The Department has received inquiries regarding the issuance of Insured Closing Letters (ICLs) when an attorney handles a title insurance transaction and whether a premium split is allowed.
- Important terminology.
Two categories of lawyers often assist in closing the transaction. The first, described as "fee attorneys," includes attorneys who are licensed to act as escrow officers and who close in the name of a title insurance company or title agent pursuant to Texas Insurance Code §2652.003(b) & (c). The second, known variously by title practitioners as "outside closing attorneys," "approved attorneys," and "P-22 attorneys," includes attorneys who do not have a license to act as an escrow officer-none is required by Texas Insurance Code §2652.003(a)-and who close the transaction in the name of a law firm.
- Insured closing letters.
Many national lenders require ICLs. ICLs guarantee settlement funds lost as a result of a fraud committed by a licensed Texas agent or licensed Texas direct operation. Pursuant to Texas Insurance Code, Chapter 2702, ICLs are to be issued by a title insurance company (i.e. an underwriter) in connection with a closing by a title agent or direct operation on a form prescribed by the Commissioner, which is called a "Form T-50." Because Chapter 2702 does not authorize the issuance of an ICL unless the closing is conducted by a licensed title insurance agent, which includes fee attorneys or a direct operation, we have always taken the position that an ICL may not be issued for closings conducted by a P-22 attorney.
- Receiving a portion of the premium for closing the transaction.
In accordance with Procedural Rule P-22, subsection (A)(iii) and (B), a P-22 attorney may receive a portion of the title insurance premium when the lawyer performs all of the services described in Procedural Rule P-1, paragraph f, defined as "closing the transaction." Part of closing the transaction, as defined in Texas Insurance Code §2501.006(b)(4) and Procedural Rule P-1, paragraph f, is ensuring that all proceeds are properly distributed. Handling all receipts and disbursements includes paying off existing liens, distributing payments to all service providers (for example, the realtor's commission or the construction inspector's fee), and, most significantly, transferring settlement funds. P-22 attorneys disburse these funds using the law firm's client trust account (i.e. IOLTA accounts).
Fee attorneys, when performing functions defined as closing the transaction, are entitled to a fee split also. However, because an attorney who is licensed as an escrow officer must comply with the provisions of the Texas Insurance Code as if the attorney were a title insurance agent pursuant to §2652.003(b), a fee attorney receives a portion of the insurance premium in accordance with Procedural Rule P-22, subsection (A)(ii) and (B). Furthermore, because an attorney who is licensed as an escrow officer must comply with all requirements of the Texas Insurance Code concerning escrow officers and trust funds pursuant to Administrative Rule L-2, part I, subsection D, a fee attorney disburses funds using the title agent's escrow account.
It has come to the Department's attention that some title agents have been disbursing funds on behalf of the P-22 attorney when a lender requests an ICL and then splitting the premium with the P-22 attorney as though the attorney had disbursed the funds. This practice is not permitted because the P-22 attorney has not disbursed the funds and has not, therefore, performed all of the duties defined as closing the transaction.
The Department's position is not new and does not represent any change. The Department's position is consistent with the existing statutory scheme, which prohibits an ICL from being issued when a P-22 attorney closes the transaction.
P-22 attorneys serve a valuable function and are encouraged to explore the various legal options available to them in transactions requiring an ICL, which include but are not limited to becoming licensed as an escrow officer and serving as a fee attorney. There is no statutory limit on the number of title agencies a fee attorney may serve. This bulletin should not impact a fee attorney's practice, nor should it impact a P-22 attorney's practice in closings where an ICL is not required by the lender.
The Department will continue to examine agents for compliance with the law and will take appropriate actions consistent with the efficient utilization of our resources to ensure such compliance. This bulletin is a reminder for title agents and those in the title insurance business to be mindful of all statutory and regulatory requirements. The Department will continue to evaluate the utilization of its resources and take additional measures as needed.
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Robert R. Carter, Jr.
Deputy Commissioner - Title