Westchester County Home News: Loan Modifications and Title Insurance

Monday, October 5, 2009

Loan Modifications and Title Insurance

The main title insurance problem associated with loan modifications is that the lender's title insurance policy specifically excludes matters that occur subsequent to the date of the policy; such as a subsequent loan modification. Generally, an endorsement or update to the existing title insurance policy should be obtained when:

Subordinate liens are present

The interest rate is being increased

Additional collateral is being added to secure the loan

A revolving feature is being added to an existing loan

A loan assumption is being permitted

Significant changes to the loan are being made so an argument could be made that the mortgage could lose priority to subordinate liens, including mechanics liens.

An update or modification to an existing title policy can take many forms. When the modification is very simple (perhaps just a one-year extension of the maturity date) no title policy may be required. Instead, a simple title search may be sufficient. If the modification is significant, especially one requiring a recorded modification, a "modification endorsement" may be purchased from the title insurer. A modification endorsement insures the lien as modified and brings the date of the policy forward to the date of the modification (the actual endorsement should be carefully reviewed to see if any additional title exceptions are being added as a result of the endorsement). In lieu of an endorsement, a new policy can be obtained sometimes at the same cost.

The title company and counsel should be involved early in the process to properly structure the modification to protect the lender's interest at the lowest cost.