Mortgage Impairment Coverage and Title Insurance ________________________________________

STATE OF MICHIGAN

DEPARTMENT OF LABOR AND ECONOMIC GROWTH

OFFICE OF FINANCIAL AND INSURANCE SERVICES

Bulletin 2006-08-INS

In the matter of

Mortgage Impairment Coverage

and Title Insurance

________________________________________/

Issued and entered

this 2nd day of August 2006

By Linda A. Watters

Commissioner

OFIS has become aware that insurers without authorization to write title insurance in

Michigan may be selling mortgage impairment products that contain, at least in part, the

substantive equivalent of title insurance as defined under Michigan law.

In Michigan, only certain companies may sell title insurance products. Title insurance is

regulated pursuant to Chapter 73 of the Insurance Code of 1956, 218 PA 1956. The

statute, MCL 500.7303 states in relevant part:

“No corporation shall issue title insurance policies, contracts or

commitments with respect to real estate located in this state or otherwise

transact any business of title insurance in this state unless it holds a

certificate of authority from the commissioner…authorizing the transaction

of the business.”

Under the statute MCL 500.7301(a), title insurance is defined as:

“the insuring, guaranteeing, or indemnifying of designated owners of real

estate or any interest in real estate against loss or damage that may result

because the title is vested in a manner otherwise than as stated in the title

insurance policy, because the title is unmarketable, or because the title is

subject to liens, encumbrances, or other matters adversely affecting the rights

of use, enjoyment, or disposition of the real estate, and not excepted in the

policy, all in accordance with the terms of a title insurance policy approved

as to substance and form, or doing anything equivalent in substance to any of

the foregoing in a manner designed to evade the provisions of this chapter.”

Title insurance serves as protection for the borrower and lender against loss or

damages resulting from defects in marketable title to a

nd not excepted in the

policy, all in accordance with the terms of a title insurance policy approved

as to substance and form, or doing anything equivalent in substance to any of

the foregoing in a manner designed to evade the provisions of this chapter.”

Title insurance serves as protection for the borrower and lender against loss or

damages resulting from defects in marketable title to a particular parcel of real

property. If a lien, encumbrance, or other cloud on marketability of title appears as a

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result of a matter not disclosed or excepted in a title insurance policy, the title insurer is

obligated to indemnify the insured against losses sustained when the lien position of

the insured, as listed on the policy, has been thwarted. A title insurance policy means:

“any policy or contract insuring, guaranteeing, or indemnifying against loss

or damage suffered by owners of real estate or by other persons

interested in the real estate by reason of liens, encumbrances upon,

defects in, or the unmarketability of the title to the real estate, or other

matters affecting the title to real estate or the right to the use and

enjoyment of the real estate, and insuring, guaranteeing, or indemnifying

the condition of the title to real estate or the status of any lien on the real

estate” (MCL 500.73016)

Chapter 73 of the Michigan Insurance Code, MCL 500.7300, et. seq, requires that

coverage for losses sustained due to liens or possible liens on real property be provided

only by insurers authorized to write title insurance. The risk covered and authority

required by Chapter 73 apply to any risk of loss from undisclosed liens or defects in

marketability of title to real property, without regard to the form of the transaction: first

mortgage, second mortgage, refinancing, or home equity loan.

Mortgage impairment insurance provides a hybrid of both mortgage guaranty coverage

and “undisclosed lien loss” coverage

The risk covered and authority

required by Chapter 73 apply to any risk of loss from undisclosed liens or defects in

marketability of title to real property, without regard to the form of the transaction: first

mortgage, second mortgage, refinancing, or home equity loan.

Mortgage impairment insurance provides a hybrid of both mortgage guaranty coverage

and “undisclosed lien loss” coverage. In the event of default by the mortgagor, the

mortgage impairment insurance purports to provide mortgage guarantee insurance in

the form of an insurer agreeing to pay the mortgage lender for any loss resulting from

property foreclosure up to a specific amount, as well as losses sustained due to

undisclosed liens.

The Michigan Insurance Code grants no authority to combine title risks with non-title

risks in a single, hybrid policy. The separate chapter on and specific code definition for

title insurance clearly establish the specific authority to underwrite title risks, separate

from any authority to underwrite other, non-title risks.

This bulletin is intended to inform the insurance industry that any insurance policy or

product purporting to offer coverage related to possible liens against or defects in real

estate title or purporting to cover any other risk identified in the MCL 500.7301(a)

definition of title insurance is classified as title insurance, regardless of the name under

which the policy or product is marketed to consumers. As such, any company offering

such a product must have a certificate of authority from the commissioner specifically

authorizing it to transact any business of title insurance in this state, as set forth in

Chapter 73

ified in the MCL 500.7301(a)

definition of title insurance is classified as title insurance, regardless of the name under

which the policy or product is marketed to consumers. As such, any company offering

such a product must have a certificate of authority from the commissioner specifically

authorizing it to transact any business of title insurance in this state, as set forth in

Chapter 73.

The Commissioner may initiate action against any insurer found to be offering coverage

related to possible liens against or defects in real estate title or for any other risk

identified in MCL 500.73019(a), unless the insurer holds a certificate of authority

specifically authorizing it to transact any business of title insurance in this state.

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Any questions regarding this bulletin should be directed to:

Office of Financial and Insurance Services

Office of General Counsel

611 West Ottawa

P.O. Box 30220

Lansing, MI 48909-7720

Phone: (517) 373-0435

Toll Free: (877) 999-6442

_______________________________________

Linda A. Watters

Commissioner of Financial and Insurance Service

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