Comprehensive Guide to Mutual Indemnity Agreements in Title Insurance
If you work in title insurance, you know that protecting property interests is vital. You must make sure everything is resolved before closing or refinancing.
Mutual Indemnity Agreements have become an integral part of the title insurance industry. These agreements, characterized by collaboration among title underwriters, facilitate the process of addressing certain title defects without the need for individual letters of indemnity.
Mutual Indemnity Agreements (MIAs) can be an important part of this process.
Contents
How are Mutual Indemnity Agreements Used in the Title Insurance Industry?
Mutual Indemnity Agreement Case Studies:
The Mutual Indemnification Agreement (MIA) in New York State
What is an Underwriters’ Mutual Indemnity Agreement?
A mutual indemnity agreement (MIA) is an agreement between two or more title insurance companies in a specific state that indemnifies each other for certain title defects and losses or damages related to title claims on those defects. It’s not a legal contract and doesn’t cover all title defects.
MIAs are most commonly used in states that have a high volume of title insurance transactions. They can help to reduce the risk of title defects and speed up the closing process. Not all states have or allow for this sort of agreement.
How are Mutual Indemnity Agreements Used in the Title Insurance Industry?
MIAs are used in the title insurance industry to protect title insurers from losses caused by title defects. When a title insurer issues a policy, it is guaranteeing that the property being insured has a clear title. However, there is always the possibility that a title defect will be discovered after the policy is issued.
If a title defect is discovered, the title insurer may be required to pay a claim to the policyholder. This could be a significant financial loss for the title insurer, especially if the title defect is large or complex.
An MIA can help to reduce the risk of financial losses for title insurers. If one title insurer issues a policy that later turns out to be deficient, the other companies in the agreement may be required to help pay the claim. This can help to spread the risk of loss among multiple insurers.
Pros and Cons of Mutual Indemnity Agreements
There are both pros and cons to using MIAs in the title insurance industry.
Pros:
MIAs can help to reduce the risk of financial losses for title insurers.
They can help to speed up the closing process by eliminating the need to search for and cure title defects.
They can provide peace of mind to title insurers and policyholders.
Cons:
MIAs can be complex and time-consuming to negotiate.
They can be expensive to administer.
They may not cover all types of title defects.
The agreement is between the underwriters, not the agents.
Not all underwriters are part of the agreement.
Relying too heavily on an MIA may harm your relationship with your underwriter
Using MIAs too much without following up can cause a chain reaction of title defects. It might save time now, but it can cause more work later on.
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Mutual Indemnity Agreement Case Study:
The Virginia Mutual Indemnity Treaty (VMIT) of 2015
Background
The VMIT was established in the fall of 2015 as an agreement among title underwriters in Virginia. Its primary goal is to streamline the clearance of certain types of title insurance objections, thus eliminating the need to obtain individual letters of indemnity.
Parties Involved
Initially, the ‘Big Four’ in the title industry, namely Fidelity National family, First American, Old Republic, and Stewart, executed the VMIT. Later, other Virginia licensed title underwriters joined the agreement.
Title Defects Covered
The VMIT specifically enumerates the title defects that are indemnified without the need for a letter of indemnity. Some of the covered matters include:
Deeds of trust not ‘effectively’ released or discharged.
Various liens such as judgment liens, child support liens, and tax liens.
Marital rights of prior owners.
Issues related to defective judicial or nonjudicial processes in the chain of title.
A document affecting the chain of title being questioned due to defective execution.
Limitations of VMIT
The indemnity treaty only applies to insured property located in Virginia.
The maximum amount of indemnification under VMIT is limited to the lesser of the amount of insurance of the prior policy, the extent of liability of the insurer on the prior policy, or $500,000.
Practical Application
The VMIT serves as a tool to replace the system of obtaining letters of indemnity, making the process more efficient and less cumbersome. Here’s how it is typically applied:
Documentation: An agent must document the applicability of VMIT if its indemnification justifies the deletion of a title defect from a new title policy.
Coverage Assurance: Certain conditions must be met to assure coverage under VMIT, including having possession of the actual issued owner’s policy.
Disclosure: Agents are advised to disclose any issues they find when applying VMIT to a title defect.
The Virginia Mutual Indemnity Treaty (VMIT) offers a robust illustration of how Mutual Indemnity Agreements can be implemented within the title insurance industry. It represents an innovative approach that enhances efficiency, encourages cooperation among underwriters, and facilitates the effective handling of title defects.
Mutual Indemnity Agreement Case Study: The Mutual Indemnification Agreement (MIA) in New York State
Historical Background
On July 22, 2003, seven title insurance companies in New York State signed the original MIA, inspired by similar agreements in Alabama and Florida. Since then, it has been expanded and amended multiple times, resulting in the current governing document known as the Second Restated Agreement.
Sixteen title insurers licensed in New York State are currently signatories to this agreement, including well-known companies like Chicago Title Insurance Company, First American Title Insurance Company of New York, and Westcor Land Title Insurance Company.
Purpose of the Mutual Indemnification Agreement
The MIA’s primary aim is to streamline the process of clearing back title matters, making closings more efficient and reducing delays.
The Procedure Under the Agreement
The procedure under the MIA is relatively simple:
- If an exception to title is a “Covered Risk” and not listed as an exception in the prior title insurer’s policy, the prior insurer (Indemnitor) is deemed to indemnify the new insurer (Indemnitee) without further action.
- If the Covered Risk was excepted but insurance was afforded against collection or enforcement, indemnification is provided, given that the new title insurer also insures against collection or enforcement.
The relationship between Indemnitor and Indemnitee applies in specific scenarios, such as when the current record owner is insured, or when the new proposed insured is acquiring title as the successful bidder in a foreclosure.
Covered Risks
Covered Risks include mortgages and money judgments not exceeding $500,000 (or $750,000 for mortgages after April 1, 2006), common charge liens filed by Condominium Boards of Managers, and federal tax liens limited to $250,000. Additional steps must be taken for certain Covered Risks, such as obtaining copies of payoff letters and checks for specific mortgages.
Other Covered Risks include proof of death of a prior owner, payment of estate taxes, errors in property descriptions in deeds prior to the insured deed, and more.
Exclusions
Certain matters are explicitly identified as not being Covered Risks, including mechanic’s liens, real estate taxes, federal tax liens greater than $250,000, and mortgages greater than $750,000. For such title issues, traditional proofs and formal letters of indemnification must still be obtained.
Impact and Conclusion
The implementation of the Mutual Indemnification Agreement has greatly simplified an essential part of the title clearance process in New York State. It has significantly limited instances where recourse must be made to a prior company, thereby facilitating timely closings of titles.
By efficiently resolving issues that could otherwise delay or derail transactions, the MIA serves as an important legal instrument in the New York State real estate industry. Title agents and insurers must understand its operation and provisions to ensure a smooth and legally sound transaction process.
Conclusion
In various states across the U.S., Mutual Indemnification Agreements exist as a valuable tool for title insurers and their agents. These agreements have been tailored to local regulations and practices. The adoption of such agreements signals a positive trend in the title insurance industry, showcasing an adaptive and collaborative spirit that ultimately serves the best interests of property owners, insurers, and underwriters alike.
By fostering an understanding of these agreements and their practical applications, professionals in real estate, title insurance, and related fields can better navigate the complex landscape of title defects and indemnification, ensuring smoother property transactions and robust legal protections.
However, they’re not a solution for everything. Understanding how they work is key for title agents. Following the rules, recording all the releases, and doing proper checks will protect everyone involved and keep your reputation safe.
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**DISCLAIMER**
The information provided here is for general guidance and educational purposes only. I am not an attorney and am not giving legal advice. Information should not be considered legal, underwriting, or financial advice and is followed at your own risk. Readers should consult with their attorney and/or underwriter to obtain advice tailored to their specific circumstances.
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