July 13, 2005
page 2
T-2R or NOT?
by Joey Prohaska, Assistant Vice President, Western Region Training Coordinator, Southern Title Insurance Corporation
In April, 2002, the Texas Department of Insurance (“TDI”) promulgated the Short Form Mortgagee Policy of Title Insurance known as the T-2R. The justification and purpose of this promulgated form was to help streamline the process of policy review for the lending community. The ALTA short form mortgagee policy has been available to lenders in other states for several years and in 2002 Texas responded to the requests from the lending institutions to provide a product that would more efficiently and effectively reduce their turn around time in packaging and selling their loans. It reduces paper and hopes to minimize clerical errors.
The advent of the T-2R policy generated sweeping changes in the title industry in Texas as it was accompanied by the introduction of new endorsements, regulations and requirements that Texas had not seen in over thirty years. Change is generally met by resistance until understanding and implementation win the battle.
Not all lenders require or request the short form policy. It must be requested as a part of the lender’s closing instructions, but the title industry must comply with the “TDI” regulations in order to issue a T-2R policy. The lender may request, but we may not be able to deliver.
In order to understand this better, let’s take a look at several of the requirements in order to issue a T-2R policy in Texas!
According to Procedural Rule P-51, Form (T-2R) known as the short form policy may ONLY be issued on Residential Real Property. The T-2R policy is accompanied by additional caveats:
The T-2R policy as promulgated automatically provides some express or affirmative coverages (which prior to the passage of this form could only be obtained under Procedural Rule P-39 (a)) unless the title agent evaluates the risk and is unwilling to provide such express or affirmative coverages. Endorsements required by the lender are included by reference and the form provides options for the title agent to opt out of or delete coverages contained in those endorsements.
Schedule B of the T-2R is simplified insofar as the title agent does not have to identify by specific recording information the covenants or restrictions affecting the property; nor does the agent have to specify the tax year guaranteed by the policy. Because a survey is required to issue a T-2R policy, the survey amendment pursuant to Procedural Rule P-2 is already limited to “shortages in area”. It further assures the mortgagee that it will not suffer any loss or damages resulting from the future exercise of any right to use the surface of the land for the extraction or development of the minerals or mineral rights so leased, granted, excepted or reserved. However, it is incumbent upon the title agent to perform their review and examination regarding the issues mentioned in this paragraph.
The T-2R policy may or may not contain an addendum. It is necessary to attach one to the short form policy only if there are additional survey matters to be excepted from the policy (Procedural Rule P-2) or specific exceptions (Procedural Rule P-5 or Procedural Rule P-8) which are applicable to the transaction at hand.
If a lender requests a T-2R Short Form Mortgagee Policy and the title agent cannot comply, the title agent should immediately notify the lender of non-compliance and a revised Commitment for Title Insurance must be generated. Conversely, if the title agent is willing and able to comply with the request for a T-2R Short Form Mortgagee Policy, the Commitment for Title Insurance should reflect so accordingly.
Remember, the T-2R Short Form Mortgagee Policy IS available as it has been promulgated by the “TDI”. Whether or not it can be issued depends on the facts of each transaction.
To facilitate a better understanding of the form and regulations promulgated by the “TDI” the Basic Manual for the Writing of Title Insurance in the State of Texas may be found at:
The Texas Land Title Association’s website: http://www.tlta.com/publications/basicmanual/default.asp
Or the Texas Department of Insurance’s website: http://www.tdi.state.tx.us/company/titleman.html