Third Revised Mutual Indemnification Agreement
Many years ago, the Florida Land Title Association helped coordinate an agreement among most of the title insurers doing business in Florida. This agreement has been updated several times over the years, and additional insurers have joined along the way, and from time to time it has been updated to reflect changes in the law or in commercial practices.
On November 2, 2011, at the annual FLTA convention, a Third Revised Mutual Indemnification Agreement (the “Treaty”) was executed by many of Florida’s title insurers on behalf of themselves, and listed former insurers who had changed names, been acquired or merged into another entity. A copy of the Treaty can be accessed Here, and a List of Current Signatories Here.
The Treaty was intended to facilitate closings over relatively minor, technical, title defects. Greatly oversimplified, the Treaty provides that if Company A:
- Is a signatory to the Treaty
- Issued a title policy on a property which is at least a year old; and
- Company A's policy insures the current seller (including a lender insured by a loan policy which has taken title to the property by foreclosure or deed-in-lieu), current mortgagor of the Property.
- Company A's policy didn’t take exception for the defect; and
- the defect predated Company A’s policy.
- There is no record notice of any proceeding to enforce or alter title based on the defect; and
- The defect falls within one of the categories listed in the Treaty
then any other title insurance company, who is also signatory to the treaty, and insures over the defect in reliance on Company A’s policy, is entitled to be indemnified by Company A up to the lesser of Company A's policy limits or $500,000, if the defect ever turns into a claim.
Since the types of matters covered by the treaty are fairly common technical defects, the Treaty can greatly expedite your closings, while providing protection for your title insurer. The matters covered by the Treaty (again over-simplified so check the text of the Treaty before relying) include:
- Lack of Spousal Joinder or a statement of Marital Status.
- Money judgments (but not a certificate of delinquency for child support) and federal or state tax liens up to a face amount of $500,000.00
- Unsatisfied mortgages securing on their face no more than $500,000.00 (not revolving credit or equity lines of credit)
- Lack of guardians or attorneys ad litem to represent an absent defendant or deficiencies in or absence of, a diligent search affidavit where a final, unappealable judgment affected the title to the property
- No Record Authority for Attorney in Fact or Trustee which conveyed the property to a bona fide purchaser.
- Lack of a Recorded Death Certificate in Prior Chain of Title.
- Florida and Federal Estate Taxes of Prior Owners.
- Lack of Witnesses
- Incomplete or insufficient acknowledgements
- Lack of Corporate Seals
There are a several cautions in relying on the Treaty:
1. Both insurers have to be signatories to the Treaty, or Company A must be a party for whom another assumed responsibility as listed. You can check that here.
2. Each insurer may decide whether they are willing to rely on the Treaty in any situation, and sometimes there are business risk reasons an insurer will choose not to rely on the Treaty even when it would otherwise apply. As an FLTA member agent, we strongly encourage you to check the underwriting guidelines of your insurer before relying on the Treaty to insure over any defect. The prior insured does not have any "Right" to have you rely on the Treaty to insure over something. So don't let them bully you.
3. There are technical details and requirements which can limit the availability of the Treaty in certain circumstances. If you have any questions about whether the Treaty applies, contact the underwriter for the New Policy you plan to issue (not Company A's underwriter).
4. Relying on the Treaty to insure over a defect doesn’t automatically satisfy your duty to your customer. We recommend that anytime you are relying on the Treaty that you explain the defect to your customer and how you have obtained approval to insure over it to help their transaction go forward more quickly. Claim it Proudly!
5. You must retain a copy of the prior policy in your file. There is always a risk that your file will be lost or indecipherable by the time a claim is made. So that the claim doesn’t turn into an E&O claim against you, the best practice is to add a note to the body of the policy which identifies the defect by OR Book and Page, and indicates that you are covering the matter based on the Third Revised Mutual Indemnification Agreement and Title policy #XXXXX issued by Company A.
As always, if you have any questions about the applicability of the Treaty to your situation, talk to the underwriting department of your title insurer.
If your insurer is not a party to the Treaty, please ask them to contact Alexandra Overhoff - FLTA Executive Director
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