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Welcome to today’s webinar!
Stone[d] Soup
John Rothermel
and
Heidi Junge
December 20, 2018
In order to obtain a CE Certificate or CLE Credit, you must listen to the webinar for a minimum of 55
minutes obtain the password (provided at the end of the
presentation) follow the instructions as given
2
ATTORNEY INFORMATION
Because of opinions expressed by the Texas Department
of Insurance (TDI) concerning rebates, legal credit is
available only to:
Attorneys who own title agencies that are Stewart Title
Guaranty Agents
Attorneys employed by a title insurance agent licensed
with Stewart Title Guaranty or Stewart entities
Fee attorneys who have an Escrow Officer license
through a Stewart Title Agent or Stewart entity
We welcome any other lawyers to listen, but cannot provide
continuing education credit to you.
3
Stone[d] Soup: PACA, PSA, Pot Properties,
Federal Liens, Non-Medical
Reimbursement, Additional
Insured, Continuing Insureds,
Rollbacks
John Rothermel Senior Vice President
Regional Underwriting Counsel
Senior Underwriter
Heidi E. Junge Assistant Vice President
Underwriting Counsel
Senior Underwriter
SW Regional Underwriting Office
Stewart Title Guaranty Company
5
Introduction
• Multiple issues have arisen in the past several years which
are fairly new to the title industry.
• Agricultural trust issues have been the law for decades,
but were not considered title issues until a few years ago
when a small number of liens became title claims.
6
Introduction
• The increased acceptance of marijuana by state
legislatures without concomitant changes in federal law
have caused title underwriters to reflect on coverage
issues.
• Other issues have also arisen which need to be explored.
7
Perishable Agricultural
Commodities Act (PACA)
8
Perishable Agricultural Commodities Act (PACA)
7 U.S.C. § 499a et seq.
• Imposes a statutory “trust” (lien) for the benefit of unpaid
suppliers (farmers), sellers and agents/brokers of
perishable agricultural commodities
• The trust (lien) is against produce buyers.
9
What is a “perishable agricultural commodity”?
– Any fruit or vegetable, whether or not frozen or packed in ice,
including cherries in brine
– Except those perishable fruits and vegetables which have
been manufactured into articles of food of a different kind or
character. 7 C.F.R § 46.2(a)
10
Why should you be concerned about PACA?
• Lien on Real Estate: PACA trust can apply to all
produce buyer’s assets including real estate and can
be superior to the rights of third parties, such as
mortgages, dealing with the merchant, dealer or broker.
• A bankruptcy cannot avoid the priority of the trust
because the buyer-debtor does not have an equitable
interest in the trust assets.
• No Notice Required! No notice requirement to be given
for unpaid supplier, sellers and agents, not necessary to
have a lis pendens or claim of the trust in the real property
record to perfect the lien.
11
PACA – Know Your Parties and if they could be
a subject to a PACA Trust
Parties whose assets may be subject to a PACA trust:
• Food processors, food and grocery chains and
wholesalers, food service firms, produce dealers,
distributing companies, canners, processing plants, even
wineries, distilleries, and breweries.
• Grocery chains and supermarket chains; Chain
restaurants and other major restaurants.
• Company name that includes “food” or a type of food,
“produce,” “packing,” or “distributor.”
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PACA – What To Do:
If your transaction involves a party whose assets may be subject to a PACA
trust, you must contact your Underwriter.
We may require a PACA title exception such as the following:
“Any trust, right, interest or claim that may exist, arise, or be asserted
against the Title under or pursuant to the Perishable Agricultural Commodities Act of 1930, as amended, 7 U.S.C. §499a, et seq., or
any similar state or federal law.”
SLS2014001 https://www.vuwriter.com/en/bulletins/2014-1/BL138998757600000001.html
**NOTE: Even though the trust can only be terminated by paying all
supplier in full prior to your transactions, we cannot verify with certainty and
therefore cannot rely on such statements.
13
Packers and Stockyards Act
(PSA)
14
Federal Liens Involving Agriculture—
Packers and Stockyards Act (PSA) The Packers and Stockyards Act of 1921 (7 U.S.C. §§181 et seq.) also
establishes a similar unrecorded “trust” (lien) on the assets of Meat
Packers to protect producers/suppliers of Livestock and Poultry.
Applies to all Packer’s assets, including real estate assets.
“Livestock” is defined as cattle, sheep, swine, horses, mules, or goats,
whether dead or alive, and “Poultry” defined as chickens, turkeys,
ducks, geese and other domestic fowl.
“Packer” is a person or entity in the business of:
a) buying livestock in commerce for purposes of slaughter, or
b) manufacturing or preparing meats or meat food products for sale or
shipment in commerce, or
c) marketing meats, meat food products, or livestock products in an
unmanufactured form acting as a wholesale broker, dealer, or distributor
in commerce.
15
PSA
Packers whose assets may be subject to a PSA trust may include:
– Stockyards, supermarket or grocery chains, wholesalers and retailers of meat
products, meat packing companies, meat processing companies, farms that
purchase livestock and poultry for slaughter.
If your transaction involves a party whose assets may be subject to a PSA
trust, you must contact your underwriter.
We may require a PSA title exception such as the following:
“Any trust, right, interest or claim that may exist, arise, or be asserted
against the Title under or pursuant to the Packers and Stockyard Act of 1921, as amended, 7 U.S.C. §181, et seq., or any similar state or
federal law.”
See STG Bulletin TX2014001
https://www.vuwriter.com/en/bulletins/2014-1/BL138998757600000003.html
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Marijuana
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SLS2017004—Land Used for Marijuana
Activities
“Stewart Title Guaranty Company is not currently insuring
title to land that is known to be used or intended to be
used for any lawful purpose under state law for
recreational or medical marijuana activities, including
cultivation, storage, transport, manufacture, retail, or
distribution.”
18
Considerations
– Survey endorsements vs. CCRs
– Escrow Services
– CPLs
– Proper licensing for lawful operations under state law of
marijuana related businesses
– Affidavits
– Exceptions
19
Medicaid Estate Recovery
Program (MERP)
20
• Created for some estates to reimburse the government for
Medicaid benefits received by the deceased
• A MERP claim does NOT create a lien on real property.
‒ Treated as a general unsecured claim
21
Foreclosing Deed of Trust
When IRS Lien is Attached
22
Cutting Off a Federal Tax Lien by
Mortgage Foreclosure
1. Was the Tax Lien filed more than 30 days before the
foreclosure sale? ________
If no, the tax lien is eliminated against the property. If yes,
was Notice given 25 days in advance of foreclosure to the
IRS? 26 USC 74259(c )(1)__________
If yes, there is a right of redemption in favor of the IRS for
120 days; if proper notice was not given, then the Federal
Tax lien remains on the property. Stewart cannot recognize
a re-foreclosure of an otherwise regular foreclosure simply to
provide the IRS with notice. (Southern Bank of Lauderdale
County v. IRS 770 F2d 1001, 1985).
23
Additional Insured
Endorsement (T-26)
24
Virtual Underwriter—T-26 Guideline Explanation
This endorsement is primarily used in estate planning
situations where title in individuals has been conveyed to a
living trust, acquisition of interest under an agreement
existing at the original policy date or family partnership or
family corporation, limited liability company.
Texas Procedural Rule P-57 provides the basic rules for
issuance of this endorsement.
Please also see R-33 for more information regarding this
endorsement.
25
Virtual Underwriter—T-26 Guideline Explanation
To issue the endorsement the additional insured must be:
a) the trustee or successor trustee of a Living Trust to whom
the insured transfers the title after Policy Date, and/or the
beneficiaries of the Living Trust, or
b) any partner, member or stockholder that acquires the
interests of the other owners of the insured in accordance
with the terms and provisions of a written agreement in
effect at Date of Policy, or
c) a family partnership or family corporation solely
composed of or owned by members of the insured's
family and the insured.
26
Virtual Underwriter—T-26 Guideline Explanation
For Limited Liability companies the rule provides:
i. there will be a transfer(s) of all or any part of the Limited
Liability Company members' interests in the insured to
any transferee(s), or
ii. the withdrawal(s) of one or more of the members from
the Limited Liability Company, or
iii. the addition(s) of one or more persons or entities as
members of the Limited Liability Company.
27
Virtual Underwriter—T-26 Guideline
Requirements We require:
A review of the trust, written agreement that allows for the acquisition of
the interest of the other owners that was in existence at Date of Policy,
the family partnership agreement or family corporations founding
documents and any agreements such as bylaws and operating
agreements.
This review should satisfy you that the documents allow the additional
insured entry into the respective organization.
For limited liability companies you need to review the founding
documents and any later documents that create or allow the transfer of
interest or withdrawal or addition of members.
28
Continuation of Coverage
29
P-35 Limits Our Ability to Interpret Policy Terms
P-35. Prohibition Against Guaranties, Affirmations,
Indemnifications, and Certifications
No Title Insurance Company, Title Insurance Agent, Direct Operation,
Escrow Officer, nor any employee, officer, director or agent of any such
entity or person, shall issue or deliver any form of verbal or written
guaranty, affirmation, indemnification, or certification of any fact,
insurance coverage or conclusion of law to any insured or party to a
transaction other than: (i) a statement that a transaction has closed
and/or has been funded, (ii) issuance of an insured closing service letter,
or any insuring form or endorsement promulgated by the State Board of
Insurance, or (iii) certification of copies of documents as being true and
exact copies of the original document or of the document recorded in the
public records.
30
T-2. Conditions –
2. CONTINUATION OF INSURANCE
The coverage of this policy shall continue in force as of Date
of Policy in favor of an Insured, but only so long as the
Insured retains an estate or interest in the Land, or holds an
obligation secured by a purchase money Mortgage given by
a purchaser from the Insured, or only so long as the Insured
shall have liability by reason of warranties in any transfer or
conveyance of the Title. This policy shall not continue in
force in favor of any purchaser from the Insured of either (i)
an estate or interest in the Land, or (ii) an obligation secured
by a purchase money Mortgage given to the Insured.
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T-2. Conditions –
1. DEFINITION OF TERMS
(e) “Insured": the Insured named in Schedule A.
(i) The term "Insured" also includes:
(A) the owner of the Indebtedness and each
successor in ownership of the Indebtedness,
whether the owner or successor owns the
Indebtedness for its own account or as a trustee or
other fiduciary, except a successor who is an
obligor under the provisions of Section 12(c) of
these Conditions;
32
T-2. Conditions –
1. DEFINITION OF TERMS
(B) if the Indebtedness is evidenced by a “transferable
record,” the person or Entity who has “control” of
the “transferable record,” as these terms are
defined by applicable electronic transactions law;
(C) successors to an Insured by dissolution, merger,
consolidation, distribution or reorganization;
(D) successors to an Insured by its conversion to
another kind of Entity;
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T-2. Conditions –
1. DEFINITION OF TERMS (E) a grantee of an Insured under a deed delivered
without payment of actual valuable consideration
conveying the Title:
(1) If the stock, shares, memberships, or other
equity interests of the grantee are wholly-
owned by the named Insured,
(2) If the grantee wholly owns the named Insured,
or
(3) If the grantee is wholly-owned by an affiliated
Entity of the named Insured, provided the
affiliated Entity and the named Insured are
both wholly-owned by the same person or
Entity;
34
T-2. Conditions –
1. DEFINITION OF TERMS
(F) any government agency or instrumentality that is
an insurer or guarantor under an insurance
contract or guaranty insuring or guaranteeing the
Indebtedness secured by the Insured Mortgage, or
any part of it, whether named as an Insured or not;
(ii) With regard to (A), (B), (C), (D) and (E) reserving,
however, all rights and defenses as to any successor that
the Company would have had against any predecessor
Insured, unless the successor acquired the Indebtedness
as a purchaser for value without Knowledge of the
asserted defect, lien, encumbrance or other matter
insured against by this policy.
35
T-2. Conditions –
2. CONTINUATION OF INSURANCE
The coverage of this policy shall continue in force as of Date
of Policy in favor of an Insured after acquisition of the Title by
an Insured or after conveyance by an Insured, but only so
long as the Insured retains an estate or interest in the Land,
or holds an obligation secured by a purchase money
Mortgage given by a purchaser from the Insured, or only so
long as the Insured shall have liability by reason of
warranties in any transfer or conveyance of the Title.
This policy shall not continue in force in favor of any
purchaser from the Insured of either (i) an estate or interest
in the Land, or (ii) an obligation secured by a purchase
money Mortgage given to the Insured.
36
T-1. Conditions –
1. DEFINITION OF TERMS
The following terms when used in this policy mean:
(d) “Insured": the Insured named in Schedule A.
(i) The term "Insured" also includes:
(A) successors to the Title of the Insured by operation
of law as distinguished from purchase, including
heirs, devisees, survivors, personal
representatives or next of kin;
(B) successors to an Insured by dissolution, merger,
consolidation, distribution or reorganization;
(C) successors to an Insured by its conversion to
another kind of Entity;
37
T-1. Conditions –
1. DEFINITION OF TERMS
(D) a grantee of an Insured under a deed delivered
without payment of actual valuable consideration
conveying the Title;
(1) If the stock, shares, memberships, or other
equity interests of the grantee are wholly-
owned by the named Insured,
(2) If the grantee wholly owns the named Insured,
38
T-1. Conditions –
1. DEFINITION OF TERMS
(3) If the grantee is wholly-owned by an affiliated
Entity of the named Insured, provided the
affiliated Entity and the named Insured are
both wholly-owned by the same person or
Entity, or
(4) If the grantee is a trustee or beneficiary of a
trust created by a written instrument
established by the Insured named in Schedule
A for estate planning purposes.
(ii) With regard to (A), (B), (C) and (D) reserving,
however, all rights and defenses as to any successor that
the Company would have had against any predecessor
Insured.
39
Same type of discussion applies to “Who is
insured?” in OTPs (D) a grantee of an Insured under a deed delivered without
payment of actual valuable consideration conveying the Title;
(1) If the stock, shares, memberships, or other equity
interests of the grantee are wholly-owned by the named
Insured,
(2) If the grantee wholly owns the named Insured,
(3) If the grantee is wholly-owned by an affiliated Entity of
the named Insured, provided the affiliated Entity and the
named Insured are both wholly-owned by the same
person or Entity, or
(4) If the grantee is a trustee or beneficiary of a trust created
by a written instrument established by the Insured
named in Schedule A for estate planning purposes.
40
Same type of discussion applies to “Who is
insured?” in OTPs (d) “Insured": the Insured named in Schedule A.
(i) The term "Insured" also includes:
(A) successors to the Title of the Insured by operation of law as
distinguished from purchase, including heirs, devisees,
survivors, personal representatives or next of kin;
(B) successors to an Insured by dissolution, merger,
consolidation, distribution or reorganization;
(C) successors to an Insured by its conversion to another kind of
Entity;
41
Roll Back Tax Issues
42
Land Use Designation and Rollback Taxes
Rural Properties can be subject to “Special Use Designations”
or classifications depending on the land’s usage.
Special Use Designations are under Tax Code, set by Tax
Appraisal Districts and result in a reduced valuation for Tax –
Appraisal purposes:
Tax Code §23.51(1) Qualified Open-Space Land
Tax Code §23.41 and 23.51(2) Agricultural Use
Tax Code §23.51(2) and (7) Wildlife Management
Tax Code §23.71 Timber Land
Tax Code §23.81 Recreational, Park or Scenic Use
Tax Code §23.91 Public Access Airport Property
43
Land Use change Under Texas Tax Code §23.55
Land Use Change = Rollback Taxes
A “land use change” – (e.g., from Ag to Residential use, etc.) can result in
additional taxes imposed for each of the 5 years preceding the year when
the land use change occurs
– amount of tax is the difference between the assessment at the
special use valuation and the assessment at market value… for the
previous 5 years!
(b) A Tax lien securing payment of additional tax attaches on the date
when the land use change occurs
…
(i) Construction of homestead improvements on Special
Use designated land is not a “land use change” for purposes of
triggering rollback taxes, but TAD will usually re-designate one
acre for the home to residential use.
44
Insuring Against Rollback Taxes—Rule P-20.b(2)
• Each policy in Texas (T-1 OP, T-2 LP, T-2r) insures against “lien of real
estate taxes or assessments imposed on the Title by a governmental
authority due or payable but unpaid”
• But each policy limits that coverage in Schedule B through exceptions
in various forms.
• As to Rollback Taxes, each policy includes an exception (Sch.B3) that
includes the following language “… and subsequent taxes and
assessments by any taxing authority for prior years due to a
change in land usage or ownership…”
• “Insuring against rollback taxes” means deleting the phrase “and
subsequent taxes and assessments by any taxing authority for prior
years due to a change in land usage or ownership…” from the
Schedule B exception
45
Insuring Against Rollback Taxes—Rule P-20.b(2)
“Insuring against rollback taxes” can be done ONLY on the Loan
Policy and Interim Construction Binder
– NOT allowed for the Owners Policy – purchaser always assumes
the risk of rollback taxes
Coverage only allowed when: 1) the title company has proof in the file that the property is NOT
subject to Agricultural, Wildlife or Open Space tax designations
(i.e., can NOT be given if property has Ag, Wildlife or Open
Space special use valuation);
OR
2) rollback taxes for the current year and prior years have been
assessed, are collected at closing and paid “in the ordinary
course of business”
46
Insuring Against Rollback Taxes—Rule P-20.b(2)
• No discretion allowed in giving coverage.
• No affidavit for “No Change of Use” can allow for rollback
tax coverage on any owners policy
• Must comply with P-20.b(2)
The “Insuring against rollback taxes” deletion is done by
one of the following: – box check-off on the T-2 or T-2R Loan Policy forms; or
– line through the exception phrase on T-2 or T-2R Schedule B;
or
– produce electronic form T-2 or T-2R omitting the phrase; or
– issue a T-30 Tax Deletion Endorsement.
See STG Bulletin TX20100009
https://www.vuwriter.com/en/bulletins/2010-11/BL128867070200000015.html
47
Why does Texas have roll back taxes anyway?
The philosophical concept arose during the late 1970s and
1980s when many farms in urban and suburban areas were
being taxed at their highest and best use level (say a
shopping center) when the farm was actually being farmed.
In many such cases, the farm income wasn’t even close to
the taxes that a mall would generate.
48
Why does Texas have roll back taxes anyway?
So the legislature came up with a compromise—as long as
land that could be used for a higher use was actually used
for agriculture, the taxes would accrue as though used for a
mall but collected on the actual agriculture use.
Since the state never gives up on taxes that it could be
entitled to, the taxes would accrue on a rolling 5 year basis
until the use changes.
49
Why does Texas have roll back taxes anyway?
And then the owner who got a “tax break” for those 5 years
(and who just got a pot of money from the mall developer)
would pay the “back taxes”.
There is no actual penalty. It is just making up for the most
immediate 5 years where you paid less than you “should
have”.
There is no incentive not to take the land out of agricultural
production. It is a simple legislative compromise where the
agricultural land owner doesn’t pay taxes based on a use
that is only theoretical but the government doesn’t lose the
taxes on that theoretical use either.
50
Contact Info
John Rothermel
SW Regional Underwriter
Senior Vice President
Senior Underwriter
Stewart Title Guaranty Company
San Antonio, Texas
210.590.1981
john.rothermel@stewart.com
Heidi Junge
Assistant Vice President
Underwriting Counsel
Senior Underwriter
Stewart Title Guaranty Company
San Antonio, Texas
210.590.1981
heidi.junge@stewart.com
Per the TDI and the State Bar, in order to obtain a CE Certificate or CLE Credit you must:
– listen to the webinar for a minimum of 55 minutes
–obtain the password (provided at the end of the presentation)
– follow the instructions as given
51
To Receive CE Credit Each individual seeking credit hours must send their own certificate request to:
CEcertificate@stewart.com
Please include the following information: • Provide only this Presentation Name in the Subject Line of your e-mail – “Stone[d]
Soup” In the body of your e-mail: • Name of Participant (as it appears on your Escrow Officer License); • Presentation PASSWORD given at the end of the webinar; • License Number Only (located on left side of Escrow Officer Certificate of License –
for example: License Number: 1234567-890123)
For Attorney CLE Credit also include: • Texas State Bar Number • Affiliation with Stewart
– Employed by Stewart Title Guaranty Company; – an affiliate; or – a Stewart agent
For more details, see the CE and CLE FAQs at:
http://www.stewart.com/en/stg/texas/education/texas-tips/ce-cle-faqs.html
52
Recordings
www.stewart.com/texas
Under “Texas TIPS” tab
• Posted online 10 days after live presentation
• Other current courses available
Certificates
• Processing can take up to 10 business days.
• Contact us if you haven’t received your
certificate after the allotted processing time.
CEcertificate@stewart.com
53
Join us for the next Texas TIPS webinar!
January 17, 2019
TDI Audit Review
John Rothermel
For Questions/Comments Email
john.rothermel@stewart.com
or
heidi.junge@stewart.com
54
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