Final Policies in the Title Insurance Industry

The economist Hernando De Soto’s book “The Mystery of Capital” notes that the ownership of property with clear title is the single differentiating factor in economic development: advanced, wealthy countries have mechanisms to deed property with clear title; poorer countries often do not.

Here is an outline of how the title insurance process works in the United States in regards to final title policies, as well as an explanation of how the new CFPB rules affect this process:

The Process:

The title insurance policy is normally delivered to the new owner a few weeks after a sale is closed. It is the job of the title agent to first ensure that the title to the property is cleared, closed and recorded before the insurance policy is sent out to the new homeowner. At this point, the agent updates the title commitment, which is then submitted as the ‘final policy’. In the industry, the title insurance policy is referred to as a ‘final title policy’ or simply a ‘final policy’.

The Problem:

Because the transaction has already closed, there is less pressure to complete the final policy quickly; agents may instead be focused on customers whose transactions are still in process, and or on other transactions with pressing deadlines.  As a result, delays in completing the final policies, sometimes for months, have been common.

The Recent Change:

Recently, as part of the American Land Title Association (ALTA) Best Practices, the ALTA is requiring prompt completion of the final policies (within 30 days) as one of the seven pillars of the best practices.  It is Pillar #5, and it reads as follows:

5.     Best Practice: Adopt and maintain written procedures related to title policy production, delivery, reporting and premium remittance.

Purpose: Adopting appropriate procedures for the production, delivery and remittance of title insurance policies helps ensure title companies can meet their legal and contractual obligations.

Procedures to meet this best practice:

  • Title policy production and delivery.
  • Title insurance policies are issued and delivered to customers in a timely manner to meet statutory, regulatory or contractual obligations.
  • Issue and deliver policies within 30 days of the later of
    • (i) the date of Settlement, or
    • (ii) the date that the terms and conditions of title insurance commitment are satisfied.
  • Premium reporting and remittance.
  • Title insurance policies are reported and premiums are remitted to the underwriter in a timely manner to meet statutory, regulatory or contractual obligations.
  • Report policies (including a copy of the policy) to underwriter by the last day of the month following the month in which the insured transaction was settled.
  • Remit premiums to underwriter by the last day of the month following the month in which the insured transaction was settled.

For many title companies, adapting to these new deadlines and underwriter requirements can be a challenge. Reallocating scarce resources to complete final policies by the required date may affect customer service for other transactions; hiring additional staff to complete final policies may be too high a burden for some companies.

To help meet the requirements and maintain compliance with the new ALTA best practices, many companies are looking to external outsourcing resources. Outsourcing final policy work is a cost-effective solution that allows in-house staff to work on revenue generating activities (e.g. preparing reports, customer service, etc.) and prevents issues from arising with underwriters that could result in higher claims (or worse, being dropped by an underwriter).

HDEP is capable of handling the entire policy preparation process including updating commitments and typing the policies. We have experience working across multiple geographies and with various title production platforms. If you are interested in learning more about HDEP International’s final policy production offerings, please contact us.