Introduced by Committee on Commerce
Subject: Banking and insurance; property and casualty insurance; approval or disapproval of rates
Statement of purpose: This bill proposes to authorize title insurers to charge a surcharge in towns until unknown public rights-of-way have been mapped or discontinued. If funds remain after resolution of the problem, the funds will be distributed to the original policyholders.
AN ACT RELATING TO A TITLE INSURANCE SURCHARGE
It is hereby enacted by the General Assembly of the State of Vermont:
Sec. 1. FINDINGS; PURPOSE
(1) The general assembly finds that the continued existence of unused and unmapped public rights-of-way creates significant and increasingly immediate problems for title insurers, property owners, property purchasers, and mortgage lenders.
(2) Title insurance is the certification or guarantee of title or ownership against loss by encumbrance, or defective titles, or invalidity, or adverse claim to title, all as defined in 8 V.S.A. § 3301(a)(9). Title insurance is generally purchased at the time of a property purchase or refinancing to insure the interests of the new property owner or the mortgage lender, or both, and is accompanied by payment of a single, one-time premium after a search of land records. Currently, public rights to the use of unused and unmapped public rights-of-way are not extinguished through adverse possession or abandonment, and property owners (and title insurers) may therefore be caught unaware by the continued existence of such public right‑of‑way since there may be no clearly observable evidence on the ground that such a right-of-way exists and no readily discoverable documentary evidence of the road that would appear in the course of a routine title search.
(3) Research into old land records conducted in a number of towns over the past few years has uncovered the existence of previously unmapped and forgotten rights-of-way and highlighted the risk to property owners, insurers, and lenders that these public rights-of-way represent. The condition and age of the town records that document the existence of the public rights-of-way make it practically impossible for any individual landowner or prospective purchaser of real estate to readily determine from town records if a public
right-of-way still legally exists across a property, much less determine the
right-of-way's exact location. Title insurance companies operating in Vermont have therefore expressed a growing reluctance to provide coverage for Vermont properties that may be crossed or affected by these rights-of-way, even with increased premiums, since the use and value of the property for the property owner may be severely compromised and could lead to a costly claim well in excess of the one-time premium charged by title insurers. The discovery of these public rights-of-way across a particular property may not only deprive a resident of the quiet enjoyment of his or her residence, it may dramatically reduce the value of the property owner’s investment and therefore the collateral securing a mortgage note. A prompt resolution of the issue is critical since property owners and title insurers have already been caught unaware by the discovery of several long disused but legal roads, and claims under title insurance policies are now in litigation.
(4) In the summer of 2004, some title insurance companies announced (but subsequently reconsidered) that they would stop writing title insurance policies necessary to the purchase, sale, and financing of real estate, or would seek to exclude coverage for claims in those towns where the rights-of-way and the resultant public access across private property were being newly “rediscovered.” A number of insurers have also sought the department of banking, insurance, securities, and health care administration’s approval for a blanket “ancient roads exception” in policies covering real property in those same towns subsequently denied. While these proposals were considered unacceptable by the department, maintaining a market in title insurance through resolving the ancient roads issue is essential. Title insurance has a greater role than simply assuring compensation for a property owner’s claims. Lending requirements of financial institutions make it effectively impossible for anyone to mortgage or refinance real property without title insurance, especially in light of the important role of the secondary mortgage market in mortgage lending. Absent effective title insurance to support the mortgage note, a property owner’s ability to mortgage or refinance real property would be severely limited, and a mortgage lender would not be able to place the note into the secondary market, depriving the lender of access to funds necessary to further its lending activities. Moreover, the existence of a previously unknown public way across a particular property could dramatically reduce the value of the property to a level below what is owed to a mortgage lender. The lack of title insurance would be a disaster for homeowners. The lack of affordable housing, a problem that is already stifling economic development, would go from bad to worse. The housing market which has been a driver in the Vermont economy and a steady contributor to the state's coffers would rapidly lose steam. The general assembly finds that title insurance is essential to the commerce of the state.
(b) Purpose. The purpose of this act is to protect homeowners and the Vermont economy from disruptions in the title insurance market caused by litigation over unidentified public rights-of-way. This act authorizes title insurers to collect a surcharge of 10 percent on title insurance policies written on property in those towns where the issue of these unidentified rights-of-way has not been resolved.
Sec. 2. 8 V.S.A. § 4689(d) is added to read:
(d) Title insurance surcharge.
(1) On and after July 1, 2006 and for a period of two years, a title insurer shall impose and collect a surcharge of 10 percent on all title insurance policies covering an interest in property in a municipality that has not identified or legally discontinued ancient roads or other unidentified public rights‑of‑way. On July 1, 2008 the surcharge shall increase to 25 percent.
(2) Any costs incurred by the title insurer which specifically relate to the defense and settlement of claims arising subsequent to July 1, 2006 and relating to previously unidentified public rights-of-way may be paid out of funds collected through imposition of this surcharge.
(3) All surcharges collected pursuant to this subsection shall be maintained by the insurer in one, segregated, separate interest-bearing account. The title insurer shall return a pro rata share of any funds remaining in the account to the original policyholders upon final resolution of all claims relating to unidentified public rights-of-way.
(4) Title insurers shall provide notice in writing to purchasers of title insurance explaining that the surcharge arises from the continuing possibility of claims resulting from ancient roads and other unidentified public rights‑of‑way, and that subsequent action by municipalities may allow for a return of a portion of the surcharge.
The Vermont General Assembly
115 State Street