TITLE CLEARANCE AND LOAN CLOSING

[Title 7 CFR 1927]
[Code of Federal Regulations (annual edition) - January 1, 2002 Edition]
[Title 7 - AGRICULTURE]
[Subtitle B - Regulations of the Department of Agriculture--Continued]
[Chapter Xviii - RURAL HOUSING SERVICE, RURAL BUSINESS-COOPERATIVE]
[Subchapter H - PROGRAM REGULATIONS]
[Part 1927 - TITLE CLEARANCE AND LOAN CLOSING]
[From the U.S. Government Printing Office]

7AGRICULTURE122002-01-012002-01-01falseTITLE CLEARANCE AND LOAN CLOSING1927PART 1927AGRICULTURERegulations of the Department of Agriculture--ContinuedRURAL HOUSING SERVICE, RURAL BUSINESS-COOPERATIVEPROGRAM REGULATIONS
PART 1927--TITLE CLEARANCE AND LOAN CLOSING--Table of Contents

Subpart A [Reserved]

Subpart B--Real Estate Title Clearance and Loan Closing

Sec.
1927.51 General.
1927.52 Definitions.
1927.53 Costs of title clearance and closing of transactions.
1927.54 Requirements for closing agents.
1927.55 Title clearance services.
1927.56 Scheduling loan closing.
1927.57 Preparation of closing documents.
1927.58 Closing the transaction.
1927.59 Subsequent loans and transfers with assumptions.
1927.60-1927.99 [Reserved]
1927.100 OMB control number.

Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

Source: 61 FR 11711, Mar. 22, 1996, unless otherwise noted.

Subpart A [Reserved]

Subpart B--Real Estate Title Clearance and Loan Closing

Sec. 1927.53 Costs of title clearance and closing of transactions.

The borrower or the seller, or both, in compliance with the terms of
the sales contract or option will be responsible for payment of all
costs of title clearance and closing of the transaction and will arrange
for payment before the transaction is closed. These costs will include
any costs of abstracts of title, land surveys, attorney's fees, owner's
and lender's policies of title insurance, obtaining curative material,
notary fees, documentary stamps, recording costs, tax monitoring
service, and other expenses necessary to complete the transaction.

Sec. 1927.54 Requirements for closing agents.

(a) Form of title certification. State Offices are directed to
require title insurance for all loan closings unless the agency
determines that the use of title insurance is not available or is
economically not feasible for the type of loan involved or the area of
the state where the loan will be closed. If title insurance is used,
State Offices are authorized to require a closing protection letter
issued by an approved title insurance company to cover the closing
agent, if available. A closing protection letter need not be furnished
when the closing is conducted by the title insurance company.
(b) Approval of closing agent. An attorney or title company may act
as a closing agent and close agency real estate loans, provide necessary
title clearance, and perform such other duties as required in this
subpart. A closing agent will be responsible for closing agency loans
and disbursing both agency loan funds and funds provided by the borrower
in connection with the agency loan so as to obtain title and security
position as required by the agency. The closing agent must be covered by
a fidelity bond which will protect the agency unless a closing
protection letter is provided to the agency. The borrower will select
the approved closing agent. If title clearance is by an attorney's
opinion, the agency will approve the attorney who will perform the
closing in accordance with paragraph (c) of this section. The attorney
will be approved after submitting a certification acceptable to the
agency. If title certification is by means of a policy of title
insurance, the title company which will issue the policy must have been
approved in accordance with paragraph (d) of this section. A closing
agent's delay in providing services without justification in connection
with agency loans may be a basis for not approving the closing agent in
future cases.
(c) Approval of attorneys. Any attorney selected by an applicant,
who will be providing title clearance where the certificate of title
will be an attorney's opinion, must submit an agency form certifying to
professional liability insurance coverage. If the attorney is also the
closing agent, fidelity coverage for the attorney and any employee
having access to the funds must be provided. The agency will determine
the appropriate level of such insurance. Required insurance will, as a
minimum, cover the amount of the loan to be closed. The agency will
approve the form stipulating the bond coverage. The agency will approve
any attorney who is duly licensed to practice law in the state where the
real estate security is located and who complies with the bonding and
insurance requirements in this section. If the certification of title
will be by means of title insurance, any

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attorney or closing agent designated as an approved attorney or closing
agent by the approved title insurance company which will issue the
policy of title insurance will be acceptable, and when covered by a
closing protection letter, will not be required to obtain professional
liability insurance or a fidelity bond. Each approved title insurance
company may provide a master list of their approved attorneys that are
covered by its closing protection letters to the State Office and, in
such cases the attorneys are approved for closings for that title
insurance company. Delay in providing closing services without
justification may be a basis for not approving the attorney in future
cases.
(d) Approval of title companies. A title company acting as a closing
agent, or as an issuing agent for a title insurance company, must be
covered by a title insurance company closing protection letter or submit
an agency form certifying to fidelity coverage to cover all employees
having access to the loan funds. The agency will determine the
appropriate level of such coverage and will approve the form stipulating
the bond coverage. Delay in providing closing services without
justification may be a basis for not approving the company in future
cases. Each approved title insurance company may provide a master list
of their approved title companies that are covered by its closing
protection letter to the State Office and, in such cases the title
companies on the list are approved for closings for that title insurance
company.
(e) Approval of title insurance companies. The agency will approve
any title insurance company which issues policies of title insurance in
the State where the security property is located if:
(1) The form of the owner's and lender's policies of title insurance
(including required endorsements) to be used in closing agency loans are
acceptable to the agency, and will contain only standard types of
exceptions and exclusions approved in advance by the agency;
(2) The title insurance company is licensed to do business in the
state (if a license is required); and
(3) The title insurance company is regulated by a State Insurance
Commission, or similar regulator, or if not, the title insurance company
submits copies of audited financial statements, or other approved
financial statements satisfactory to the agency, which show that the
company has the financial ability to cover losses arising out of its
activities as a title insurance company and under any closing protection
letters issued by the title insurance company.
(4) Delay in providing services without justification may be a basis
for not approving the company.
(f) [Reserved]
(g) Conflict of interest. A closing agent who has, or whose spouse,
children, or business associates have, a financial interest in the real
estate which will secure the agency debt shall not be involved in the
title clearance or loan closing process. Financial interest includes
having either an equity, creditor, or debtor interest in any
corporation, trust, or partnership with a financial interest in the real
estate which will secure the agency debt.
(h) Debarment or suspension. No attorney, title company, title
insurance company, or closing agent, currently debarred or suspended
from participating in Federal programs, may participate in any aspect of
the agency loan closing and title clearance process.
(i) Special provisions. Closing agents are responsible for having
current knowledge of the requirements of State law in connection with
loan closing and title clearance and should advise the agency of any
changes in State law which necessitate changes in the agency's State
mortgage forms and State Supplements.
(j) [Reserved]

Sec. 1927.55 Title clearance services.

(a) Responsibilities of closing agents. Services to be provided to
the agency and the borrower by a closing agent in connection with the
transaction vary depending on whether a title insurance policy or title
opinion is being furnished. The closing agent is expected to perform
these services without unnecessary delay.
(b) [Reserved]

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(c) Ordering title services. Application for title examination or
insurance will be made by the borrower to a title company or attorney.
The lender's policy will be for at least the amount of the loan. The
United States of America will be named as the insured lender.
(d) Use of title opinion. If a title opinion will be issued, a title
examination will include searches of all relevant land title and other
records, so as to express an opinion as to the title of the property and
the steps necessary to obtain the appropriate title and security
position to issue a title opinion as required by this subpart. The
closing agent or approved attorney will determine:
(1) The legal description and all owners of the real property;
(2) Whether there are any exceptions affecting the property and
advise the approval official and borrower of the nature and effect of
outstanding interests or exceptions, prior sales of part of the
property, judgments, or interests to assist in determining which
exceptions must be corrected in order for the borrowers to obtain good
and marketable title of record in accordance with prevailing title
examination standards, and for the agency to obtain a valid lien of the
required priority;
(3) Whether there are outstanding Federal, State, or local tax
claims (including taxes which under State law may become a lien superior
to a previously attaching mortgage lien) or homeowner's association
assessment liens;
(4) Whether outstanding judgments of record, bankruptcy, insolvency,
divorce, or probate proceedings involving any part of the property,
whether already owned by the borrower, or to be acquired by assumption
or with loan funds, or involving the borrower or the seller exist;
(5) If a water right is to be included in the security for the loan,
and if so, the full legal description of the water right;
(6) In addition to paragraph(d)(2) of this section, if wetlands
easements or other conservation easements have been placed on the
property;
(7) What measures are required for preparing, obtaining, or
approving curative material, conveyances, and security instruments, and
(8) That sufficient copies of these interests and exceptions are
provided as requested by the approval official.
(e) Use of title insurance. When title insurance is to be obtained,
the approval official will be furnished with a title insurance binder
disclosing any defects in, exceptions to, and encumbrances against, the
title, the conditions to be met to make the title insurable and in the
condition required by the agency, and the curative or other actions to
be taken before closing of the transaction. The binder must include a
commitment to issue a lender policy in an amount at least equal the
amount of the loan, except in instances where there may be an
outstanding owner's policy in favor of the borrower. Not withstanding
the provisions of this section, the instance of an assumption without a
subsequent loan, the existing policy may be continued if the coverage
meets or exceeds the assumption balance and the title company agrees in
writing to extend coverage in full force and effect.
(f) [Reserved]

Sec. 1927.56 Scheduling loan closing.

The agency, in coordination with the closing agent, will arrange a
loan closing and send loan closing instructions, on an agency form to
the closing agent when the agency determines that the exceptions shown
on the preliminary title opinion or title insurance binder will not
adversely affect the suitability, security value, or successful
operation of the property and all other agency conditions to closing
have been satisfied.

Sec. 1927.57 Preparation of closing documents.

(a) Preparation of deeds. The closing agent, unless prohibited by
law, will prepare, complete, or approve documents, including deeds,
necessary for title clearance and closing of the transaction and provide
the agency with the policy of title insurance or title opinion providing
the lien priority required by the agency and subject only to exceptions
approved by the agency. Agency forms will be used when required by this
part.

[[Page 191]]

(1)-(2) [Reserved]
(b) Preparation of mortgages. The closing agent will insure that all
mortgages are properly prepared, completed, executed, and filed for
record. Where applicable, the mortgages should recite that it is a
purchase money mortgage. The following requirements will be observed in
preparing agency morgages:
(1)-(8) [Reserved]
(9) Alteration of mortgage form. An agency mortgage form may be
altered pursuant to a State Supplement having prior approval of the
National Office, or in a special case, to comply with the terms of loan
approval prescribed in accordance with program instructions. No other
alterations in the printed mortgage forms will be made without prior
approval of the National Office. Any changes made by deletion,
substitution, or addition (excluding filling in blanks) will be
initialed in the margin by all persons signing the mortgage.
(10) [Reserved]
(11) Mortgages on leasehold estates. When the agency security
interest is a leasehold estate, unless State law or State Supplement
otherwise provides, the real estate mortgage or deed of trust form,
available in any agency office, will be modified as follows:
(i) In the space provided on the mortgage for the description of the
real property security, the leasehold estate and the land covered by the
lease must be described. The following language must be used unless
modified by a State Supplement:

All of borrower's right, title, and interest in and to a leasehold
estate for an original term of ____ years, commencing on ______, 19
____, created and established by and between ______ as lessor and owner
and ____ as lessee, including any extensions and renewals thereof, a
copy of which lease was recorded or filed in book ____, page ____, as
instrument number ____, in the Office of the (e.g., County Clerk), for
the aforesaid county and State and covering the following real property:
______.

(ii) Immediately preceding the covenant starting with the words
``should default,'' the following covenant will be added:

( ) Borrower covenants and agrees to pay when due all rents and any
and all other charges required by said lease, to comply with all other
requirements of said lease, and not to surrender or relinquish, without
the Government's prior written consent, any of borrower's right, title,
or interest in or to said leasehold estate or under said lease while
this mortgage remains of record.

(12) Mortgages on land purchase contract. When the agency security
interest is on a borrower's interest in a land purchase contract, OGC
will provide language used to modify agency forms.
(13) [Reserved]
(c) [Reserved]
(d) Preparation of protective instruments. The closing agent will
properly prepare, complete, and approve releases and curative documents
necessary for title clearance and closing, in recordable form and record
them if required.
(1) Prior lienholder's agreement. If any liens (other than agency
liens or tax liens to local governmental authorities) or security
agreements (hereafter called ``liens''), with priority over the agency
mortgage will remain against the real property securing the loan, the
lienholders must execute, in recordable form, agreements containing all
of the following provisions unless prior approval for different
provisions has been obtained from the National Office:
(i) The prior lienholder shall agree not to declare the lien in
default or accelerate the indebtedness secured by the prior lien for a
specific period of time after notice to the agency. The agreement must:
(A) Provide that the specified period of time will not commence
until the lienholder gives written notice of the borrower's default and
the prior lienholder's intention to accelerate the indebtedness to the
agency office servicing the loan,
(B) Include the address of the agency servicing office,
(C) Give the agency the option to cure any monetary default by
paying the amount of the borrower's delinquent payments to the prior
lienholder, or pay the obligation in full and have the lien assigned to
the agency, and
(D) Provide that the prior lienholder will not declare the lien in
default for any nonmonetary reason if the agency commences liquidation
proceedings against the property and thereafter acquires the property.

[[Page 192]]

(ii) When the prior lien secures future advances, including the
lienholder's costs for borrower liquidation or bankruptcy, which under
State law have priority over the mortgage being taken (or an agency
mortgage already held), the prior lienholder shall agree not to make
advances for purposes other than taxes, insurance or payments on other
prior liens without written consent of the agency.
(iii) The prior lienholder shall consent to the agency making (or
transferring) the loan and taking (or retaining) the related mortgage if
the prior lien instrument prohibits a loan or mortgage (or transfer)
without the prior lienholder's consent.
(iv) The prior lienholder shall consent to the agency transferring
the property subject to the prior lien after the agency has obtained
title to the property either by foreclosure or voluntary conveyance if
the prior lien instrument prohibits such transfer without the prior
lienholder's consent.
(2)-(3) [Reserved]
(4) Agreement by holder of seller's interest under land purchase
contract. If the buyer's interest in the security property is that of a
buyer under a land purchase contract, it will be necessary for the
seller to execute, in recordable form, an agreement containing all of
the following provisions:
(i) The seller shall agree not to sell or voluntarily transfer the
seller's interest under the land purchase contract without the prior
written consent of the State Office.
(ii) The seller shall agree not to encumber or cause any liens to be
levied against the property.
(iii) The seller shall agree not to commence or take any action to
accelerate, forfeit, or foreclose the buyer's interest in the security
property until a specified period of time after notifying the State
Office of intent to do so. This period of time will be 90 days unless a
State Supplement provides otherwise. The agreement shall give the agency
the option to cure any monetary default by paying the amount of the
buyer's delinquent payments to the seller, or paying the seller in full
and having the contract assigned to the agency.
(iv) The seller shall consent to the agency making the loan and
taking a security interest in the borrower's interest under the land
purchase contract as security for the agency loan.
(v) The seller shall agree not to take any actions to foreclose or
forfeit the interest of the buyer under the land purchase contract
because the agency has acquired the buyer's interest under the land
purchase contract by foreclosure or voluntary conveyance, or because the
agency has subsequently sold or assigned the buyer's interest to a third
party who will assume the buyer's obligations under the land purchase
contract.
(vi) When the agency acquires a buyer's interest under a land
purchase contract by foreclosure or deed in lieu of foreclosure, the
agency will not be deemed to have assumed any of the buyer's obligations
under the contract, provided that the failure of the agency to perform
any such obligations while it holds the buyer's interest is a ground to
commence an action to terminate the land purchase contract.
(5)-(6) [Reserved]
(e) [Reserved]

Sec. 1927.59 Subsequent loans and transfers with assumptions.

Title services and closing for subsequent loans to an existing
borrower will be done in accordance with previous instructions in this
subpart, except that:
(a) Loans closed using title insurance or title opinions. (1) Title
insurance or title opinions will be obtained unless:
(i) The cost of title services is excessive in relationship to the
size of the loan,
(ii) The agency currently has a first mortgage security interest,
(iii) The applicant has sufficient income to service the additional
loan,
(iv) The borrower is current on the existing agency loan, and
(v) The best mortgage obtainable adequately protects the agency
security interests.
(2) Title insurance or a final title opinion will not be obtained
for a subsequent Section 504 loan where the previous Section 504 loan
was unsecured or secured for less than $7,500 and the outstanding debt
amount plus the new loan is less than $7,500.
(3) Loans closed using a new lender title insurance policy:
(i) Will cover the entire real property which is to secure the loan,
including the real property already owned and any additional real
property being acquired by the borrower with the loan proceeds.
(ii) Will cover the entire amount of any subsequent loan plus the
amount of any existing loan being refinanced (if the existing loan is
not being refinanced, the new lender policy will insure only the amount
of the subsequent loan).
(b) Title services required in connection with assumptions. These
regulations are contained in part 1965, subparts A, B, and C, of this
chapter as appropriate for the loan type.

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Secs. 1927.60-1927.99 [Reserved]

Sec. 1927.100 OMB control number.

The reporting requirements contained in this regulation have been
approved by the Office of Management and Budget and have been assigned
OMB control number 0575-0147. Public reporting burden for this
collection of information is estimated to vary from 5 minutes to 1.5
hours per response, with an average of .38 hours per response, including
time for reviewing instructions, searching existing data sources,
gathering and maintaining the data needed, and completing and reviewing
the collection of information. Send comments regarding this burden
estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to Department of
Agriculture, Clearance Officer, OIRM, Ag Box 7630, Washington, DC 20250;
and to the Office of Management and Budget, Paperwork Reduction Project
(OMB 0575-0147), Washington, DC 20503. You are not required to respond
to the collection of information unless it displays a currently valid
OMB control number.