AGENTconnect THE COLORADO AGENCY NEWSLETTER
Issue #14 | December 2016
CLOSING PROTECTION LETTERS A COLORADO PERSPECTIVE By: John T. LaJoie, Vice President and Senior Operations Counsel, First American Title Insurance Company
The Colorado Department of Regulatory Agencies, Division of Insurance (the “Division”) has been active over the past year in the regulation of title insurance products and the services provided by independent title insurance agencies. This includes New Regulation 8-1-3, that contains subsection 5. 11. a. effective on January 1, 2017 relating to the issuance of closing protection letters. This article outlines the need for closing protection letters to address what we perceive to be the primary goals of the Division and provides a recommendation for future action. As with any insurance department, the primary objectives of the Division are to protect insurer solvency and the interests of consumers who obtain title insurance from insurers and settlement services from independent title agencies. While the settlement services provided by title agencies are outside the scope of the relationship between the title insurer and its policy-issuing title agent, with the exception of only a few states, regulators permit title insurers to issue closing protection letters that provide limited indemnification for title-related loss based upon the actions of the issuing agent in the settlement process. The American Land Title Association (ALTA) adopts forms for closing protection letters and publishes those forms on its website (www.alta.org). While title insurance is a monoline form of insurance, meaning that title insurers are limited to issuing title insurance, most states, including Colorado, allow title insurers to issue closing protection letters that provide indemnity for specified acts of title agents on the condition that the protection provided therein is limited to loss related to the status of the title to the land or the validity, enforceability, or priority of the lien of the insured mortgage on the title to the land. The specified acts include the failure of the issuing agent to comply with the lender’s written closing instructions and fraud, theft, dishonesty or misappropriation of settlement funds by the issuing agent. These limitations are in place to comply with monoline restrictions and to protect insurer solvency, which as stated above is a primary objective of insurance departments generally.
It’s apparent from the acts of the Division that it’s balancing these limitations with its other primary objective, which is the protection of consumers. While the ALTA-adopted closing protection letter form issued to lenders provides protection for the borrower in transactions involving one-to-four family residential transactions, the Division authorized title insurers to issue closing protection directly to buyer/borrowers and sellers by promulgating New Rule 8-1-3, Section 5, Subsection 11. a. This Subsection permits the issuance of closing protection letters that satisfy the following standards: Any closing protection letter issued substantially conforms to an American Land Title Association (“ALTA”) promulgated form, which may include amending such form to be applicable to a seller; The Division also apparently recognized the need for consumers to be aware of the availability of closing protection letters, as new Subsection 11. f. includes a requirement for a notice to the consumer on the commitment disclosure statement of the availability of a closing protection letter. The New Regulation also provides for a charge for closing protection letters, which is in line with the existing practices of at least 28 states and is pending in other states. Finally, the New Regulation allows for closing protection for sellers based upon modifying an ALTA form so as to protect sellers from title-related loss relating to the misappropriation of funds by the settlement agent. The availability of closing protection for the seller is not new in Colorado, as the Division has previously authorized closing protection for the seller in its Bulletin No. B-5.31, stating: Continued on next page
The information contained in this document was prepared by First American Title Insurance Company (“FATICO”) for informational purposes only and does not constitute legal advice. FATICO is not a law firm and this information is not intended to be legal advice. Readers should not act upon this without seeking advice from professional advisers. First American Title Insurance Company makes no express or implied warranty respecting the information presented and assumes no responsibility for errors or omissions. First American, the eagle logo, First American Title, and firstam.com are registered trademarks or trademarks of First American Financial Corporation and/or its affiliates. AMD: 12/2016
©2017 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF
CLOSING PROTECTION LETTERS A COLORADO PERSPECTIVE (CONT.) It is the Division’s position that the issuance of a Closing Protection Letter (“CPL”) by a title insurance company does not violate the monoline requirement of § 1011-108(1)(b), C.R.S., provided that the CPL is issued by the same title insurance company that is providing title insurance for the subject transaction. This includes the issuance of a CPL to the lender, purchaser or seller, provided that the CPL is issued by the same title insurance company that is providing title insurance for the subject transaction. Additionally, the title insurance company may charge a fee or premium for the issuance of the CPL, provided that the CPL is issued by the same title insurance company that is providing title insurance for the subject transaction. While courts throughout the United States have interpreted older versions of closing protection letters more broadly than just loss related to title, the modern versions of the ALTA letter clarify what was always intended – that title insurers provide protection for title-related matters. This protection provided in closing protection letters is generally accepted by lenders as an important supplement to their due diligence in their decision to allow independent title agencies to perform the settlement function related to their loans. While closing protection letters are an important element in the business model in which lenders allow independent title agencies to act as their settlement agents, closing protection letters do not address loss to consumers that’s unrelated to title matters. In an apparent effort to address this need, the Division has included consideration of a “guaranty fund” in its legislative agenda for 2017. While this matter is being evaluated in the legislative process, we should consider the experience of other states that have enacted a guaranty fund. The administration of a guaranty fund will require the expenditure of tax revenue and will also result in an additional charge to consumers for the maintenance of the fund. The decisions regarding which persons are entitled to payment based upon the guaranty fund’s limited resources may lead to a less than effective system. A guaranty fund may also have the unintended consequence of exposing consumers to undercapitalized title agencies based upon reliance upon a fund that may not be able to pay their loss. A better course may be for the Division to consider the alternative of regulating minimum capitalization requirements for title agencies so they will have the financial integrity and incentive to treat consumers fairly.
ECONOMIC CENTER By: Mark Fleming, Chief Economist
In November, First American Chief Economist Mark Fleming’s research and analysis examined the impact of wage growth on affordability, key factors influencing homeownership rates, and the health of the housing market for Millennial homebuyers.
First American Economic Center November 2016 Research Highlights: »» Wage Growth Contributes to Increased Affordability in Most Major Markets http://blog.firstam.com/economics/wage-growth-contributes-to-increasedaffordability-in-most-major-markets
»» Life, Liberty and the Pursuit of Homeownership http://blog.firstam.com/economics/life-liberty-and-the-pursuit-of-homeownership
»» Buy, Buy Millennials! http://blog.firstam.com/economics/buy-buy-millennials
The ideal of the American Dream and the goal of homeownership will exist as long as supporting higher educational attainment, economic mobility, and long-term national economic growth remain defining tenets of American policy. - Mark Fleming, Chief Economist
While closing protection letters are not a complete protection for lenders and consumers who choose to conduct business with independent title agencies, they are an important part of that process. In the coming months as the Division addresses potential loss that’s not within the scope of closing protection letters, we need to be aware of proposed changes in Colorado’s title insurance market and be ready to offer constructive advice to our legislators and regulator. First American Title | AGENTconnect | Issue #14 | December 2016
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Colorado Christmas 12 Christmas Light Displays in Colorado That Are Pure Magic By: Annie, Only in Your State, November 17, 2016
Why Did NORAD Start Tracking Santa? It all began in Colorado Springs!
http://www.onlyinyourstate.com/colorado/colorado-christmas-lights-2016/
By: Matt Soniak, Mental Floss, December 16, 2012
America’s 20 Best Small Towns for Christmas Durango is 8th on the list! By: Ann Shields, Country Living, October 25, 2016 http://www.countryliving.com/life/travel/g2829/best-christmas-towns-in-usa/
Where and How to Recycle or Dispose of Christmas Trees in Colorado in 2016 In many urban and suburban areas, Christmas trees are collected from curbside during the first 2 weeks in January. By: Pick Your Own Christmas Tree http://www.pickyourownchristmastree.org/ColoradoChristmasTreeRecyclingDisposal.php
http://mentalfloss.com/article/32021/why-did-norad-start-tracking-santa
What Christmas in Colorado Looked Like 60 Years Ago We all know what Christmastime in Colorado looks like now, but have you ever wondered what it looked like 50, 60, or even 100+ years ago? By: Annie, Only in Your State, December 25, 2015 http://www.onlyinyourstate.com/colorado/vintage-co-christmas/
Christmas Tree Farms, Lots and Activities Southwest Colorado | Southeast Colorado | Northwest Colorado Northeast Colorado | Metro Denver Area
A Personal Note . . . As 2016 comes to a close, we ref lect on another year of gratitude, hard work and the ever-changing industry we love. We celebrate our achievements, memorialize the adventure and roll up our sleeves anticipating a new year of challenges and possibilities. The New Year brings with it a positive outlook to fuel our momentum. I have enjoyed supporting our valued Colorado agents this year and look forward to continuing to solidify the relationship. I am invested in your success and passionate about being your partner and a valuable resource to you. I am grateful for your business and appreciate your trust in your Colorado agency team and First American Title as your Underwriter. I wish you a happy and healthy holiday and a bright New Year! Amie Voss VP, CO, MT and WY Agency Manager D: 303.305.3358 | C: 303.304.4397 | abvoss@firstam.com First American Title | AGENTconnect | Issue #14 | December 2016
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