SB 635 Substantially revises the current law regarding the regulation of title insurance
Sponsor: Loudon
LR Number: 0299S.08C Fiscal Note: 0299-08
Committee: Small Business, Insurance & Industrial Relations
Last Action: 5/18/2007 - S Informal Calendar S Bills for Perfection Journal Page:
Title: SCS SB 635 Calendar Position:
Effective Date: August 28, 2007

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Current Bill Summary

SCS/SB 635 - This act substantially revises the title insurance act. The act reenacts numerous provisions that were contained in SB 894 (2000) they were found unconstitutional due to clear title violations. The unconstitutional provisions remain in the statute books whereas the pre-SB 894 provisions are not contained in the statute books.

OWNER'S AND LENDER'S TITLE INSURANCE POLICIES - This act requires a statement notifying the owner of exceptions when a title insurance commitment includes an offer to issue an owner's policy covering the resale of owner-occupied residential property. A lender's title insurance policy issued in conjunction with a mortgage loan shall give notice to the purchaser that the lender's policy protects the lender and does not protect the purchaser and that the purchaser could be protected through the purchase of an owner's policy of title insurance (Section 381.015).

DUTIES OF INSURERS UTILIZING SERVICES OF TITLE AGENCIES - A title insurer shall not allow its agents to sell title insurance policies unless there is a written contract between the agent and the insurer. The title insurer shall maintain an inventory of all policy numbers allocated to each title agency or title agent not affiliated with a title agency. The title insurer shall have on file proof that the title agency or title agent is licensed by Missouri. The title insurer shall establish underwriting guidelines and limitations on title claims settlement authority to be incorporated into contracts with its title agencies and title agents not affiliated with a title agency. If a title insurer terminates its agency with a title agency, the insurer shall, within 7 days of the termination, notify the director of the reasons for termination (Section 381.018).

DISCLOSURE OF CHARGES – Under this act, a title insurer, title agency or title agent participating in a settlement or closing of a residential real estate transaction shall provide clear and conspicuous disclosure of premiums and charges. The director may adopt rules not in conflict with provisions of RESPA to implement disclosure of premium, abstract or title search and examination fee, settlement or closing fees, and any other associated charges or fees along with a concise description (Section 381.019).

CONDITIONS FOR MAINTAINING ESCROW AND SECURITY DEPOSIT ACCOUNTS - In order for a title insurer or title agent to operate as an escrow, security, settlement, or closing agent, it must deposit such related funds into a separate fiduciary trust account within one business day of receipt. Interest received on escrow, settlement, security deposit, or closing funds may be retained by the title insurer or agent as compensation for the administration of the account. Under the act, it is unlawful for any person to commingle personal or any other moneys with escrow funds, use escrow funds to pay or indemnify against debts of the title insurance agent or of any other person, use escrow funds for any purpose other than to fulfill the terms of the individual escrow after the necessary conditions of the escrow have been met, disburse any funds held in an escrow account unless the disbursement is made pursuant to a written instruction or agreement or pursuant to an order of a court of competent jurisdiction; or disburse any funds held in a security deposit account unless the disbursement is made pursuant to a written agreement. Under the act, a title insurer or title agent shall not provide escrow or closing services unless it issues a commitment or policy or gives written notice that the closing or settlement is not protected by the title insurer or agent. The act further provides it is unlawful for any title agency or agent to engage in the handling of an escrow, settlement or closing unless it is performed in conjunction with the issuance of a title insurance policy or closing protection letter or disclosure by the agent that there is no coverage is being provided for the closing or settlement funds (Section 381.022).

PERIODIC ONSITE REVIEWS OF TITLE AGENTS BY TITLE INSURERS - Under the act, a title insurer must, at least annually, conduct an onsite review of the underwriting, claims, and escrow practices of the title insurance agency or agent with which it has a contract. If the agency or agent does not maintain separate fiduciary trust accounts for each title insurer it represents, the title insurer shall verify that the funds held on its behalf are reasonably ascertainable from the books of account and records of the agency or agent. Each title insurer shall adopt and utilize standards and procedures for the on-site review of title insurance agents and agencies. On-site review documentation, work papers, summaries and reports shall be maintained by each title insurer for a period of at least 4 years and shall be made available to the director for examination upon request (Section 381.023).

ACCESS TO RECORDS OF UNAFFILIATED AGENT – Under this act, it is unlawful for any title agency or title agent not affiliated with an agency to deny reasonable access or in any manner fail to cooperate with its underwriters in the title insurers' reviews of the agency's or agent's escrow, settlement, closing and security deposit accounts (Section 381.024).

PROHIBITION ON REFERRAL FEES – Under the act, it is unlawful for any title insurer, title agency, title agent or other person to give or receive any consideration for the referral of title insurance business, escrow, closing or other service provided by a title insurer, title agency or title agent. Under the act, a title insurer or agent may seek injunctive relief if the department fails to take action within 45 days of receiving notice of the violation (Section 381.025).

RECORDING OF DEEDS - Under this act, a settlement agent shall record all deeds and security instruments for real estate closings handled by it within five business days after completion of all conditions precedents (Section 381.026).

FAVORED TITLE AGENCY OR TITLE INSURER - No title insurer or agent shall participate in any transaction in which it knows the other party requires that a party obtain a title insurance policy from a particular insurer or agent. The act makes it unlawful for any title insurer or title agent to offer payments, rebates or other types of inducements as part of a title insurance policy transaction or as part of any escrow, title search, settlement or closing, or other similar service transaction (Section 381.028).

AFFILIATED BUSINESS ARRANGEMENTS - Whenever the business to be written constitutes affiliated business, prior to commencing the transaction, the title insurer or title agent shall ensure that its customer has been provided with disclosure of the existence of the affiliated business arrangement and a written estimate of the charge or range of charges generally made for the title services provided by the title insurer or agent. The director may require each title insurer and agent to file on forms prescribed by the director reports setting forth the names and addresses of those persons that have a financial interest in the insurer or agent and who the insurer or agent knows or has reason to believe are producers of title insurance business or associates of producers. Nothing shall be construed as prohibiting affiliated business arrangements in the provision of title insurance business so long as the title insurer or title agent or other party, at or prior to the time of the referral, discloses the arrangement and, in connection with the referral, provides the person being referred with a written estimate of the charge or range of charges likely to be assessed. Affiliated business arrangements are not prohibited if the only thing of value that is received by the title insurer, agent or party making the referral, other than payments otherwise permitted, is a return on an ownership interest (Section 381.029).

ISSUANCE OF TITLE INSURANCE POLICIES (EVIDENCE OF TITLE, LIENS, RECORD KEEPING, TIME LIMITS FOR ISSUANCE) – Under the act, no title insurance policy shall be written unless and until the title insurer or title agent has made a determination of insurability of title in accordance with sound underwriting practices.

No title insurer, title agent, or agency shall knowingly issue any owner's title insurance policy or commitment to insure without showing all outstanding, enforceable recorded liens or other interests against the title which is to be insured.

Evidence of the examination of title and determination of insurability generated by a title insurer shall be maintained by such insurer for as long as appropriate to the circumstances but, in no event less than 15 years after the policy has been issued. Records relating to escrow and security deposits shall be retained for a minimum of 7 years. All title agents shall promptly remit premiums to title insurers no later than 30 days of issuing the policy or if the title insurer issues an invoice, no later than 60 days of receiving the invoice. Title insurers shall issue each title insurance policy within 45 days after closing unless special circumstances delay the issuance (Section 381.038).

RULES AND REGULATIONS – The act authorizes the director of the Department of Insurance to promulgate rules to implement the provisions of the title insurance chapter (Section 381.042).

ENFORCEMENT OF TITLE INSURANCE LAWS - If the director determines that a person has engaged, is engaging, or has taken a substantial step toward engaging in a violation of the title insurance laws, the director may issue administrative orders (cease and desist, curative orders, etc.), suspend or revoke the license of a producer or the certificate of authority of any title insurer for any such willful violation. The director may bring an action in a court of competent jurisdiction to enjoin violations of the Real Estate Settlement Procedures Act (Sections 381.045 and 381.048).

TRANSACTION OF TITLE INSURANCE BUSINESS - No person other than a domestic, foreign or non-U.S. title insurer organized on the stock plan and duly licensed by the director shall transact title insurance business as an insurer in this state (Section 382.052). Under the act, a title insurer shall have the power to do only title insurance business and reinsure title insurance policies (Section 381.055). Only title insurance companies can issue title insurance policies. A title insurer shall not engage in the business of guaranteeing payment of the principal or the interest of bonds or mortgages (Section 381.058).

CLOSING OR SETTLEMENT PROTECTION - Under the act, a title insurer is required to issue closing or settlement protection to protect the buyer, lender and seller's interest if the title insurer issues a commitment, binder or title insurance policy. The closing or settlement protection shall indemnify the proposed insured for theft of settlement or escrow funds by the title agent or for the title agent's failure to comply with the closing instructions. The charge for issuance of the closing or settlement protection letter shall be filed as a rate with the director. A title insurer shall not provide any other coverage which purports to indemnify against improper acts or omissions of a person with regard to escrow, settlement, or closing services (Section 381.058).

CAPITAL AND SURPLUS REQUIREMENTS – Under this act, a title insurer shall establish and maintain a minimum paid-in capital and surplus of not less than $800,000 (Section 381.062).

NET RETAINED LIABILITY OF TITLE INSURER - The title insurer's net retained liability for a single risk shall not exceed the aggregate of 50% of the surplus as it regards policyholders plus the statutory premium reserve less the company's investment in title plants. A single risk is the insured amount of any title insurance policy. Where there are two or more policies which are issued simultaneously covering different estates in the same real property, a single risk shall be the sum of the insured amounts of all the policies (Section 381.065).

FINANCIAL SOLVENCY - In determining the financial condition of a title insurer, the general provisions of Sections 379.080 to 379.082 shall apply except than an investment in title plants equal to an amount to the actual cost shall be allowed as an admitted asset for title insurers. The aggregate amount of the investment shall not exceed 20% of surplus to policyholders, as shown on the most recent annual statement of the title insurer on file with the director (Section 381.068).

LIQUIDATION AND INSOLVENCY OF TITLE INSURERS - The Missouri Uniform Insurers Liquidation Act shall apply to all title insurers. Security and escrow funds held by title insurers shall not become general assets and shall be administered as secure claims. Title insurance policies shall not be canceled during a period of liquidation unless good cause is shown to the court. Premiums paid, due or to become due under a title insurance policy at the date of order of insolvency shall be fully earned and it is the duty of the title insurer or its agents to pay the premiums to the liquidator (Section 381.075).

FORM FILING - Title insurance standard forms shall be approved by the director 30 days before they are used. The director shall review such forms within 30 days. If the director believes the forms or terms are not in compliance with the insurance laws of Missouri, the director may schedule a hearing to be held within 60 days. If the director disapproves a form after the hearing, the director shall issue a disapproval order in accordance with Chapter 536. The disapproval order is subject to judicial review (section 381.085).

LICENSING OF TITLE AGENTS/CONTINUING EDUCATION – All title insurance agencies and agents must be licensed as insurance producers. Certain employees of an insurer or agent are exempt from licensure if they do not engage in certain transactions (determine insurability, establish premiums, or materially perform or supervise others who perform any related title service). Title insurance agents must eliminate the word insurer or underwriter from their business name unless the word "agency" is part of the name. If the title insurance agent delegates a title search to a third party, the agent must obtain proof that the third party is qualified by the rules and regulations established by the director.

Every title agent shall pass an examination. Each title agent shall, during a 2-year period, attend courses or programs that provide a minimum of 8 hours of instruction. The act delineates what courses will qualify as continuing education courses. The act allows excess classroom hours accumulated during a two-year period to be carried forward to the next two-year period. For good cause, an agent may be granted an extended period of time to complete the educational requirements. Those title agents who reside in a state with mandatory continuing education requirements do not have to comply with this portion of the act. Every applicant seeking approval by the director for a continuing education course shall a filing fee of $50 per course (total fee not to exceed $250). The act provides that the examination requirements shall be waived for all title agents and qualified principals who have been continually licensed as a title agent or producer from at least January 1, 2005, through January 1, 2008 (Sections 381.115 and 381.118).

AUDITING OF BOOKS AND RECORDS – Under the act, the director may during normal business hours examine, audit and inspect any and all books and records maintained by a title agency or title agent (Section 381.122).

GOOD FUNDS - This act modifies the definition of "financial institution" for purposes of closing real estate transactions and settlement agents. The act modifies the "good funds" provision by restricting title insurers or agents from making payments or withdrawals from a settlement escrow account unless a corresponding deposit of funds was made to the escrow account for the benefit of the payee or payees. This restriction applies regardless of the amount of the payment or withdrawal. The current restriction only applies to payments or withdrawals that exceed $10,000 (Sections 381.410 and 381.412).