed, returned to the title company, and recorded."
It is the opinion of this office that the transaction as described above is in violation of Article 9.08, Texas Insurance Code and Rule 28, Basic Manual of Rules, Rates, and Forms for the Writing of Title Insurance in the State of Texas.
All companies and their agents should be in possession of one or both of the above publications; therefore, further discussion in this Bulletin is unnecessary.
Very truly yours,
Commissioner of Insurance
/s/ Joel Houston
Director of Title Insurance