Bulletin: NM2016001

Dear Associates:

Pursuant to the authority granted in Section 59A-30-4 NMSA 1978, the Office of the Superintendent of Insurance (OSI) held the biennial rate and non-rate hearing in Santa Fe on November 2, 2015. The OSI issued its final order on the Rate matters on November 16, 2015, and was effective immediately. The OSI issued its final order on the Non- Rate (Rules) matters on December 15, 2015. The amended and new rules were published in the New Mexico Register on December 30, 2015. All rules become effective March 1, 2016, with the exception of the escrow officer licensure rule which becomes effective October 1, 2016.

This Bulletin summarizes the principal material changes resulting from the 2015 Biennial Hearing.

RATE MATTERS (effective November 16, 2015)

The current rates for all existing title insurance policies, commitments, and endorsements will remain in effect until the next rate hearing, which is scheduled to occur in November 2017. There are rates adopted for the new forms and coverages promulgated as part of the Rules matter. Those new rates are described below in the context of the particular form or coverage.

NON-RATE/RULE MATTERS

Escrow Officer Licensure (effective October 1, 2016) - § 13.14.2.10 NMAC

New rule 13.14.2.10 NMAC provides: “The escrow officer shall be licensed as a title insurance agent.” Escrow officer is defined as: “an individual associated with a title insurance agent who is responsible directly or indirectly for the escrow closing and settlement functions of a real estate transaction.” § 13.14.1.11(E) NMAC. Under the new rule all persons required to be licensed in New Mexico will have the same type of license and be subject to the same requirements, whether they work in title or escrow.

The rule is effective October 1, 2016, to allow sufficient time for escrow officers to become licensed. OSI expects that all escrow officers will be licensed by October 1, 2016. At this point there is no further guidance from OSI as to which persons it believes fall within the definition of escrow officer. You will need to use your judgment to determine which of your escrow personnel need to be licensed, if they are not already licensed. Some factors that you may wish to consider include: (1) countersigning title insurance forms; (2) supervising the preparation and supervising the delivery of title insurance forms; (3) signing escrow checks; or (4) conducting the closing of the transaction. The process for obtaining a license will be the same as for your current title agent licensees. The newly licensed escrow officers will need to pass the examination, get fingerprinted, get their license, be appointed by the insurers, and will need to have completed the minimum continuing education requirements for a licensed title agent by October 1, 2016.

Definition of Agent/Elimination of definition of Agency - § 13.14.1.7(C)

The new rule eliminates the definition of “agency.” Those persons included within the former definition of agency are now included within the new definition of agent, as follows:

A person licensed as a title insurance agent in New Mexico including a corporation, partnership, joint venture, limited liability company, affiliate, direct operation, or other business entity in New Mexico (except for title insurers authorized under the laws of New Mexico to transact as insurer the business of title insurance) that hold themselves out as being engaged in the business of title insurance. A sole proprietorship entity may also be referred to as an agent.
§ 13.14.1.7(C) NMAC.

Throughout the regulations, the term agency has been replaced with agent. Those changes are too numerous to reference. Since the term agent now includes title insurance company agents (the former agencies) as well as individuals licensed as title agents, the context in which the word agent appears in a rule is critical to its meaning. For example, the rule requiring a title agent to have a title plant states in pertinent part: "Licensed New Mexico title insurance agents, or authorized title insurers in the case of direct operations must own, operate, or control an abstract or title plant meeting the requirements of NMSA 1978 Section 59A-12-13.”  § 13.14.2.8 NMAC. We do not interpret the foregoing rule to mean that each individual person licensed as a title agent at your company has to own or control a title plant.

Definition of Bona Fide Order - § 13.14.1.8 NMAC

New rule 13.14.1.8 now defines “bona fide order” for the purposes of § 13.14.5.8, which allows issuance of a commitment only upon receipt of a bona fide order. The new definition broadly defines bona fide order, including “to be determined” insureds and amounts, as follows:

C. “Bona fide order” For purposes of 13.14.5.8 NMAC, a “bona fide order” is defined as follows: 

(1) Receipt by a title insurance agent of a fully executed sales and purchase agreement, whether an original, photocopy, facsimile copy or email attachment, signed by the seller and purchaser, either on one document or in counterparts, for the sale of real property supported by an earnest money deposit or other consideration; or, 

(2) A title order received by a title insurance agent, whether delivered in writing by letter, memorandum, facsimile, electronically or orally, for a new or refinance loan, whether closed end or open end, to be secured by a lien on real property from a lender or lender’s representative, including a mortgage broker; or, 

(3) A title order received by a title insurance agent, whether delivered in writing by letter, memorandum, facsimile, electronically or orally, from a lender, lender’s representative, real estate servicing company for the lender or attorney representing the lender dealing with real property which has been foreclosed and is Real Estate Owned (REO) property held as foreclosed property; or, 

(4) A title order received by a title insurance agent, whether delivered in writing by letter, memorandum, facsimile, electronically or orally, from a listing real estate agent or owner where there is a signed listing agreement for sale of the real property that is the subject of the title order; or, 

(5) Any other type of order for title insurance which the receiving title insurance agent reasonably believes will lead to a closing of the sale or financing of real property in due course. 

The rule also makes it clear that a commitment should not be issued where the customer “has no present intention to purchase a title insurance policy.” Rule 13.14.1.8(C)(7) provides as follows:

(7) A title order from an owner, lender, lender’s representative or attorney for the purpose of determining the status of title indicating an intention to file for judicial foreclosure on an existing mortgage or deed of trust, quiet title suit or other litigation in the future, but where the customer has no present intention to purchase a title insurance policy, is not a “bona fide order for title insurance”. A title order while a judicial foreclosure, quiet title suit or other litigation is pending shall be considered a “bona fide order for title insurance” under the circumstances. 

Lastly, any commitment issued with one or more “to be determined” or “TBD” terms must include the following language in the commitment:

“This title commitment is not effective until Schedule A is completed and the company reserves the right to amend and supplement this commitment with additional information, requirements and exceptions based upon the provision of additional information.”
§ 13.14.1.8(C)(6) NMAC AND 13.14.5.8(D) NMAC.

Please remember that you are still free to issue title reports and similar search products, which are not regulated as to content or pricing by the OSI.

Retention of Escrow Records - § 13.14.4.9(E) NMAC

Rule 13.14.4.9(E) has been amended to expand the period of time for retention of certain escrow records from six years to fifteen years. The new rule requires agents to:

E. preserve for at least fifteen years all escrow account bank statements and all books and records required by this section and 13.14.4.10 NMAC, including copies of cancelled checks and wire transfer verifications, as evidence of insurability of title pursuant to NMSA 1978, Section 59A-30-11(B) (collectively “escrow records”). This fifteen year requirement for escrow records shall apply with respect to title policies issued on or after June 1, 2010.

In effect, all escrow records pertaining to payoffs and payments will now need to be retained for at least fifteen years. This matches the statutory record retention requirements for title records pertaining to insurability of title. The new rule is effective for transactions with policies dated on or after June 1, 2010.

Escrow Accounting (reimbursement of escrow account shortages) - § 13.14.4.10(L) NMAC

Rule 13.14.4.10(L) has been amended to shorten the period of time for an agent to reimburse shortages in escrow accounts from either the agent’s general operating account or from the appropriate party. The period has been reduced from 45 days to 30 days after the closing date of your bank statement.

Renumbering of Standard Exceptions - § 13.14.5.9 NMAC

Rule 13.14.5.9 and its related rules have been amended to delete the references to “RESERVED” in the list of standard exceptions and to renumber the remaining exceptions 1 through 8. The new standard exceptions will read in commitments as follows:

(1) Rights or claims of parties in possession not shown by the public records.

(2) Easements, or claims of easements, not shown by the public records.

(3) Encroachments, overlaps, conflicts in boundary lines, shortages in area, or other matter which would be disclosed by an accurate survey and inspection of the premises.

(4) Any lien, claim or right to a lien, for services, labor or materiel heretofore or hereafter furnished, imposed by law and not shown by the public records.

(5) Community property, survivorship, or homestead rights, if any, of any spouse of the insured (or vestee in a leasehold or loan policy).

(6) Water rights, claims or title to water.

(7) Taxes for the year _____, and thereafter. (See 13.14.5.12 NMAC) 

(8) Defects, liens, encumbrances, adverse claims or other matters, if any, created first appearing in the public records or attaching subsequent to the effective date hereof but prior to the date the proposed insured acquires for value of record the estate or interest or mortgage thereon covered by this commitment.

Pro Forma Policies - § 13.14.5.13 NMAC

New rule 13.14.5.13 expressly authorizes the issuance of owner and lender pro forma policies and establishes certain requirements to be followed when issuing pro forma policies.

A pro forma policy is defined as: “a sample of an Owner or Loan Policy prepared prior to payment for issuance and delivery of the policy, with completed Schedules A and B and endorsements, showing the proposed insured, the exceptions that are proposed to be placed in the final policy to be issued, and the name of the title insurance company and title insurance agent.” § 13.14.5.13 NMAC.

The rule imposes several conditions on the issuance of pro formas:

A Pro Forma Policy may be issued only if (a) the land is not one to four family residential property; (b) the proposed amount of insurance is $500,000.00 or more; (c) each page of the completed Schedules A and B and all endorsements conspicuously state “This is a Pro Forma Policy furnished to or on behalf of the party proposed to be insured for discussion only. It does not reflect the present status of title and is not a commitment to insure the estate or interest as shown herein, nor does it evidence the willingness of the company to provide any coverage shown herein. Any such commitment must be an express written undertaking issued on the appropriate forms of the company.”; and (d) the title agent receives a written request for the Pro Forma Policy from a proposed insured. A Pro Forma Policy shall not be issued or used in lieu of a title insurance commitment. 

To reiterate, all pro forma policies must include the required disclaimer language set out in quotation marks above.

There is a corresponding new rule that promulgates the charges for pro forma policies. § 13.14.9.19(C) NMAC. The charge is $100 per owner pro forma policy and $100 per lender pro forma policy. The $100 charge per owner and lender pro forma policies remains the same irrespective of the number of revised pro forma policies that are issued in a single transaction. In other words, the maximum charge for all pro formas in any typical single transaction is $200.

Real Estate Contract Purchaser Policies - § 13.14.6.10

Real estate contracts represent a substantial portion of the real estate and title insurance market in New Mexico. The amendments to the real estate contract purchaser policies enhance the coverages available to New Mexico real estate contract purchasers.

Rule 13.14.6.10(B) provides for an automatic conversion of a contract purchaser policy to a fee simple owner policy once the insured REC buyer acquires title and the deed into the purchaser is recorded. The date of policy is unchanged, the conversion is automatic, and there is no charge for this conversion.

Rule 13.14.6.10(C) allows a contract purchaser insured to obtain a downdated policy insuring the acquired fee simple interest by endorsement. The existing policy is endorsed with the new NM form 91 Contract Purchaser Conversion Endorsement and can be downdated to bring the Date of Policy forward to the date of the endorsement. The cost of this endorsement is 50% of the basic premium rate up to the face amount of the contract purchaser policy. § 13.14.10.63 NMAC. If the insured wishes to increase the amount of coverage beyond the existing contract purchaser policy amount, the increased coverage is calculated using the basic premium rates for the amount of increased coverage. This is similar to the calculation any time the policy coverage amount is increased in either an owner or lender policy.

Lender Policies Insuring Construction Loans

There are several clean-up amendments to the rules adopted effective August 1 and August 15, 2014.

Rule 13.14.7.18 NMAC clarifies that the four successive six-month extension periods apply to both construction loan policies and loan policies with a two-year claims made limitation.

Rule 13.14.7.19 NMAC confirms that you may use pending disbursement clauses. The pending disbursement clause may be in a form specified by your underwriter or may be in the form established by the rule. The promulgated rule language reads:

Pending disbursement of the full proceeds of the loan secured by the mortgage or deed of trust set forth under Schedule A hereof, this policy insures only to the extent of the amount actually disbursed but increases as each disbursement is made, in good faith, and without knowledge of any defect in, or objections to, the title, up to the face amount of the policy. Prior to each disbursement of the proceeds of the loan, the title must be continued down to such time for possible liens or objections intervening between the date hereof and the date of such disbursement.
§ 13.14.7.19(A) NMAC. 

In addition the rule re-promulgates the NM form 22 pending disbursement down date endorsement that was inadvertently omitted from the 2014 rules when the NM form 84 disbursement endorsement was promulgated.

Rule 13.14.9.40 NMAC reinstates language inadvertently omitted in 2014 and confirms that a loan policy with a two-year claims made limitation cannot be used as the basis for a later discount.

Approval: You may not delete the general mechanic's liens exception from a Loan Policy during construction without underwriter approval. The approval to delete the general mechanic’s liens exception will be made simultaneously with the approval of the applicable method of providing mechanic's liens coverage, as provided in Bulletin NM2015002.

Approval: An underwriter must approve issuance of the Loan Policy.

Residential Limited Coverage Mortgage Modification Policy - § 13.14.7.27

This new rule authorizes a new limited policy form, the NM form 90 residential limited coverage mortgage modification policy. This form is available only for one-to-four family properties. This new form permits a subsequent insurer to modify and down date a mortgagee policy issued by a different insurer. In order to be used, the subsequent insurer must have a copy of the prior policy before the subsequent insurer commences its title search. The cost of this policy is $125 for each policy issued for any amount up to $1 million, and an additional $125 for each $500,000 of coverage above $1 million. § 13.14.9.42 NMAC. This is the only allowable charge.

Zoning Endorsements - § 13.14.8.26, § 13.14.8.27, and § 13.14.8.27(B) NMAC

There are two principal changes with respect to zoning endorsements.  

First, there are two new zoning endorsements to address the situation where there is no zoning applicable to the insured property:  the NM form 64.1 zoning - unimproved land – no applicable zoning ordinances (§ 13.14.8.26 NMAC) and the NM form 65.2 zoning – completed structure – no applicable zoning ordinances (§ 13.14.8.27). These forms will now allow issuance of a zoning endorsement where there are no zoning laws in effect as to the insured property. The cost of these endorsements is the same as the other existing zoning endorsements (15% of basic premium rate for unimproved property and 23% of basic premium rate for improved property). These endorsements are unique to New Mexico and are not based on any equivalent ALTA endorsement.

Second, the rule now expressly permits the modification of the completed structure endorsements by crossing out part of the form of the endorsement, retyping the form leaving out a part, or by special endorsement. For example, if all of the coverages under the completed structure zoning endorsement are available except for one, e.g., required number of parking spaces, the endorsement can be issued and the specific coverage for parking can be struck out. § 13.14.8.27(B).

New Energy Project Endorsements - § 13.14.18.13 NMAC

These new endorsements address various issues unique to energy projects, which projects are more commonplace in New Mexico. These endorsements have been frequently requested by customers in connection with energy projects, and these new forms will bring New Mexico title insurance coverages more in line with national custom and practice. The endorsements are:

NM form 88: ALTA Endorsement 36-06 Energy Project – Leasehold/Easement – Owner’s (04-02-12)

NM form 88.1: ALTA Endorsement 36.1-06 Energy Project – Leasehold/Easement – Loan (04-02-12) 

NM form 88.2: ALTA Endorsement 36.2-06 Energy Project – Leasehold – Owner’s (04-02-12) 

NM form 88.3: ALTA Endorsement 36.3-06 Energy Project – Leasehold – Loan (04-02-12) 

NM form 88.4: ALTA Endorsement 36.4-06 Energy Project – Covenants, Conditions and Restrictions – Land Under Development – Owner’s (04-02-12) 

NM form 88.5: ALTA Endorsement 36.5-06 Energy Project – Covenants, Conditions and Restrictions – Land Under Development – Loan (04-02-12) 

NM form 88.6: ALTA Endorsement 36.6-06 Energy Project – Encroachments (04-02-12) 

NM form 88.7: ALTA Endorsement 36.7-06 Energy Project – Fee Estate – Owner’s Policy (12-01-14) 

NM Form 88.8: ALTA Endorsement 36.8-06 Energy Project – Fee Estate – Loan Policy (12-01-14) 

The endorsements are designed so that multiple endorsements may be attached to a single policy, owner’s or lender’s, depending on the underlying structure of the energy project.

The cost of the endorsements is 10% of the basic premium rate for all energy project endorsements issued on an owner’s policy and 10% of the basic premium rate for all endorsements issued on a lender’s policy.  § 13.14.10.63 NMAC. You will not charge separately for each endorsement issued per policy. For example, if you issue three different energy endorsements on a lender’s policy, the cost of the three endorsements will be 10% of the basic premium rate, not a total of 30% of the basic premium rate.

New Mezzanine Financing Endorsement - § 13.14.8.40 NMAC

NM form 89, Mezzanine Financing Endorsement, is a new endorsement available for use on commercial transactions and is typically requested in certain sophisticated loan transactions where mezzanine financing is part of the financing package.  § 13.14.8.40 NMAC. In simple terms mezzanine financing is where the secured lender also obtains security interests in the ownership interests in the borrower. The cost is $100 per endorsement. § 13.14.10.62 NMAC.

New Mortgage Modification Endorsements – § 13.14.18.13 NMAC

There are two new forms of mortgage modification endorsement promulgated. One is the NM form 80.1 modification with subordination endorsement and the other is the NM form 80.2 modification with additional amount of insurance endorsement. § 13.14.18.13 NMAC. The NM form 80.1 can be used when there is a subordination agreement as part of a mortgage modification, and the NM form 80.2 can be used when there is a modification that includes an increase in the insured loan and additional amount of insurance to cover the increased loan amount.

The cost of the NM form 80 modification endorsement or the NM form 80.1 modification with subordination endorsement is $65. § 13.14.10.61(A) NMAC. The cost of the NM form 80.2 modification with additional amount of insurance is $65 plus the premium for the additional coverage. The minimum charge for this endorsement is $90. § 13.14.10.61(B)

Transaction Codes - § 13.14.17.12 NMAC

There has been substantial clean-up of the transaction codes, including corrections to reflect the statutory and regulatory refinance rate codes.

New Forms - § 13.14.18 NMAC

Rule 13.14.18 was repealed in its entirety and replaced with new rule 13.14.18.1 through .13. This repeal and replacement of the existing rules reflects a completely new way of promulgating forms.

First, all of the text of all of the promulgated forms has been removed from the rules.

Second, the forms promulgated for use in New Mexico are now described in the table set forth in rule 13.14.18.13. The prefatory language to this rule confirms the promulgation of the forms and provides that the promulgated forms will be maintained on a secure website operated by and under the control of the OSI. The website will be in place by March 1, 2016. The rule also provides that if there is any discrepancy between the description of the promulgated form in the rule and the form located on the website, the form as described in the rule controls.

New Forms and Rates

Agents please contact PropertyInfo Customer Care or your title production software vendor to get the new rates/forms changes implemented in your system.

Underwriting Guidelines

Virtual underwriter currently contains broad guidelines for the use of the new endorsements that are based on ALTA forms (such as the new energy endorsements). We anticipate that any tailoring of Stewart’s existing guidelines to address specific New Mexico issues and any new guidelines will be published by March 1, 2016.

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

For on-line viewing of this and other bulletins, please log onto www.vuwriter.com.