BIg Sky Review

2018 | ISSUE 6

BIG SKY Review

~ A M O N TA N A A G E N C Y N E W S L E T T E R ~

AFFIDAVITS AND INDEMNITIES

Page In This Issue

The customer insists on modifying your standard form of affidavit and indemnity to add knowledge qualifiers or an automatic termination clause.

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What are affidavits and why do we require them? An affidavit is a document that contains a representation of facts, given under oath, of a person known as the “affiant.” The representations made in affidavits provide vital information, generally not available in the Public Records, upon which to base our underwriting decisions. Our standard forms include indemnification provisions by which an indemnitor, who may or may not be the affiant, agrees to indemnify (protect) First American against losses arising out of any false statements in the affidavit. This provides a direct contractual mechanism to recoup loss suffered by our reliance on the affidavit.

Affidavits and Indemnities

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Knowledge qualifiers. The affiant should have personal knowledge of the facts stated in the affidavit, either because that person is knowledgeable about the day-to-day operations of the property or because he or she has consulted with someone who is. Without this knowledge, we cannot justifiably rely on the affidavit to provide coverage for off-record matters. When representations in the affidavit are limited “to the best of my knowledge”, “to my actual, current knowledge” or “ to the best of my knowledge with no duty to investigate”, it undermines the reliability of the representations and suggests that the affiant may not have the requisite knowledge to make a definitive representation. Are knowledge qualifiers acceptable? Generally, knowledge qualifiers are unacceptable. If the customer insists on knowledge qualifiers, you may agree to them only if you are confident that the representations in the affidavit are true. Consider the following in determining the reliability of the representations: (i) What is the requested knowledge qualifier? For example, in some states, “to the best of my knowledge” may be better than 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: 12/2018

AFFIDAVITS AND INDEMNITIES CONT. “to the best of my knowledge with no duty to investigate”. Perhaps the affiant would agree to limit its qualifier to “no duty to investigate with any person or source outside of the Company”or, if there is an independent property manager with requisite knowledge, “no duty to investigate with any person or source except Property Manager”? (ii) Does the affidavit state that the affiant is familiar with the condition, operation, maintenance and use of the property and records relating to these matters? If so, we may gain more confidence in the truth of the statements. (iii) Can you verify the representations in the affidavit through other means, such as a site inspection, survey, zoning report, Google search, etc. (iv) What do you know about the seller/owner? How long have they been in title? Are they trustworthy? (v) What is the use, ownership, or structure of the deal? What coverage is based on the representations in the affidavit? Termination clauses. Sometimes referred to as “sunset provisions”, these clauses set a termination date for the obligations of the indemnitor. Are termination clauses acceptable? The protection of the indemnity should last as long as the policy risk, but there may be legitimate reasons for a shorter term. You may agree to allow a termination clause if the requested term is reasonable for the risk and if it addresses any continuing risk following the termination. Reasonable term. When determining the reasonableness of the term, consider the risk. For example, if the indemnity is for the recording gap,

First American Title | Big Sky Review | 2018 - Issue 6

what is the gap in that particular jurisdiction? If it is for mechanics’ lien risk, what is the lien period in that state? How quickly can we learn that we are safe from these risks? Continuing risk. The termination clause must not terminate the indemnitor’s obligations with respect to issues arising before termination. For example, a termination clause that reads: “The indemnity shall expire 36 months after the issuance of the policy” is unacceptable unless qualified with a phrase like, “… provided that there are no unresolved claim(s) regarding matter(s) for which the Company has the obligation to defend or indemnify its Insured, and Indemnitor has no remaining obligations under this Indemnification.” Seek underwriting assistance. These can be challenging issues. Contact a Company underwriter to assist you with this analysis. If you are a Company underwriter, contact an underwriter senior to you. Be sure to obtain proper underwriting approval for these types of modifications to our standard forms. Key takeaways for future transactions. Underwrite these risks on a case-by-case basis. Remember that the customer may have expectations that you will accept the same form in the future. Clearly communicate your intentions to the customer about future use. Document your file regarding why the affidavit and indemnity was accepted and how you mitigated the risk of agreeing to a knowledge qualifier or termination clause.

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2 RECEIVE TITLE ORDER

3 COMPLETE TITLE SEARCH/ABSTRACT

TITLE COMMITMENT

3.1 Initial Examination and Create Preliminary Commitment

3.2 Estimate Clear to Close Date

3.3 Complete Curative

COMPLETE CLOSING PACKAGE 4.1 Schedule Closing and Communicate Date/Time to All Parties

4.2 Coordinate Notary for Closing

4.3 Obtain 3rd Party and Miscellaneous Documents for Closing

6 CLOSE LOAN WITH BORROWER

4.4 Receive Lender Closing Instructions

7 BALANCE AND DISBURSE WIRES/CHECKS

Customer Facing Tasks

4.5 Prepare CD/Settlement Statement

4.6 Obtain CD/Settlement Statement Approval

RECEIVE FINAL DOCUMENTS 7.1 Receive and Scan Executed Closing Package

7.2 Split Docs and Send Recordable Docs to the County

7.3 Create and Approve Final Title Policy

7.4 Send Final Documents to Lender/ Borrower

For additional information, contact agentadvantage@firstam.com

Agent Advantage Services 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: 06/2018

First American Title | Big Sky Review | 2018 - Issue 6

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FIRST AMERICAN TITLE

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Wishing you and your family a lovely holiday season and a Happy New Year! We are proud of your success, grateful for your partnership and exited for what the future holds. May your lenders be agreeable, your wires secure, your closings trouble-free and your underwriters quick to respond.

Amie, Lance, Cindy and Russ

First American Title | Big Sky Review | 2018 - Issue 6

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