April 2010 Vol. 3, No. 3

Underwriters' Bulletin

Procedural Updates

Hold Harmless Letters

In the title industry, a hold harmless letter is an indemnity agreement between two title insurance underwriters wherein one underwriter agrees to indemnify the other for any claim that may arise out of a particular title defect on a particular piece of property. Each underwriter has its own form for hold harmless letters.

Usually an underwriter will agree to provide a hold harmless letter for certain classes of defects where the underwriter has insured the property in the past without exception for the defect. Sometimes the reason for this practice is that the indemnifying underwriter has non-public information that shows the defect has been resolved, as where the underwriter has evidence that a mortgage loan was paid, but there is no release of mortgage of record. The new title company has no evidence that the mortgage was paid or released, but may obtain a hold harmless letter from the previous underwriter, and then write a policy free and clear of the defect.

Other times the underwriter's policy missed a title defect. In that instance, without the hold harmless letter, the new title company may decline to insure the transaction, which may result in the owner or seller making a claim on his or her title policy for the defect. The hold harmless letter allows the new title company to insure title free and clear of the defect, and, should it cause a loss, the title company with the erroneous title policy will handle the claim.

Different underwriters may have different guidelines for when they will issue a hold harmless letter, although some guidelines are common to most underwriters. To give you an idea of what an underwriter's guidelines may include, consider the following circumstances for which ATG commonly issues hold harmless letters:

  • Unreleased mortgages;

  • Unreleased liens;

  • Pending court cases;

  • Unpaid tax installments;

  • Change in grantor's marital status;

  • Deceased owners;

  • Financing statements; and

  • Breaks in the chain of title.

The following are examples of exceptions for which ATG will not issue hold harmless letters:

  • Encroachments and building line violations;

  • Covenants, conditions, and restrictions;

  • Easements; and

  • Mortgages, liens, and judgments that have expired by reason of the statute of limitations.

Each hold harmless request is reviewed by the underwriter and may be affected by the wording of the original policy or other details.

Because of these differences, you should never assume that an underwriter would accept your request for a hold harmless letter. Never waive an exception you have requested a hold harmless letter for until you have received and reviewed the letter. Make sure the hold harmless letter does the following things:

  1. Provides sufficient indemnity language to remove the exception, specifically using "indemnify" or "hold harmless" language;

  3. Identifies ATG as the recipient, and not you, your law firm, or the name of your title agency;

  5. References their policy number;

  7. References your commitment number;

  9. References the exception number; and

  11. References the specific exception language.

Once you receive an appropriate hold harmless letter, rather than remove the exception, you should insure over it using an Endorsement Against Loss - Liens or Encumbrances, ATG Form 2020. If a party refuses to accept a title policy that insures over the exception, and instead demands its removal, please contact the Underwriting Department at 312.752.1990 orlegal@atgf.comto discuss it.

You should request a hold harmless letter anytime your search or other information reveals defects in title that arose during the time period covered by the prior title policy. To make a request, contact the title agent who wrote the policy and ask where to direct your hold harmless request. Make your request in writing, explaining the defect you found, and provide a copy of the current commitment showing an exception for the problem, the prior policy, and any other supporting documentation that may be useful. Hold harmless letters can take time to obtain, either because of the volume of requests, or because your request may require careful consideration. Allow extra time in the process and assume it will take several days. Always keep hold harmless letters in your title file.

If a title company contacts you for a hold harmless letter, please supply them with the fax number for ATG's Hold Harmless Department: 312.224.0255. Please review your title file (and any closing or client file you possess on the matter) and supply the Hold Harmless Department with the documentation showing how you resolved the title defect at the time you wrote the policy. If you have questions about hold harmless letters, please contact a member of the Hold Harmless Department by calling 312.372.1982.

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[Last update: 4-27-10]