Title had only been opened approximately two weeks prior, so it was a bit of a rush job. But we were ready, the lender was ready, the buyers were ready, and the seller was ready. Problem was, we couldn’t get the seller’s loan payoff statement. It was to arrive that day, but it did not. So, we postponed the seller until monday.

Monday comes, and the seller is to come in to sign, so we perform an update of the title commitment. Essentially, this means that we search the title records again to make sure that the nothing has been filed of record since the date of our commitment. Almost every time, that is the case. Nothing new since the commitment, so we move through the closing. But in this instance, STOP!!!! HOLD THE PRESSESS!!!! Our update search reveals two deeds filed during the two weeks since we had first our commitment. The day after the commitment, the seller had deeded the property to a corporation. Then, twelve days later, the bank had foreclosed, filing its substitute trustees deed.

What does this mean? Bottom line, on the day of the closing, the seller no longer owned the property.

The closing was cancelled. The buyers and lenders purchase funds were returned.

This is why title companies update their title commitment prior to the final closing.

So lets take a quick look at just what exactly title insurance underwriting is.

The term “title insurance underwriter” can mean two things.  It can mean a title insurance company itself. Or, it can mean an attorney who makes underwriting decisions on behalf of a title company, also known as underwriting counsel.

To say a company “underwrites” a title insurance policy means that the company will be the one who pays out if there is a payable claim. Title insurance underwriters are regulated in Texas by the Texas Department of Insurance and must meet certain stringent financial soundness standards. Underwriters issue title policies either through “direct operations” or through independent Agents. Independent agents, like us here at InHouse Title Company, may issue policies on behalf of multiple different underwriters.

A company issues a policy only after it has made a decision that the risk it will take on as a result of issuing the policy is acceptable. The process of making this determination is called underwriting. Each underwriter has is own internal guidelines which it and its agents must follow in making underwriting decisions.

However, because there are as many variables as there are different real estate transactions, title insurance companies employ underwriting attorneys who review transactions.  Their underwriting decision is dependent upon the specific facts surrounding the transaction. Underwriting counsel will determine on the behalf of the underwriter whether to issue a policy in a particular instance. If they determine no policy can be issued under the existing facts, they will often provide guidance on “curative” work that can be done to bring the facts of the transaction into allignment with underwriting guidelines.

One thing to keep in mind is that underwriting guidelines and underwriting decisions often vary from underwriter to underwriter. So, if one title company declines to issue a policy on a particular transaction, another title company might be willing to take the risk.

Recently, a Realtor came into InHouse Title Company to see if we could close a contract that had been returned to her by her regular title company. After weeks in the hands of this other title company, preceded by months of gutbusting work by this Realtor in getting this contract, the decision had finally been made that title to this particular property was currently not insurable. The call was made by the closer to the Realtor. The bad news was delivered. The contract was returned. There would be no closing. There would be no nice commission check.

Now this Realtor comes to InHouse Title Company, looking for a miracle. The hope was that her regular company had been wrong, and that InHouse Title could close the deal, despite its many problems. But, after hearing the scenario (this one involved a convoluted set of facts revolving around a Constable’s Deed, a sale on the courthouse steps, a writ of execution, a judgement lien, and, critically, an apparent failure to notify the first lienholder about all this) we had to concur with the decision reached at the other title company. This title was not currently insurable.

Of course, this was not the answer this Realtor wanted to hear, and, for that matter, it was not the answer we wanted to give. After all, if we can’t insure title, we cannot collect a title insurance premium, and, thus, we can’t get paid. And we, like the Realtor, are in business to make money. But, the answer was the answer. It is what it is, as they say.

This was simply one of those relatively rare cases in which title insurance cannot be issued. That title might be uninsurable seemed to come as a surprise to the Realtor. But it should not. Title companies only issue policies when due diligence assures them that the risks are acceptable. If every title was insurable, there would be no need for title insurance.