What Lenders And Lawyers Need To Know About Icl


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What Lenders And Lawyers Need To Know About Icl

  1. 1. What Lenders and Lawyers Need to Know about Insured Closing Letters Presented by
  2. 2. Many attorneys do not know that title insurers are liable to their policy holders under two sources of recovery: The title insurance The Insured Closing policy Letter
  3. 3. The Title Insurance Policy insures that the lender’s mortgage instrument is valid and that it is recorded in the lien position, or priority, that was contracted for with the borrower.
  4. 4. The Insured Closing Letter (“ICL”) assures that the lender and borrower will be “made whole” in the event of a closing attorney’s error or fraud in the closing.
  5. 5. Title insurance protects policy holders against losses due to defects in title, and errors in the public records or title examination.
  6. 6. ICLs protect policy holders against losses due to a closing attorney’s accidental or deliberate mishandling of closing funds or documents.
  7. 7. CATIC uses the American Land Title Association (“ALTA”) form ICL developed in 1987, which was revised in 1998 and 2006, for residential real estate closings.
  8. 8. The ICL covers attorney errors regarding: the status of the title to the land encumbered by the mortgage; the validity, enforceability, or priority of the lien of said mortgage; obtaining documents necessary to establish the mortgage holder’s interest in the real estate; obtaining any document specifically required by the lender; the collection of funds due the lender; the fraud or dishonesty in handling the lender’s funds or documents related to the transaction.
  9. 9. The ICL does not cover attorney errors regarding: failure to comply with closing instructions that require title insurance coverage that is inconsistent with the Policy Commitment; loss of the lender’s funds due to bank failure, insolvency or suspension unless the failure results from the closing attorney’s failure to follow the lender’s closing instructions; mechanics’ liens in connection with the closing that are covered under the lenders title insurance policy or title insurance policy commitment.
  10. 10. An ICL provides coverage for a specific transaction, and expires one year from the closing date.
  11. 11. ICL coverage requires The title insurer The ICL, Policy must be identified The ICL must be Commitment, and The lender must The lender must on the HUD, and issued for a final policy must receive a Policy receive a final title the insurance specific be issued through Commitment insurance policy premium must be transaction the same title collected at insurer closing
  12. 12. Any one of these actions can destroy ICL coverage: The ICL, The title The ICL is Policy insurer is not changed by Commitment, identified on The lender The lender someone does not and final the HUD, and does not other that title receive a policy are not a title receive a final insurer or issued insurance Policy title insurance used for more through the premium must Commitment policy than one same title be collected at transaction insurer closing
  13. 13. ICL coverage is destroyed/preserved A Policy Commitment is submitted to the lender. A Policy Commitment is not submitted to the lender.
  14. 14. ICL coverage is destroyed/preserved The ICL is issued for a specific transaction. The ICL is changed by someone other that title insurer or used for more than one transaction
  15. 15. ICL coverage is destroyed/preserved The title insurer is identified on the HUD, and the insurance premium is collected at closing. The title insurer is not identified on the HUD, and the insurance premium is not collected at closing.
  16. 16. ICL coverage is destroyed/preserved The ICL, Policy Commitment, and final policy are issued through the same title insurer. The ICL, Policy Commitment, and final policy are not issued through the same title insurer.
  17. 17. ICL coverage is destroyed/preserved The lender receives a final title insurance policy. The lender does not receive a final title insurance policy.
  18. 18. Types of errors covered by an ICL: Failure to Loss of the follow the lender’s lender’s security or written priority closing position instructions Failure to Defalcation remit a final or misuse of title loan funds insurance policy
  19. 19. Failure to follow the lenders written instructions May result from the closing attorney’s failure to follow written closing instructions. Closing attorneys cannot rely on oral instructions, and must advise the lender when closing instructions conflict with HUD Regulations or local Title Standards.
  20. 20. Examples of failure to follow the lenders written instructions: Failing to record a Deed into a sole borrower when one spouse is a borrower but both spouses hold title. Failing to subordinate a Homestead Declaration for both spouses when only one spouse is the sole owner and borrower.
  21. 21. Loss of security or priority position Errors in recording the mortgage can give rise to both a claim under a title insurance policy and an ICL.
  22. 22. Examples of loss of security or priority position: delayed recording. failure to record the mortgage, recording mortgages in the wrong order. recording mortgages on the Registry of Deeds that should be filed with the Registry District of the Land Court or vice versa. recording a mortgage after a borrower has filed a Bankruptcy petition.
  23. 23. Defalcation or misuse of mortgage funds Defalcation or misuse of funds can also mean that a title insurance premium collected at closing has not been paid to the title insurer.
  24. 24. Examples of defalcation: Miscalculating short mortgage payoff amounts. Deliberately not paying off mortgages. Failing to disburse funds in accordance with the HUD Settlement Statement.
  25. 25. Failure to remit a final title insurance policy Most attorneys do not know that failing to submit a final title insurance policy is the basis for an ICL claim. Without ICL coverage, the lender may look to the closing attorney for recovery
  26. 26. Events that trigger ICL claims are: 2 4 •Review of closed •Suspicious loan package by Activity Report •Transfer of •Foreclosure. (“SAR”). lender. mortgage loan to servicer or secondary lender. 1 3
  27. 27. Recommendations for Lawyers and Lenders
  28. 28. Protect title insurance coverage. • Examine titles for no less than 50 years for purchase-money mortgage closings, and for no less than 20 years for refinance transactions. • Search Probate and Bankruptcy records. • Issue Policy Commitments only after reviewing completed title examinations. • Amend Policy Commitments if you discover new information or need to make corrections.
  29. 29. Preserve ICL coverage. • Obtain an ICL for each transaction. • Never alter or reuse ICLs. • Name the same title insurance company on the ICL, Policy Commitment, Line 1108 on the HUD, and final title insurance policy.
  30. 30. Safeguard client funds. • Balance HUD Settlement Statements before closing. • Record mortgages promptly after confirming receipt of funds. • Remit title insurance premiums and disburse funds immediately after recording.
  31. 31. Add value and demonstrate expertise. • Submit closing packages with original final title insurance policies promptly after closing. • Issue Certification of Title as required under G.L.c. 93, §70.
  32. 32. Your success is our business.