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IT’S TIME TO KNOW YOUR STUFF:EXPLAINING POLICY COVERAGE TO YOUR

CUSTOMERS AND STAFFBy Kevin T. Pogoda, Esq.

VP & Virginia State Mgr., Northern Division

IT’S TIME TO KNOW YOUR STUFF:EXPLAINING POLICY COVERAGE TO YOUR

CUSTOMERS AND STAFF By Kevin T. Pogoda, Esq.


IT’S TIME TO KNOW YOUR STUFF: EXPLAINING POLICY COVERAGE TO YOUR


Explaining Policy Coverage to Your Customers and Staff Page 1

2015 OR Fall Seminar

I. What to Explain: Title Insurance Policy Coverage

A. Types of Policies

1. ALTA® Owner's Policy (6-17-06) (Tab 10)

2. ALTA® Loan Policy (6-17-06) (Tab 11)

3. Owner’s Policy v. Loan Policy

a) In many respects, underwriting considerations are the same

for mortgage and owners policies. Both require a title search to

reveal possible defects on title. Both require that such defects be

resolved so that a policy can be issued. And the method of

resolving such defects (discussed below) are the same for both

policies.

b) Despite these similarities, some differences exist between

mortgage and owners’ policies as they relate to underwriting.

Three are worth noting:

(1) The interest protected. A “mortgage” or “loan” policy

protects the interest of the lender in the subject property. This

interest is the outstanding principal balance on the loan, and so

the policy limit is typically the loan amount. Once the loan is

paid, the policy has no value. In contrast, the owner’s policy

protects the interest of the owner in the subject property. This

interest is the value of the property at the time the owner

purchased it, and so the standard policy limit is usually the

consideration paid. The owner’s policy continues to provide

coverage for an owner, even after selling the property. It is often

said, that, in Virginia, an owner’s policy provides protection up

to a year after the owner has passed away.



(2) The underlying search. While every underwriter has

their own search requirements, many underwriters allow a

two-owner bringdown for refinance transactions, and some

allow even a single owner search in limited circumstances. In

contrast, search requirements for sale transactions are more,

usually stretching to 40- to 60-year searches. The fundamental

reason for treating refinances with a lighter hand is the notion

that there is less at risk in the refinance transaction. Several

observations support this notion. Refinances are less

complicated than sale transactions. The policy limits are less

than the policy limits of sale transactions. Title issues

stretching past two prior owners are less likely to have

remained on title if the subject property underwent the rigors

of two sale transactions with the commensurate 40- to 60-year

title search. The only time a lender is going to make a claim on a

mortgage policy is if the lender forecloses.

(3) Coverage for survey issues. Lenders require that there

be no exception for survey matters. To accommodate lenders,

title companies, since 1995, generally do not require a survey in

order to omit this exception from the lender’s policy. The risk

of the lender foreclosing, then having a survey matter that rises

to the level of a title defect, is relatively rare. However, survey

coverage for an owner is a different matter. If the current

purchaser fails to have a survey done on the property, there is

no survey coverage for the owner. The owner bears the

economic risk associated with a matter that would have shown

up if a survey was done. If the purchaser obtains a survey

which identifies a problem, such as an improvement

encroaching into an easement area, or setback lines being

violated, the purchaser can then require the seller to clear the

defect prior to settlement. When underwriting a survey, the

title agent will list the matters shown on the survey which are

not being covered. Any identified problem will not be covered

by title insurance, as it is a known risk, which will either be

accepted by the purchaser, or corrected by the seller.



B. ALTA® Model Policies: A History

1. Owner’s Policies: The basic owner’s policy developed in 1992

was replaced by the ALTA 2006 Owner’s Policy. In 2003, a policy

offering enhanced coverage was developed, which gave way to another

version in 2008, and then again to the current version: the ALTA 2010

Homeowner’s Policy.

2. Loan Policies: The basic loan policy developed in 1992 was

replaced by the ALTA 2006 Loan Policy. In 2001, a policy offering

enhanced coverage was developed. This later gave way to another

version in 2008, which in turn gave way to the current version: the

ALTA 2010 Expanded Coverage Residential Loan Policy.

C. Title Agent should use policy form prescribed by

Insurer/Underwriter

D. Different Parts of the Policy: An Overview

1. Jacket

a) Covered Risks

b) Exclusions

c) Terms and Conditions

2. Schedule A: Information

3. Schedule B: Exceptions

4. Endorsements

E. Jacket: Covered Risks

1. The Owner’s Policy insures against 10 risks:

a) “Title being vested other than as stated in Schedule A.”

This would include title vesting in the wrong person or the wrong

estate (e.g., insureds wanted fee simple but got a life estate

instead).



b) “Any defect in or lien or encumbrance on the Title.” This is

certainly a wide category. Nine subparts illustrate this risk,

including fraud, lack of authority, improperly prepared documents

(written and electronic), invalid POA, improperly filed documents,

defective judicial or administrative proceedings, unpaid tax liens,

and survey issues.

c) “Unmarketable title.” What constitutes marketability is a

complex, common law topic. In general, unmarketable title is any

defect that might cause a reasonable purchaser to refuse to buy or

lender refuse to lend. There may not be an adverse claim or actual

loss for this provision to be triggered. Unmarketable title is not a

reduction in market value. One can hold perfect title to property

that is worthless.

d) “No right of access to and from the land.” This describes the

right of access, not the quality.

e) Noticed violation or enforcement of any law, ordinance, etc.

affecting the land.

f) Noticed enforcement actions of government police power.

g) Noticed exercise of eminent domain.

h) Governmental taking.

i) Enforcement of creditor’s rights laws as to prior

transactions.

j) Gap issues: Covers period between Date of Policy and date

of recording. This is why Date of Policy is recording date and why

we do a “bring down” prior to recording.

2. The Loan Policy insures against 14 risks. The first 8 are identical

to the first 8 of the Owner’s Policy. Covered Risk 14 of the Loan Policy

is identical to Covered Risk 10 in the Owner’s Policy. The remaining

Covered Risks are as follows:

a) The invalidity or unenforceability of the lien of the Insured

Mortgage upon the Title.” This Covered Risk is similar to Covered

Risk 2 and contains the same subparts as Covered Risk 2(a).



b) “The lack of priority of the lien of the Insured Mortgage

upon the Title over any other lien or encumbrance.”

c) Lack of priority of the mortgage as security for (a) every

advance of proceeds over mechanics liens, and (b) assessments for

street improvements.

d) Problems relating to the assignment of the mortgage.

e) Enforcement of creditor’s right laws as to prior transactions

(similar to Covered Risk 9 in the Owner’s Policy.

F. Jacket: Exclusions (read together with Covered Risks)

1. The Owner’s Policy excludes the following from coverage:

a) Unnoticed violation or enforcement of any law, ordinance,

etc. affecting the land; and unnoticed exercise of government

police power.

b) Unnoticed exercise of eminent domain.

c) Defects, liens, etc. that (a) are created of otherwise agreed

to by the insured; (b) are unrecorded, not known to the Company

but known to the insured; (c) result in no loss to the claimant; (d)

are post-policy; or (e) would not have been sustained had the

claimant paid value for the title.

d) Enforcement of certain creditor’s rights laws.

e) Real estate tax liens created or attaching in the “gap”.

2. The Loan Policy has these identical exclusions, numbered as

items 1, 2, 3, 6 and 7. The remaining Covered Risks are as follows

a) Unenforceability of mortgage lien due to insured’s failure to

comply with “doing business as” laws.

b) Unenforceability of mortgage lien due to insured’s failure to

comply with usury laws or consumer credit truth in lending laws.



G. Jacket: Terms and Conditions

1. “Conditions” stipulate certain definitions, limitations and

procedures relative to the administration of a claim. Notably, this

section defines who the insured is, how coverage continues, how notice

of the claim is to be given, the duty of the company to defend and the

duty of the insured to cooperate, how disputes under the policy are to

be resolved, and the like. In many respects, these conditions are the

same for both the Owner’s and the Lender’s Policies

H. Schedule A: Information

1. Effective date

2. What kind of policy is issued

3. For how much

4. Who is the insured

5. What kind of estate is insured

6. What property is insured

7. Who the issuing agent is

I. Schedule B: Exceptions

1. Exceptions to coverage mean exactly that—items that are not

covered in the final title insurance policy. Again, after the basics,

special matters require special exceptions. For a comprehensive list of

exceptions, see Appendix. Competence in this area is critical—

otherwise, you run the risk that you will provide coverage for a matter

that ought not to be covered.

2. Consider specific, not blanket exceptions.

3. Carried over from the Commitment.



J. Enhanced v. Standard

1. As illustrated by the following hypotheticals, coverage between

the Enhanced Policy versus the Standard Policy is different. Check

with your underwriters for more comprehensive brochures to explore

these differences. When explaining differences to a consumer, make

sure you use these brochures or quote the policy directly.

2. The House that Jack Built

a) Facts:

(1) 2010: Jack buys a teardown and finishes building

himself a McMansion.

(2) 2012: Jill purchases property next door. Jill gets a

survey, revealing no problems. No survey exception was added

to her policy.

(3) 2014: Jill doesn’t like Jack so she decides to move.

Purchaser’s

survey correctly reveals

Jack’s garage encroaches

on Jill’s property.

b) Analysis: both provide coverage

(1) Standard Policy Covered Risk No. 2(c):

“Any encroachment . . . affecting the Title that would be

disclosed by an accurate and complete land survey of the

Land.”

(2) Enhanced Policy Covered Risk No. 22:

“Someone else has a legal right to, and does, refuse to perform

a contract to purchase the Land, lease it or make a Mortgage

loan on it because Your neighbor’s existing structures encroach

onto the Land.”

c) Takeaways

(1) Insert survey exception when appropriate!



(2) Selling point for when property is in subdivision that

allows new construction.

3. Variation: Assume Jill doesn’t move, but Jack tries to sell after he

builds his McMansion. Purchaser’s survey reveals the encroachment

onto Jill’s property. Is he covered?

a) Analysis: neither provide coverage

(1) Standard Policy Exclusion 3(a) & (d):

“Defects, liens, encumbrances, adverse claims, or other

matters:

(a) created, suffered, assumed, or agreed to by the Insured

Claimant.

* * *

(d) attaching or created subsequent to Date of Policy.”

(2) Enhanced Policy Exclusion 4(a) & (d):

“Risks:

(a) that are created, allowed, or agreed to by You, whether or

not they are recorded in the Public Records.

* * *

(d) that first occur after the Policy Date.”

4. The House that Jack Built (Later)

a) Facts

(1) 2010: Jack buys a teardown.

(2) 2012: Jill purchases property next door.

(3) 2014: Jack builds his McMansion.

(4) 2015: Jill doesn’t like Jack, so decides to move.

Purchaser’s

survey correctly reveals Jack’s garage encroaches on Jill’s

property.



b) Analysis: only the Enhanced provides coverage

Standard Policy Exclusion 3(d):

“Defects, liens, encumbrances, adverse claims, or other

matters:

(d) attaching or created subsequent to Date of Policy.”

Enhanced Policy Covered Risk 28:

“Your neighbor builds any structures after the Policy Date—

other than boundary walls or fences—which encroach onto the

Land.”

5. The House that Jack Bought

a) Facts

(1) 2010: Jack buys himself a McMansion. His survey

showed nothing wrong.

(2) 2012: Jill purchases property next door.

(3) 2014: Jack doesn’t like Jill, so he decides to move.

Purchaser’s survey correctly reveals Jack’s garage encroaches

on Jill’s property.

b) Analysis: Yes, Standard; it depends, Enhanced

Standard Policy Covered Risk No. 2(c):

“The term ‘encroachment’ includes encroachments of existing

improvements located on the Land onto adjoining land, and

encroachments onto the Land of existing improvements

located on adjoining land.”

Enhanced Policy Covered Risk No. 21:

“You are forced to remove Your existing structures because

they encroach onto Your neighbor’s land.”

6. The Deck that Jack Built

a) Facts



(1) 2010: Jack buys a fixer-upper and builds himself a

deck—without a permit.

(2) 2012: Jack sells to Fred. Fred hires contractor to build

an additional bedroom.

(3) Upon completion, county

inspector discovers that

deck was built without a

permit. County inspector

issues letter requiring removal.

b) Analysis: only the Enhanced provides coverage

(1) Enhanced Policy Covered Risk 18:

“You are forced to remove or remedy Your existing structures,

or any part of them - other than boundary walls or fences -

because any portion was built without obtaining a building

permit from the proper government office. The amount of Your

insurance for this Covered Risk is subject to Your Deductible

Amount and Our Maximum Dollar Limit of Liability shown in

Schedule A.”

c) Takeaways

(1) Compare info in tax description with real estate agent’s

listing.

(2) Investigate and resolve discrepancies.

(3) DIY projects are sometimes hard to recognize. A deck

might stand out as an addition, but internal electrical wiring

may not.

(4) A home inspection may not reveal whether a permit

was obtained. An Enhanced Policy offers great protection.

7. Variation: Does it make a difference if the encroachment is a

fence or boundary wall?

a) Analysis: Yes! Only the Enhanced provides coverage




“You are forced to remove or remedy Your existing structures,

or any part of them - other than boundary walls or fences -

because any portion was built without obtaining a building

permit from the proper government office. The amount of Your

insurance for this Covered Risk is subject to Your Deductible

Amount and Our Maximum Dollar Limit of Liability shown in

Schedule A.”

8. The Brand New House that Jack Bought

a) Facts

(1) 2010: Jack buys himself McMansion, completed days

before closing. It was once a teardown.

(2) Taxes were prorated at settlement.

(3) A few months later, Jack

receives a supplemental

tax bill.

b) Analysis: both provide coverage

(1) Standard Policy Covered Risk 2(b):

“The lien of real estate taxes or assessments imposed on the

Title by a governmental authority due or payable, but unpaid.”

[Liens relate back to date unpaid.]


“A taxing authority assesses supplemental real estate taxes not

previously assessed against the Land for any period before the

Policy Date because of construction or a change of ownership

or use that occurred before the Policy Date.”

c) Takeaways

(1) Add exception to policy for supplemental taxes when

appropriate.

9. The House the JACK LLC wanted to build

a) Facts



(1) 2010: JACK LLC buys a vacant lot; the survey shows

nothing wrong.

(2) 2012: JACK LLC prepares to build McMansion, but

discovers an easement prohibits this plan.

(3) The easement was

incorrectly noted on

the purchase survey.

b) Analysis: only the Standard provides Coverage

(1) Enhanced Policy Preamble:

“It applies only to a one-to-four family residence and only if

each insured named in Schedule A is a Natural Person. If the

Land described in Schedule A of the Policy is not an improved

residential lot on which there is located a one-to-four family

residence, or if each insured named in Schedule A is not a

Natural Person, contact Us immediately.”

10. Variation: Assume instead of JACK LLC, Jack’s Revocable Trust

buys the vacant lot.

a) Analysis: only the Standard provides coverage

(1) Enhanced Policy Definition 1(f):

“Natural Person - a human being, not a commercial or legal

organization or entity. Natural Person includes a trustee of a

Trust even if the trustee is not a human being.”

(2) But it is still a vacant lot, which cannot be insured by an

Enhanced policy.

b) Takeaways

(1) If the proposed insured is an entity, other than a trust,

or if the property is vacant land, don’t issue a commitment

specifying enhanced coverage, and don’t issue an Enhanced

Policy.



II. How to Explain Coverage: Adapting Your Message to the

Consumer

A. Background

1. The Dodd-Frank Act: The Dodd-Frank Wall Street Reform and

Consumer Protection Act created the Consumer Financial Protection

Bureau (“CFPB”) and charged the CFPB to create and implement a

regulation that integrates the mortgage loan disclosures under the

Real Estate Settlement Procedures Act of 1974 and the Truth-in-

Lending Act.1 They did. CFPB’s Integrated Mortgage Rule creates

significant changes to the title and settlement industry. Among them is

the new Closing Disclosure, which integrates the final Truth-in-

Lending Statement and the HUD-1 Settlement Statement. While this

new form has many noteworthy changes, our focus is on one change—

the designation that owner’s title insurance is “optional.” The Closing

Disclosure will be mandatory for all transactions for which a creditor

or mortgage broker receives an application on or after August 1, 2015.

2. Owner’s Title Insurance is Optional: Owner’s title insurance has

always been optional in Virginia.2 However, that fact will be even more

prominent to the consumer than it ever was before. The line item of

owner’s title insurance will appear in a category entitled “Other” on

the Closing Disclosure, along with items like an HOA processing fee and

the home warranty.3 A draft of this Closing Disclosure must be given to

the consumer at least 3 days before settlement,4 which is now termed

as “consummation.”5 Delivery of the Closing Disclosure is ultimately

the responsibility of the creditor, and Wells Fargo (which has by far the

greatest market share) stated in September, 2014 that it will control

the delivery of this document to the consumer. Many believe that

other creditors will follow Wells Fargo’s approach as the market share

leader.

1 Dodd-Frank Act sections 1098 & 1100A, codified at 12 U.S.C. 2603(a) and 15 U.S. C. 1604(b), respectively.

2 Compare Va. Code § 38.2-4616. Notification to buyers of the availability of owner's title insurance.

3 12 CFR Part 1026 Appendix H-25(B) through H-25(G) (examples of a Closing Disclosure filled in).

4 12 CFR § 1026.19(f)(i) and (ii).

5 12 CFR § 1026.2(13).



3. Effect on the Consumer: Consider the effect of this new process if

you were the consumer. Days before your settlement, the reality of the

cost of what you are doing starts to sink in—your purchase is

becoming more expensive than you estimated. There is furniture to

buy, moving expenses, remodeling to be done—and then you get the

draft Closing Disclosure from your creditor, which only confirms your

fears about how expensive this transaction is going to be. After you

have reviewed almost all of your expenses, down at the bottom of the

sheet in the “Other” category, you read “Title—Owner’s Title Insurance

(optional)” for $1,382.00, right after the HOA processing fee for $150.

Since this document came from your creditor, there is no explanation

as to what owner’s title insurance is or why you should get such a

policy, so you make up your mind to decline it and save yourself the

money. After all, it’s “optional,” like that “extra liability insurance”

when you rent a car or that “traveler’s protection insurance” when you

book a flight. So who needs it, right?

4. Effect on the Industry: If the above scenario seems reasonable to

you, then many consumers will walk into the settlement room

predisposed to decline owner’s title insurance, and they will have had

at least 3 days to become settled in that predisposition. If we who

conduct closings do not become more skilled in persuading consumers

of the value of owner’s title insurance, then fewer policies will be

purchased and issued. Less money will be made by title agents and

their underwriters. Consider also the long term effects. How often do

you as a settlement agent depend on a letter of indemnity to make your

transaction go on time? If fewer owner’s policies are purchased, that

solution will become a thing of the past—you will have to actually clear

the title, which takes time, perhaps taking you past the contractual

settlement date. Think of the effect delayed settlements have on

proceeds to sellers and commission checks to real estate agents.

B. Adapting Your Message to Meet the Concerns of the

Consumer



1. The Purpose and Power of Persuasion: Nothing happens in this

life without persuasion. You bought your car because you were

persuaded by that Consumer’s Report analysis or commercial or price

or salesperson. You were persuaded to get married because that

prospective spouse somehow persuaded you that he or she was “the

one.” Why, no one on this earth is even born without someone

persuading someone else to . . . . well, you know. Likewise, no one buys

title insurance without being persuaded to do so.

2. Three Means of Persuasion: Academically speaking, persuasion

happens in 3 ways: ethos, pathos and logos. Believe me—I know, I

majored in Rhetoric in college. Ethos is when you are persuaded

because of the person who says it, like me who just said, “Believe me—I

know, I majored in Rhetoric.” Pathos is when you are persuaded

because of an emotional appeal. Many commercials fall into this

category, appealing to your emotions—you will be so happy if you just

buy our product. Logos is when you are persuaded because the appeal

makes logical sense. Most of the approaches set forth below fall into

the logos category, but thinking about how you can leverage all 3

categories will make you a better salesperson.

3. Explaining Coverage in a Nutshell: My overall approach can be

summarized in three steps.

a) First, when a consumer declines owner’s coverage, always

respond positively.

b) Second, ask questions to discover why the consumer has

made this decision.

c) Third, fashion a response to address the concerns and

values of the consumer so that the consumer has no other choice

but to buy. That’s persuasion.



4. The First Step: When you are explaining the Closing Disclosure

and you get to that line item for owner’s title insurance, be prepared

for a consumer to say to you, “I don’t want that—take it off!” Don’t be

defensive or make the consumer feel awkward. Say something like, “Of

course—I’d be happy to do that for you. It seems like you’ve given this

some thought already. May I ask you why you want to decline owner’s

title insurance?” Or perhaps try, “That’s a great conversation to have—

thanks for bringing it up. Title insurance is one of my favorite topics.

Can I ask you why you don’t want title insurance?” This is very

important—making the consumer feel comfortable and understood so

that he or she is more receptive to seeing the value of purchasing an

owner’s policy as you explain it in the moments that follow.

5. The Second Step: Once you’ve asked the question, listen to the

answer. While there are many different reasons why one would

decline owner’s title insurance, many fall in into one of four categories:

a) Confused

b) Economic

c) Litigious

d) Anything Goes

C. Explaining Coverage to the Confused

1. What the Confused Says: The consumer who is confused

generally says something like, “I don’t need an owner’s policy. It says

right there that the lender is getting one, so another policy is not

necessary.”

2. What You Could Say In Response: Here, you first want to

disabuse the consumer of this common misconception by saying

something like the following:

That’s a great question—I get this question a lot. The lender’s policy only covers

the lender, not you. And so if there is a title claim, the lender will be protected up

to the value of the loan, but you will have no protection.

But don’t stop there. Here is where persuasion comes in. Since the

consumer brought up the lender’s policy, leverage the consumer’s own



rationale by saying something that fits the consumer’s mindset, like the

following:

Since you brought up the lender, let’s just talk about the lender some more. The

lender’s policy is not optional. Just think about that for a moment. The lender

will not issue you a loan unless it is protected with a lender’s policy. I

understand why you might not want an owner’s policy—you might buy a house

only 3 or 4 times in your lifetime, so it is hard to see the value of title insurance.

But the lender is in the business of issuing loans day after day. Lenders are well

aware of the title issues that can occur and the need for title insurance. That is

why they won’t issue you a loan without title insurance. If the lender wants that

protection, wouldn’t you want that protection as well?

This response is very complimentary to the confused consumer’s objection,

so it is good to pair these two together in the same conversation. It sounds

very natural, not like some salesperson’s script.

D. Explaining Coverage to the Economically Motivated

1. What the Economically Motivated Says: When you ask a

consumer why he or she does not want title insurance, the consumer

who is economically motivated is easy to spot. That consumer says

something like, “It’s just too expensive” or “That’s just too much

money.”

2. What You Could Say In Response: If that is the consumer’s

response, then talking about the how the lender always gets a policy is

irrelevant. Instead, for the economically motivated consumer, focus on

an economically driven response, like the following:

I agree with you, Mr. Consumer—the cost of an owner’s policy can be a big bill.

But since you raise the issue of cost, let me quickly run through 4 considerations

regarding cost. And if you still don’t want it, then I’d be happy to take if off for

you.

Point Number One: As far as insurance goes, title insurance is the cheapest to

purchase because it is a one-time fee. All other forms of insurance like health or

life or auto are purchased by a recurring charge, so over the years you end up

paying far more for those forms of insurance. But with title insurance, once you

pay, you’re done—and coverage lasts as long as you own the property,6 and with

some policies, this coverage may extend even to your successors in interest—even

6 ALTA Owners Policy of Title Insurance 6/17/06, Condition 2.



after you have sold your home.7 You can’t say that about other forms of

insurance.

Point Number Two: Someday, you may decide to refinance. Maybe rates will go

down or your equity will increase and you may decide to put on an equity line. If

that happens, the lender in that transaction will likely require you to purchase a

new lender’s policy. And that could be another big bill. But if you have an

owner’s policy, you may be entitled to a significant discount on the cost of that

transaction.

Point Number Three: I understand that the cost of an owner’s policy seems

expensive, but I also see that you have a significant down payment. That is what

is at risk here. If you don’t get an owner’s policy and later experience a title

problem, you may not be able to sell your house until you fix the problem at your

own expense. All your equity may be held hostage until you do. In a worst case

scenario, if a lawsuit is not successful, your equity could be lost.

Point Number Four: Fixing a title problem can be expensive. Sometime it

involves hiring an attorney and going to court. That amount that you see on the

Closing Disclosure probably wouldn’t be enough to cover the first couple of

hours of an attorney’s time. In contrast, if you have an owner’s policy and

experience a title problem, just send a letter describing the issue to the address on

the back of your policy. If your matter is covered and all applicable deductibles

are met, your underwriter will take care of the rest.

Of course, you don’t have to run through all four, but all four meet the

consumer where it matters most—the pocketbook. A fifth response is also

appropriate here, but it depends on how the Consumer Disclosure reflects

the fees for an owner’s policy vis-à-vis a lender’s policy. If the cost of a

lender’s policy is shown at a modest simultaneous issue fee, then we all know

that when the consumer declines an owner’s policy, the simultaneous issue

fee no longer applies, and the consumer is charged full price for the Lender’s

policy. The savings that the consumer thought was to be attained by

declining the owner’s policy quickly evaporates. You may want to start with

this point. It is perhaps the most difficult to relay to a consumer without

giving the impression of “smoke and mirrors”, but once adequately

understood it can be the most persuasive. For just a little more money, you

can have an owner’s policy. You won’t save that much money by declining it.

7 ALTA Homeowner’s Policy Of Title Insurance 12/02/13, Condition 2.



E. Explaining Coverage to the Litigious

1. What the Litigious Says: The consumer who is litigious decides

that an owner’s policy is just not worth it because if something goes

wrong, the consumer will just sue. Consider the following exchange:

CONSUMER: I came to you because you are an attorney and so I’m expecting

that everything is done right. And so I think the relatively small risk of having a

problem is very small and just not worth the cost of an owner’s policy.

YOU: Oh, thanks for the compliment. We really do strive for perfection with

every settlement, and your transaction is no exception. We have taken pains to

make sure that everything is done right. But like you, we sometimes make

mistakes--

CONSUMER: (interrupting) Well, if you do, you will make it right, right?

YOU: Of course! If I have made a mistake, I would certainly make it right at my

own expense. But it is not that simple. There are many people outside of my

control that can make a mistake, resulting in a title claim. For example, the

person who searched the title and the person who created the survey could have

made a mistake that will result in a title claim later on. Perhaps an easement was

missed or the surveyor failed to recognize that your new swimming pool actually

encroaches on your neighbor’s lot.

CONSUMER: Well, then I would expect they would make things right at their

expense—and if they don’t, I’ll just sue. The law firm I work for is full of lawyers

who would represent me, so cost is really not an issue.

Here, even when the consumer has overcome the hurdle of the cost of

litigation, it is still very possible to demonstrate that litigation does not solve

everything. If this is your consumer at the closing table, consider the

following response:

YOU: Certainly, I would hope they would make things right at their expense if

they made a mistake. But there is no guarantee that they would be available to fix

things or be available to be sued by the time a title claim occurs.

CONSUMER: What do you mean?

YOU: Well, we have had the title searched in connection with your transaction.

We do this to make sure the seller passes good title to you and to make sure that

you execute the necessary documents to give the lender a lien to secure your loan.

And that’s what happens with every sale or refinance transaction—the title is



searched. And in the case of a sale transaction, a survey is performed if you

wanted one.

Perhaps many years from now, you will refinance or sell the property. When that

happens, a new title search and maybe a new survey will be performed. It may be

at that time we will discover whether the people who did your title search or your

survey in this transaction made a mistake.

If I made a mistake, I certainly hope that I’m around 10 years from now, but I

can’t guarantee it. And I can’t guarantee that the title searcher or surveyor for

your transaction will be around 10 years from now. And so when that title issue

comes to light because someone—being human—made a mistake, that someone

might not be around to sue.

And if no one is around to sue, you would be stuck fixing the problem at your own

expense. You might have to move the deck that you built over that easement you

didn’t know about. Or maybe you might have to pay your neighbor a lot of money

because part of your swimming pool is on his property. You wouldn’t have to do

that with an owner’s policy—things like that could be covered.

CONSUMER: I see your point . . . .

YOU: As you and I both know, litigation does not solve every problem. By the

time a title problem comes to light, the responsible party can be dead or out of

business. Sometimes, title claims do come to light earlier and the responsible

party is available to be sued—but litigation is still not a viable option.

CONSUMER: What do you mean?

YOU: Well, consider your sellers, Mr. and Mrs. Thompson. How do you know

that they are the real Mr. and Mrs. Thompson on title? Certainly, just like I asked

for your ID, my counterpart conducting the seller’s side is asking for their IDs.

But IDs can be forged. And just because Mr. and Mrs. Thompson look nice

doesn’t mean they aren’t crooks. If crooks looked like crooks, they wouldn’t be

able to get away with half the stuff they get away with! I can’t tell you how many

title claims I have heard about where the “wife” signing the deed at settlement is

really the husband’s girlfriend and the real wife is off on business somewhere,

only to come back to a home occupied by the new purchaser.

If something like that happens to you, that deed signed by the fraudsters is void—

you own nothing. Who are you going to sue? Those fraudsters will be long gone,

living by some new name somewhere, unable to be located.8

8 Compare ALTA Owners Policy of Title Insurance 6/17/06, Covered Risks Nos. 1, 2(a)(i), 2(a)(ii) and 2(a)(iii); ALTA

Homeowner’s Policy of Title Insurance 12/02/13, Covered Risks Nos. 1, 3, 6(a), 6(b), 6(c), 10.



CONSUMER: Oh!

YOU: And sometimes, there is nobody to sue because a title claim occurs and

nobody did anything wrong during your transaction. Picture this. We have your

title searched. You sign documents and the seller signs documents. We then take

those documents to the land records to record them. Before we do, we do what is

called a “title bring down”—we look at the title again to make sure that nothing

has changed. And if it hasn’t, we record.

But land records are not instantaneous. When our title examiner gets in line to

record, there is always the possibility that some judgment creditor of the seller or

some other party could be ahead in the line, recording a judgment or some other

lien against the seller. Perhaps such a judgment or lien against the seller is

already recorded, but evidence of the recording is in the scanning department and

not yet available for the title examiner to review. If that happens, that lien against

the seller will have superiority over your interest in the property.

A title insurance policy protects you against this, but without it, you would be

forced to get the seller to fix this problem. But again, the seller might not have

the desire or resources to fix the problem, or this problem might not surface for

many years, and by that time, the seller could be dead other otherwise difficult to

find. Once again, litigation may not be the best answer. Your best answer in that

scenario would an owner’s policy of title insurance.

In sum, the litigious consumer says, “I don’t need title insurance because you

will pay if something goes wrong, and if you won’t, I’ll just sue you.” And so

all your responses must be calculated to rebut that presumption. Sometimes,

by the time a claim surfaces, the responsible party is not around to fix things or

be sued. Other times, the responsible party is judgment proof. And the very

system of recording allows for title claims to occur. In all these scenarios,

litigation is not an adequate remedy, even if you can afford it. The only

available remedy is a title insurance policy.

F. Explaining Coverage When You Cannot Discern the Concerns

of the Consumer

1. Falling Back On Your Own Value Statement: Sometimes, no matter

how many leading questions you ask, you are just not going to squeeze out of

the consumer the precise reason why he or she is declining an owner’s policy.

In that case, anything goes—be prepared with your own value statement of

why an owner’s title insurance is a good buy. Perhaps you may want to distill

the arguments above into something like the following:



Your lender believes that title insurance is necessary. That is why your lender

requires you to purchase a lender’s policy. But the owner’s policy is optional—

you can decline it. Time would not allow us to cover all the possible title

problems that would be covered by an owner’s policy. But so that you can

understand the basic nature of the coverage, let me give you three quick

examples.

Number 1: Human Error. The people who searched the title, created your

survey, even me—we all make mistakes, just like you. Sometimes these mistakes

create title problems. Maybe the title searcher missed an interest or a lien from a

prior owner.9 Maybe your house actually encroaches onto your neighbor’s

property or vice versa.10

Maybe you make an improvement like a deck or patio

over an easement that you didn’t know existed because the surveyor missed it.11

Maybe the sellers made improvements that lacked permits or were not made

according to code.12

You might not discover any of these problems until you

renovate, refinance or try to sell your property years later, and by that time the

responsible party might be out of business, dead or otherwise unreachable. An

owner’s policy could protect you against problems like these.

Number 2: Fraud. Of course, we have confirmed the identity of the sellers, but

IDs can be forged, and if that happens, the deed I have now would be void and

you would have nothing.13

Even after this transaction, someone could steal your

identity and create title problems.14

An owner’s policy could protect you from

these events.

Number 3: Cost Savings. Unlike other forms of insurance, this is a one-time fee

giving you coverage that lasts as long as you own the property15

and may even

extend to your successors.16

If you purchase an owner’s policy, you may be

entitled to a significant discount if you refinance in the future. If you do not have

an owner’s policy, all such title problems must be fixed at your own expense,

which may include the cost of hiring an attorney.

9 ALTA Owners Policy of Title Insurance 6/17/06, Covered Risks Nos. 1 and 2; ALTA Homeowner’s Policy of Title

Insurance 12/02/13, Covered Risks Nos. 1, 8 and 9. 10

ALTA Owners Policy of Title Insurance 6/17/06, Covered Risks No. 2(c); ALTA Homeowner’s Policy of Title

Insurance 12/02/13, Covered Risks Nos. 21 and 28. 11

ALTA Owners Policy of Title Insurance 6/17/06, Covered Risks No. 2(c); ALTA Homeowner’s Policy of Title

Insurance 12/02/13, Covered Risks No. 23. 12

ALTA Homeowner’s Policy of Title Insurance 12/02/13, Covered Risks No. 14. 13

ALTA Owners Policy of Title Insurance 6/17/06, Covered Risks Nos. 1, 2(a)(i), 2(a)(ii) and 2(a)(iii); ALTA

Homeowner’s Policy of Title Insurance 12/02/13, Covered Risks Nos. 1, 3, 6(a), 6(b), 6(c), 10. 14

ALTA Homeowner’s Policy of Title Insurance 12/02/13, Covered Risks Nos. 3 and 7. 15

ALTA Owners Policy of Title Insurance 6/17/06, Condition 2. 16

ALTA Homeowner’s Policy Of Title Insurance 12/02/13, Condition 2.



G. Explaining Coverage When The Consumer’s Real Estate Agent

Is Against the Idea

1. What the Real Estate Agent Might Say: Sometimes, the consumer

declines the owner’s policy because his or her real estate agent has

already told the consumer not to buy it. Your tipoff to this special

problem is when the agent, not the consumer, tells you to “Take that

fee off the Closing Disclosure—my client doesn’t want it.”

2. A Possible Strategy in Response: When an agent objects, it gets

tricky. You don’t want to argue with the agent or try to drive a wedge

between the agent and his or her client. The relationship between the

agent and the consumer is likely stronger than the one you may have

with the consumer. And so the best strategy is to treat the real estate

agent like the consumer. After asking the agent why he or she has

advised his or her client to decline, try to persuade the agent (and by

extension, the consumer) that an owner’s policy is a good idea. At the

very least, look for an excuse to relate the value of an owner’s policy.

Perhaps your conversation can look something like this:

YOU: OK, moving on down the Closing Disclosure, the next thing I’d like to

review is the cost of an Owner’s policy. As you can see here—

AGENT: My client doesn’t want that.

YOU: Pardon? Did you say something?

AGENT: My client Tony and I spoke yesterday about that and we decided that he

didn’t want that. Just take it off, please.

YOU: Tony, is that what you would like me to do?

TONY (CONSUMER): Yes.

YOU: (To consumer) I’d be happy to do that for you. It sounds like you already

sought the wise counsel of your agent, who I’m sure has helped you every step of

the way along this transaction. (To Agent) I don’t believe I’ve met you before,

but I’m sure you are very experienced at being a real estate agent. May I ask you

why you don’t think Tony should purchase an Owner’s Policy in this transaction?

AGENT: I just think it’s a big waste of money. I always advise my clients to opt

out. In the 16 years of being a real estate agent, I’ve never had a client experience

a claim.



YOU: That’s great! You have had some happy clients over the years! Again, I’d

be happy to take that charge off of the Closing Disclosure, but before I do, I need

to have you, Tony, sign a waiver of coverage just to document that this was an

intentional and informed waiver of coverage.

TONY (CONSUMER): That’s fine.

YOU: Great. As I said, the waiver is an informed waiver—in other words, I just

need to spend a quick minute going over what an owner’s policy can do for you

so that when you decline coverage by signing the waiver, it’s binding and there

can never be an argument that you did not know what you were signing, etc.

The stage is now set for you to present the best argument you have, based on

the rationale behind the agent’s objection, as to why the consumer should

purchase an owner’s policy.

H. Creating a Win from a No-Win Scenario

1. Sometimes, no matter how prepared you are, the client is just

not going to buy an owner’s policy at the table—for whatever reason.

In that case, consider the following language at the end of your usual

waiver form:

Initial:_______ I UNDERSTAND THAT BY WAIVING AN OWNER’S

POLICY, IF A TITLE PROBLEM OCCURS, I WILL HAVE TO FIX IT AT MY

OWN EXPENSE, WHICH MAY INCLUDE HIRING AN ATTORNEY.

This may give the consumer pause for thought. I also suggest that you

conduct the closing as usual, and then when everything has been signed, and

the buyer is ready to leave, you make title insurance the last thought that the

buyer leaves with. Consider the following approach:

We are all done—congratulations on your new home! Here is a copy of all your

papers. Keep them in a safe place. I put your waiver and a brochure on owner’s

title insurance at the very top. If you change your mind for whatever reason, I

can make a last minute change up to 10:00am tomorrow morning when we send

these documents to be recorded. Again, congratulations!

Admittedly, making a last minute change like this may involve lender

approval and revising the Closing Disclosure, but it also has a couple

advantages that may make it worth your trouble.



First, when a real estate agent is the one who objects to the consumer

purchasing an owner’s policy, you never know how much influence the agent

has over the consumer. Even if the consumer wants to buy the optional

coverage, it may be difficult for the consumer to say so with the agent

present. But by giving the consumer a small window of opportunity to

accept the coverage outside the presence of the agent, some consumers might

buy.

Second, notice that the consumer is given a brochure on title insurance when

the closing was over. Having the client read a lengthy brochure in the middle

of closing may not be practical. Perhaps if the consumer reads the brochure

later that day with your discussion in mind, there will be something in it that

will resonate with the consumer and compel him or her to make that last

minute purchase.

Finally, there is something a bit more compelling about that last minute

purchase. During the closing, it may be difficult for a consumer to give

thoughtful consideration to purchasing an owner’s policy—especially when

the consumer has walked in the door with his or her mind made up (or made

up by the real estate agent). But after closing, when the dust settles, if the

consumer is left with a sense of “act now before it’s too late”, the consumer

might be compelled enough to give the matter the thoughtful consideration

the issue deserves and realize that owner’s coverage is a worthwhile

investment.

III. When to Explain Coverage: Navigating Through the TRID

Rules and Other Problems

A. Q.: When Should You Explain Coverage? A.: As Early As

Possible.

B. Notice of Availability

1. § 55-525.11. Duty of settlement agent.

The settlement agent shall cause recordation of the deed, the deed of

trust, or mortgage, or other documents required to be recorded and

shall cause disbursement of settlement proceeds within two business

days of settlement. A settlement agent may not disburse any or all

loan funds or other funds coming into its possession prior to the

recordation of any instrument except (i) funds received that are

overpayments to be returned to the provider of such funds, (ii) funds



necessary to effect the recordation of instruments, or (iii) funds that

the provider has by separate written instrument directed to be

disbursed prior to recordation of any instrument. Additionally, in any

transaction involving the purchase or sale of an interest in residential

real property, the settlement agent shall provide notification to the

purchaser of the availability of owner's title insurance as required

under § 38.2-4616.

2. § 38.2-4616. Notification to buyers of the availability of owner's

title insurance

In connection with any transaction involving the purchase or sale of

an interest in residential real property in this Commonwealth, the

settlement agent as defined in § 55-525.8, before the disbursement of

any funds, shall obtain from the purchaser a statement in writing that

he has been notified by the settlement agent that the purchaser may

wish to obtain owner's title insurance coverage including affirmative

mechanics' lien coverage, if available, and of the general nature of

such coverage, and that the purchaser does or does not desire such

coverage. The notification shall include language that the value of

subsequent improvements to the property may not be covered.

The failure of a settlement agent to provide the information requested

by this section shall not of itself be deemed to create a cause of action

that would not otherwise exist.



C. Problems and Solutions

1. The Loan Officer may be economically driven to quote standard

policy pricing, making his or her Loan Estimate competitive with lower

fees. If this happens, standard policy pricing must be reflected on the

initial Closing Disclosure, which may make it harder for the title and

settlement agent to sell the enhanced policy later on. Solution: Educate

loan officers on the value of the enhanced policy—use it as a marketing

opportunity. Also consider obtaining the consumer’s consent to quote

enhanced policy coverage.

2. Advocate that real estate agents insert standard provision in

sales contract: “Purchaser wishes a quote on an enhanced owners

policy for information only.”

3. Lenders may be disinclined for last minute changes, even if it

entirely benefits the consumer. Expect delays for lender approval of

last minute changes to the Closing Disclosure. Solution: engage the

consumer well before settlement on this issue.

IV. Being Qualified to Explain Coverage: Title Agent Licensure

A. General Requirements

1. § 38.2-1814.1: Resident individual applicants for title insurance

license must complete 16 hours of qualifying pre-license education.

2. § 38.2-1820: Individual applicants must be at least 18 and of

good character to get a license. Entity applicants must designate a

licensed producer for the entity’s compliance.

3. § 38.2-1822: No individual or entity shall sell, solicit or negotiate

contracts of title insurance unless licensed. An individual whose

license is revoked or voluntarily surrendered in lieu of a Commission

hearing shall not own or be employed by a title insurance company.

Reciprocity is available for nonresident business entities. Commission

must be notified if business entity uses assumed or fictitious name.

4. § 38.2-1836: Reciprocity for individual licenses is available for

participating states.



B. Appointment

1. Agent Appointment

a) § 38.2-1825: A license issued to an individual or entity

authorizes such to act as an agent of an insurer. License of entity

will be administratively terminated if charter or certificate of

authority is revoked.

b) § 38.2-1833: In addition to being licensed, an individual

must be appointed by the title insurer before selling title insurance

(or 30 days thereafter).

2. Cancellation of Appointment

a) § 38.2-1833: Once appointment is terminated, agent may

no longer sell or solicit application for insurance. (Query: what

about issuing final title policies?)

b) § 38.1-1834: Gives agent a grace period of 10 days to

continue selling insurance after appointment terminated.

Appointments last for 1 year and thereafter must be renewed.

c) § 38.2-1834.1: Insurer must notify Bureau within 30 days of

termination of appointment if termination was for specific

reasons; must notify agent within 15 days. Agent may file a

rebuttal.

3. Termination Notification

a) § 38.2-1825: Upon termination of last appointment,

Commission shall notify VSB to terminate RESA registration.

b) § 38.2-1833: Once appointment has been terminated, agent

is prohibited from “selling or soliciting”. Query: what about

cleanup?

c) § 38.2-1834: Agent has 10 days after receiving notice of

termination of appointment to “cease selling or soliciting”. Upon

termination of appointment by insurer, insurer shall notify agent

within 5 days and Commission shall notify agent within 30 days.



d) §.38.2-1834.1: Insurer shall notify Commission within 30

days after appointment termination if termination was for any

reason in § 38.2-1831 or if an court, government body or legally

authorized self-regulatory organization to have engage in certain

enumerated activities. This duty is ongoing. A copy of such

notification must be made to the agent within 15 days of

termination. Within 30 days of receiving such copy, the agent may

file a rebuttal.

C. Maintaining a license

1. Continuing education

a) § 38.2-1866: 16 hours of continuing education, biennially

(every 2 years), including 3, hours of ethics. No more than 75

percent of required credits can be from insurance companies or

agencies.

b) § 38.2-1868.1: Deadline for fees and courses is Nov. 30 with

a grace period up to Dec. 31. Failure results in license termination.

c) § 38.2-1869: Administrative termination is effected 30 days

after Board gives notice to licensee. If title agent license is

terminated, the settlement agent license is likewise terminated.

d) § 38.2-1870: CE requirements can be waived for good cause

shown.

e) § 38.2-1871: Exemptions from CE requirements include:

nonresidents who fulfill CE requirements of their resident license

(reciprocity), age 65 and over and have been VA licensed for 20

years or VA licensed for at least 4 years and out-of-state licensed

for the remainder for a total of 20.

2. Change of address

a) § 38.2-1826(A) & (D): Agent must report within 30 days to

insurer and Commission any change to residence or name. “The

license authority of any licensed resident agent shall terminate

immediately when such agent has moved his residence from this

Commonwealth, whether or not the Commission has been notified

of such move.”



3. Appointment renewal

a) § 38.2-1834: Appointments must be renewed by insurer

annually before August 10.

D. License suspension, revocation or denial

1. § 38.2-1821: If a license is revoked, all appointments are

terminated.

2. § 38.2-1831: Enumerates multiple grounds for license

suspension, revocation, refusal to issue or renew, and for probation.

3. § 38.2-1832: Commission may suspend, revoke or deny licenses

if applicant is not of good character or does not have a good reputation

for honesty. License of derivative agency may also be similarly

affected. Additional penalty: fine. Even if individual is no longer

license, that individual may still be subject to such actions.

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