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Title Insurance Alternative Rejected
Insurance Dept. pulls plus on undisclosed lien coverage
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Business New Haven
5/13/2002
By: BNH
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HARTFORD - Undisclosed lien coverage as an alternative to tile insurance for mortgages is no longer legal in the state of Connecticut.
In a letter released last month, the state Department of Insurance ruled that the product was a form of title insurance. In Connecticut, title insurance can be written only by title insurance companies.
Radian Guaranty Inc., which offered the product, is not a title insurance company. The company must now either cancel any policies that included the undisclosed lien coverage or endorse the policies to delete the coverage.
Connecticut is at least the third state to make this ruling, joining Florida and Texas.
This decision means that any lender that purchased lien-protection coverage from Radian or any investor who purchased a mortgage relying on the Radian coverage will lose the coverage with respect to liens on Connecticut real estate immediately.
Radian, a Philadelphia-based private mortgage insurer, had been promoting their undisclosed lien insurance as a less expensive alternative to traditional title insurance since last autumn. The title insurance industry trade association recently brought suit in California against Radian seeking a declaratory judgment that Radian must comply with the same regulatory requirements as other title insurance companies.
The product was touted as a low a low-cost alternative to title insurance because is eliminates title searches, relying instead on credit reports for information about existing liens. Title insurers point out that the plan addresses only one portion of the risks inherent in this process. Lenders that use it don't get information about undisclosed filed liens on the property, unfiled liens levied by the state or local utilities, or unfiled mechanics liens that, in states like Connecticut, may pose significant problems.
It also has no mechanism for dealing with forgeries or mistakes in the precise form of ownership. For example, if parties transfer property between spouses or to family limited partnership and trusts based on estate planning advice, they often do not know precisely how legal title is held. These issues can create liability for the borrower long after the property has been foreclosed.
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