Title Insurance Disclosure on the LE and CD

QUESTION

Title insurance disclosure is a challenge for our organization. For the most part, we believe we have a good understanding of how to disclose. But there are a few areas where we could use some clarification. Our interest is how to disclose title insurance on the LE and the CD. 

Thank you for the FAQ. It is the only FAQ like it in the country, and we really appreciate it.

Here are the questions that we have put together for you to answer on the weekly FAQ. I hope you can respond soon. 

For lender’s title insurance, how should we disclose the premium on the LE?

For owner’s title insurance, how do we disclose if the lender does not require it?

Given that a single rate is sometimes used, how do we disclose on the LE and CD?

Finally, if there is a single rate and the seller pays the owner’s premium, how do we disclose?

ANSWER

Thank you for your kind words. We have been providing the FAQ for many years and look forward to continuing our commitment to bringing such information to the mortgage community.

Let’s start with your first question and take it from there!

For lender’s title insurance, how should we disclose the premium on the LE?

Lender’s title insurance is disclosed as the amount of the premium on the Loan Estimate (“LE”). The amount may be disclosed as Title - Premium for Lender’s Coverage (or any similar language as long as it clearly indicates the amount of the premium disclosed and that the premium is for lender’s title insurance coverage). 

On the Closing Disclosure (“CD”), the cost of lender’s title insurance is disclosed in the Loan Costs Table under either Services Borrower Did Not Shop For or Services Borrower Did Shop For, depending on whether the consumer did or did not shop for the lender’s title insurance, and with a similar label.[i]

For owner’s title insurance, how do we disclose if the lender does not require it?

As you may know, in most cases the lender does not require the consumer to obtain owner’s title insurance. Nevertheless, if the consumer obtains owner’s title insurance and the creditor does not require it, the cost of owner’s title insurance is disclosed in Closing Cost Details in the Other Costs Table on the LE and CD. Generally, the amount disclosed for owner’s title insurance is based on the owner’s policy rate. 

For the LE, the cost disclosed for the owner’s title insurance policy is not based on any enhanced title insurance policy rate - where "enhanced" provides additional coverage and may increase the amount of coverage as the property appreciates - unless the creditor knows (or has reason to believe at the time the creditor is issuing the LE) that an enhanced owner’s title insurance policy will be purchased, such as if it is required by the real estate sales contract. In any event, when the consumer purchases owner’s title insurance and it is not required by the creditor, this fact is noted on the LE and CD through the use of the term “optional.” 

If the seller pays for the owner’s title insurance, the “optional” description is not required on the CD.[ii]

Given that a single rate is sometimes used, how do we disclose on the LE and CD?

Let’s define the terms. Title companies often offer a different rate, called a single or simultaneous rate, if a consumer purchases both lender’s and owner’s title insurance from the same company, rather than purchasing each policy from separate companies.

There is a formulaic way to assist lenders in disclosing the required rates consistently, that is, in a way that does not depend on (1) whether the consumer purchases lender’s and owner’s title insurance policies individually, (2) obtains the policies from the same company and gets the simultaneous rate, or (3) buys only the required lender’s title insurance.

Note: If the consumer obtains only the required lender’s title insurance policy and no owner’s title insurance policy, the use of this formula by the creditor is not necessary.

Here’s a formulaic outline for the premium of an owner's title insurance policy for which there is a simultaneous issuance of a lender's and an owner's policy, and then disclosed on the LE and CD:

Step 1: Determine the full owner’s policy premium.

Step 2: Add this amount to the simultaneous premium for the lender’s policy.

Step 3: Now subtract out the full lender’s premium.

Note: The premium disclosed for the lender’s title insurance policy is the full lender’s premium, not the discounted, or simultaneous, rate.[iii]

Finally, if there is a single rate and the seller pays the owner’s premium, how do we disclose?

The answer to this question requires a brief preamble. There may be a difference between the cost of owner’s title insurance disclosed and the disclosed seller’s credit, if the purchase and sales contract between the consumer and seller indicates that both lender’s and owner’s title insurance will be purchased from the same company and the seller will pay the full owner’s policy premium rate (as opposed to a discounted rate).

I realize that’s a mouthful! So, to put this succinctly, assuming the scenario, given the disclosure formula for the owner’s title insurance cost when there is a simultaneous rate for lender’s title insurance, there may be excess seller’s credit beyond the disclosed cost of owner’s title insurance.

Because the seller’s credit may be in excess of the owner’s disclosed title insurance cost, the disclosed amount of the seller credit left over after application to the owner’s title insurance cost may be disclosed in three different ways on the CD:

1. Shown as a credit towards the amount of the lender’s premium or any other title insurance costs for premiums or endorsements in the Loan Costs Table or Other Costs Table;[iv] or

2. Added to and shown in aggregate with other seller credits in the Summaries of Transactions tables as a general Seller Credit;[v] or

3. Disclosed as a standalone seller credit on another blank line in the Summaries of Transactions tables.[vi]

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group

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[i] See 12 CFR § 1026.37(f)(2) and (f)(3); Comment 37(f)(2)-4; 12 CFR § 1026.38(f)(2) and (f)(3); and Comments 38(f)(2)-1 and 37(f)(2)-3

[ii] 12 CFR §§ 1026.37(g)(4) and 38(g)(4); Comment 37(g)(4)-1; 12 CFR §§ 1026.37(g)(4)(ii) and 38(g)(4)(ii); Comments 37(g)(4)-1, -3, and 38(g)(4)-2; Comment 38(g)(4)-2; 12 CFR §§ 1026.37(f)(2); 37(f)(3); and 38(f)(2) and 38(f)(3)

[iii] Comments 37(g)(4)-2 and 38(g)(4)-2

[iv] 12 CFR §§ 1026.38(f) and (g)

[v] 12 CFR § 1026.38(k)(2)(vii)

[vi] 12 CFR § 1026.38(k)(2)(viii)