Using Letters of Indemnity to Clear Old Mortgage Liens

A Guide for Title Agency Employees

Using Letters of Indemnity to Clear Old Mortgage Liens: A Guide for Title Agency Employees

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What is a Letter of Indemnity (LOI)?

A Letter of Indemnity (LOI) is a document sometimes used to clear outstanding liens against a property, primarily mortgages, when these liens were paid and insured over by a previous title insurance policy. The LOI serves as a guarantee from one underwriter to another, ensuring coverage for any future claims related to the lien in question.

When to Use a Letter of Indemnity

A Letter of Indemnity is considered a last-resort option to clear a lien when all other methods have been exhausted. The use of an LOI requires approval from both the underwriter who previously insured over the lien and the current underwriter who will be insuring the new policy.

How to Obtain a Letter of Indemnity

If you believe you have exhausted all other options to clear a previous lien, follow these steps to obtain a Letter of Indemnity:

Check Underwriter Policy:

• Verify your underwriter’s policy regarding letters of indemnity. Each underwriter may have specific requirements or procedures.

Identify Previous Title Insurer:

• Determine which underwriter issued the last title insurance policy in the chain after the lien in question was believed to have been paid off. For instance, if the property was refinanced five years ago and the homeowner claims the mortgage was paid off during that refinance, you need to find the underwriter who insured that refinance.

Methods to Identify Previous Insurer:

• The Razi Exchange: Use this third-party vendor’s database to search for insurance policies.
• Recorded Documents: Look at the recorded documents from the last transaction for stamps, “record and return to” notes, or other indicators of the insurer.
• Ask the Property Owner: Request a copy of their title policy or settlement statement. While homeowners often misplace these documents, this step can sometimes yield useful information.

Contact the Title Insurance Agent:

• Once you identify the title insurance agent, contact them to find out which underwriter issued the policy. Obtain the contact information for the appropriate representative.

Request a Letter of Indemnity:

• Send a written request to the underwriter’s representative, including a copy of your title commitment and any supporting documents like the previous title policy or settlement statement.

Final Steps:

Review by Your Underwriter:

• Once you receive the Letter of Indemnity, your underwriter may need to review it. Ensure compliance with their procedures and policies.

Document and Record Keeping:

• Maintain accurate records of all communications and documents related to the LOI for future reference and compliance.

Practical Considerations for Title Agents

• Timeline: The process of obtaining an LOI can take time. Start the request process as early as possible to avoid delays in closing.
• Communication: Keep all parties, including the current and previous underwriters, informed throughout the process.
• Follow-Up: If there are delays in receiving the LOI, follow up with the underwriter to ensure the request is being processed.

Using Letters of Indemnity can be a complex but necessary process to clear old mortgage liens when all other options have been exhausted. By understanding the steps involved and maintaining clear and organized communication, title agency employees can effectively navigate this process and ensure the successful closing of property transactions.

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DISCLAIMER

The information provided here is for general guidance and educational purposes only. I am not an attorney and am not giving legal advice. Information should not be considered legal, underwriting, or financial advice and is followed at your own risk. Readers should consult with their attorney and/or underwriter to obtain advice tailored to their specific circumstances.