Bulletin: FL2013003

Dear Associates:

            Stewart Title Guaranty Company is now authorized to issue the Mortgage Priority Guaranty policy in the state of Florida. This policy provides limited coverage in situations where a mortgage is being modified. It only insures that the terms of the mortgage modification described in the policy do not create a novation, meaning a loss in the validity, enforceability or priority of the underlying mortgage. 

            The determination whether or not a mortgage modification creates a novation, can only be made by analyzing the original mortgage and the mortgage modification, as well as the unrecorded documents between the lender and borrower. If the mortgage modification does not create a novation it is proper to issue the Mortgage Priority Guaranty Policy. However, because the policy does not insure the actual validity or priority of the mortgage, but only the legal effect of the modification, it is not necessary to conduct a title search and examination to issue the policy. Consequently, neither a commitment nor closing protection letter should be issued. 

            The two most common examples of modifications that do not create a novation are an extension of the due date and a reduction in the interest rate. On the contrary, a modification which raises the interest rate or penalties for a default, shortens the time period for payment of the mortgage, or in any other manner creates an additional burden on the borrower, not contemplated in the original loan terms, will result in a novation and loss of priority. In those cases, a Mortgage Priority Guaranty Policy should not be issued. The premium for this policy in all cases is a flat rate of $125.00 and the remittance to Stewart is 30%. Reissue rates and simultaneous issue rates are not applicable. 

            It should be noted that the Mortgage Priority Guaranty is a standalone policy that may be issued on behalf of any underwriter that did not insure the original mortgage. Thus, if the original mortgage was insured by a Stewart Title Guaranty Company policy, the proper form for a Stewart agent to use to cover the mortgage modification is the ALTA 11-06 Mortgage Modification Endorsement. 

            Please contact a Florida underwriter for Stewart Title Guaranty Company if you have any questions regarding this policy or any other matter.

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