Beyond Closing: The Important Roles of an Underwriter
As far back as the 17th century, English insurance brokers found individuals to issue coverage for risky ventures. Their name would be written under text that described the venture and the total risk they’d accept in exchange for a premium — hence, the term “underwriter” was born.
Today’s title insurance underwriters may not be involved with treacherous sea voyages, but they are the ones who assume the ultimate financial risk in a real estate transaction. Their primary role is to either act directly, or authorize their agent to act on their behalf, to examine the title to a property and check for, and eliminate, risky issues that could arise during and after the sale.
Let’s take a closer look at the roles of an underwriter and how they protect buyers from any unknown errors that may come to light.
What Are the Responsibilities of an Underwriter?
The underwriting of title insurance varies from state to state, with each one having its own specific process. In general, however, an underwriter insures a property against title defects, stands behind the policy and agrees to defend the policyholder in court if the need ever arises surrounding legal issues with the title.
If the title is determined to be clear, or after clearing up any problematic issues, the underwriter can authorize and issue authority to their agent to issue a title insurance policy, typically to both the buyer and the lender.
Specifically, underwriters are responsible for:
· Authorizing title agents to write title insurance policies on their behalf
· Providing a framework for procedures and practices their agents are to operate within
· Providing ongoing training for their title agents
· Assuming the financial risk for policies written by their agents
· Handling and settling insurance claims on behalf of the title agent
What Are the Different Types of Underwriters?
Just as there are a host of risk factors in the world of real estate, finance and more, there are also various types of underwriting, and most underwriters specialize in one area. The most common areas where underwriters work to assess financial risks include:
· Insurance – Depending on the type of insurance to be issued, this type of underwriting is the process of evaluating a prospective insurance candidate for life, health, property, or other insurance. Considering several risk factors, the underwriter assesses how much coverage a person can obtain, how much they can pay and how much an insurance company may pay to cover the policyholder.
· Loan/Mortgage – Loan underwriting, which often refers to a mortgage, involves evaluating and calculating the risks of lending to potential borrowers. Loan underwriters look at a borrower’s income, assets, appraisal, and credit score to make the assessment of loan repayment. In real estate underwriting, the borrower’s financial background and the
property for which they are seeking a loan are both examined, and the underwriter determines whether the property can recoup its value if the borrower is unable to pay back the loan.
· Securities – Investors and investment banks use this type of underwriting to determine the potential profitability of securities such as individual stocks. The underwriter identifies the profitable securities of a company attempting an initial public offering, and then sells those securities in the market for a profit.
What Precedes the Underwriting of a Title Insurance Policy?
You may be wondering what kinds of problems a title insurance underwriter looks for during the underwriting process. Before the parties in a real estate transaction can come to the closing table, title insurance underwriters require their issuing agents to look for and correct several errors, including:
1. Unknown liens – This can occur when the prior property owner has unpaid debts and the bank or other interested party has put a lien on the property.
2. Missing heirs – Family members in addition to the parties preparing to sell the property may have rights to the property. This must be determined and addressed prior to the sale of the property.
3. Forgeries – When forged or fabricated documents are filed within public records, it can conceal the rightful ownership of the property, putting it at risk. If a suspicious document is discovered this must be investigated.
4. Property disputes, unrecorded conveyances – Surveys to a property showing differing boundaries may exist, and a neighbor or other party might attempt to claim ownership. Or, if a deed is not recorded, the party holding the deed may not be recognized under the law as the legal property owner to third parties.
5. Probate issues – Probate proceedings can affect title rights and cause significant delays. These must all be addressed prior to the sale of the property.
How Does the Proliant Model Help with Underwriting?
As you can see, title insurance underwriters handle a number of complex issues and rely on their depth of expertise in order to mitigate the myriad risks involved in real estate transactions. As a title agency owner, staying on top of these complexities can be a daunting task.
Fortunately, Proliant Settlement Systems offers a simple path to title company ownership that eliminates the most difficult barriers to entry. Proliant’s fully compliant franchise system provides back-office support and the financial operational advantages to help you run a successful full-service title agency. Plus, a key advantage is that Proliant handles most of the title search activities for its franchisees, along with assistance in getting appointed by an underwriter. That way, you can focus on what matters most — building your business.