The following is a review of certain, but not all of the title insurance issues which you may encounter in a loan transaction, and of procedures that may be considered in dealing with title insurance coverage or the general processing and closing of loan transactions. This is only a highlighting of certain steps to be taken, and may not be comprehensive.

In all title insurance related dealings / actions, keep in mind that there are two separate and distinct contracts in existence in each insured loan transaction: (This does not include a third contract, with the escrow agent.)

• The contract between the lender and the borrower

• The contract between the insurer (title co) and the insured (lender)

There’s often a tendency to underwrite a loan with the thought that you’ve received and reviewed a preliminary title report, possibly addressed any questionable items on that report, and that your primary remaining concern with respect to title insurance is being sure the actually policy is being obtained at closing.

Knowing that title insurers may attempt to deny coverage, there are a number of steps that can be taken to improve your chances of getting coverage. Certain seemingly normal actions or omissions by a loan originator may have a significant impact on the insurer’s ability to "wiggle out of providing coverage."

When Originating New Loans

1) Expand your loan application to include a "property addendum," which may include, among other things:


• a clearly spelled out description of the property, including a description of the improvements (i.e. a 10-unit apartment house, consisting of five two-bedroom units and five one-bedroom units, located at 123 Elm Street, Los Angeles, CA.) offered as collateral, including the complete street address (Obtain endorsement to title policy including full description, where possible.) (CLTA 116 endorsement) • the complete legal description, and what document or information the borrower relied upon to provide that information • the property tax assessor’s parcel number

Have the borrower(s) separately sign and date this description.

2) Add an addendum to your application, where borrower makes a specific, written representation as to who is on title, and in the case of an entity holding title, who the authorized signers are for that entity.

3) Watch item 3A, "items created, etc., by the insured"

4) Watch item 3B, "items neither known to the insurer, recorded in the public records, but known to the insured"

5) Obtain proper Endorsements.

6) Appropriate disbursement of loan proceeds. Parties to a loan transaction always have compelling reasons for disbursement of loan proceeds to someone other than the holder of title or the lienholders. It leaves you open for a multitude of title coverage (and other) problems.

7) Construction loans: (or any loan, for that matter) Be sure no work has commenced at time title policy is issued. Request true "Seattle Endorsement" for construction loans. Look for wording, "insurer will not raise the fact that insured has undisbursed loan funds, as a defense against

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