STEWART TITLE GUARANTY COMPANY 1980 Post Oak Boulevard, Suite 710 Houston, Texas JAMES L. GOSDIN BIOGRAPHIC INFORMATION

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1 STEWART TITLE GUARANTY COMPANY 1980 Post Oak Boulevard, Suite 710 Houston, Texas JAMES L. GOSDIN BIOGRAPHIC INFORMATION James L. Gosdin is Senior Vice-President and Senior Underwriting Counsel for Stewart Title Guaranty Company. Jim received his Bachelor's Degree from the University of Texas and his Juris Doctorate with honors from the University of Texas School of Law. A Stewart associate since 1976, Jim underwrites title insurance transactions throughout the United States, reinsurance transactions, and international title insurance transactions for the company. Jim is Board Certified by the Texas Board of Legal Specialization in farm and ranch, commercial, and residential real estate. Jim is a member of the American Land Title Association Forms Committee, he is chair of the ALTA Liaison Committee with the National Association of Insurance Commissioners, and he is co-chair of the ALTA Reinsurance Committee. He also serves on the Bylaws and the State Legislative and Regulatory Action Committee. Jim is a member of the American Bar Association, the Texas Bar Association and the Houston Bar Association. He is also a member of the Texas Title Standards Joint Editorial Board and the Electronic Recording Advisory Committee to the Texas State Library and Archives Commission.. Jim was named the Title Person of the Year by TLTA. In 1995, Jim wrote the ABA publication, Title Insurance: A Comprehensive Overview. Jim s 2000 revision of Title Insurance: A Comprehensive Overview, Second Edition available in July 2000, through ABA Book Publishing: American Bar Association Publications Planning & Marketing 750 North Lake Shore Drive Chicago, Illinois Fax: (312) Web: Title Insurance: A Comprehensive Overview, Second Edition ISBN # Jgosdin@stewart.com Virtual Underwriter:

2 By James L. Gosdin Stewart Title Guaranty Company TLTA December 4 to 5, 2003

3 TABLE OF CONTENTS How Many Ways Can You Say, Express Insurance in Texas, That Is?... 1 Exhibit 1 Access Endorsement (T Exhibit 2 Procedural Rule Exhibit 3 Additional Insured Endorsement (T26) Exhibit 4 Adjustable Mortgage Loan Endorsement (T-33) Exhibit 5 Mortgagee Policy Aggregation Endorsement (T-16) Exhibit 6 Proposed Revision Exhibit 7 Assignment of Lien Endorsement T Exhibit 8 Balloon Mortgagee Endorsement (T-39) Exhibit 9 Endorsement Instructions...40 Exhibit 10 Contiguity Endorsement (T-25)...41 Exhibit 11 Date Down Interim Construction Loan Endorsement T Exhibit 12 Texas Residential Limited Coverage Junior Mortgagee Policy Down Date Endorsemen Exhibit 13 Texas Limited Pre-Foreclosure Policy Down Date Endorsement T Exhibit 14 Texas Date Down Endorsement for Mortgagee Policy T Exhibit 15 Texas Date Down Endorsement for Owner Policy T Exhibit 16 Texas Environmental Protection Lien Endorsement T Exhibit 17 Texas Extension of Construction Binder Endorsement T Exhibit 18 Owner Policy T-1 Conditions and Stipulations Exhibit 19 First Loss Endorsement (T-14) Exhibit 20 Texas Equity Loan Mortgage Endorsement T Exhibit 21 Texas Supplemental Coverage Equity Loan Mortgage Endorsement T Exhibit 22 Texas Increased Value Endorsement T Exhibit 23 Last Dollar Endorsement (T-15) Exhibit 24 Leasehold Mortgagee Policy Endorsement T Leasehold Owner Policy Endorsement T Residential Leasehold Endorsement T-4R Exhibit 25 Texas Manufactured Housing Endorsement T Supplemental Coverage Manufactured Housing Unit Endorsement (T-31.1)...64 Exhibit 26 Texas Partial Release, Release of Additional Collateral, Modification Agreement, Reinstatement Agreement, or Release from Personal Liability Endorsement T Exhibit 27 Non-Imputation Endorsement (T-24) Exhibit 28 Planned Unit Development (T-47) Exhibit 29 Form T-19: Restrictions, Encroachments, Minerals. ALTA Restrictions, Encroachments, Minerals Endorsement (10/17/98) Restrictions, Encroachments, Minerals Endorsement Owner Policy (T-19.1) Exhibit 30 Texas Reverse Mortgage Endorsement T Exhibit 31 Texas Revolving Credit Endorsement T Exhibit 32 (Proposed Revision) Texas Tax Deletion Endorsement T Exhibit 33 (Endorsement Form T-46: Texas Residential Limited Coverage Junior Mortgagee Policy Variable Rate Endorsement Form...75 Exhibit 34 Texas Owner Title Insurance Policy Endorsement (U.S.A.) Texas Land Title Institute Express Insurance Page iii December 2003

4 How Many Ways Can You Say, "Express Insurance" - in Texas, That Is? Express Insurance is know as Affirmative Insurance in other jurisdictions. Affirmative Insurance generally is insurance provided in Schedule B of the policy. Some view this as an incongruous means of providing insurance, because the preamble of Schedule B does not contemplate insurance: This policy does not insure against loss or damage (and the Company will not pay costs, attorney s fees or expenses) that arise by reason of the terms and conditions of the leases and easements, if any, shown in Schedule A, and the following matters. In contrast, the preamble of Schedule B of Short Form Mortgagee Policy, which contains express (or affirmative) insurance with each of the exceptions, provides Except to the extent of the express insurance set forth below, this policy does not insure against loss or damage (and the Company will not pay costs, attorneys fees or expenses) which arise by reason of those matters contained in any addendum attached hereto or which arise by reason of. Schedule B of the Short Form Mortgagee Policy is illustrative of express insurance: it typically consists of an exception and then insurance against or relating to that exception. Except to the extent of the express insurance set forth below, this policy does not insure against loss or damage (and the Company will not pay costs, attorneys fees or expenses) which arise by reason of those matters contained in any addendum attached hereto or which arise by reason of: 1. Covenants, conditions and restrictions, if any, appearing in the public records; however, this policy insures against loss or damage arising from: a. the violation of any covenants, conditions and restrictions on or prior to Date of Policy, except that this express insurance does not extend to covenants, conditions and restrictions relating to environmental protection, unless a notice of violation thereof has been recorded or filed in the public records and is not referenced in an addendum attached to this policy. b. a forfeiture or reversion of title from a future violation of any covenants, conditions and restrictions appearing in the public records, including any relating to environmental protection; and c. any provisions in any covenants, conditions and restrictions under which the lien of the insured mortgage can be extinguished, subordinated or impaired. 2. Any shortages in area. This policy insures against loss or damage arising from any encroachments or protrusions, or any overlapping of existing improvements located on the land onto adjoining land, and encroachments onto the land of existing improvements located on adjoining land. 3. Standby fees, taxes and assessments by any taxing authority which become due and payable subsequent to Date of Policy; and subsequent taxes and assessments by any taxing authority for prior years due to change in land usage or ownership, but not those taxes or assessments for prior years because of an exemption granted to a previous owner of the property under Section 11.13, Texas Tax Code, or because of improvements not assessed for a previous tax year. (the Company may add or pre-print promulgated language of P-29, subject to compliance with the terms thereof and payment of the premium set forth in R-24) 4. Any easements or servitudes appearing in the public records; however, this policy insures against loss or damage arising from (a) the encroachment, at Date of Policy, of the improvements on any easement; or (b) any interference with or damage to existing improvements, including lawn, shrubbery or trees, resulting from the use of the easements for the purposes granted or reserved. 5. Any lease, grant, exception or reservation of minerals or mineral rights appearing in the public records; however, this policy insures against loss or damage arising from: (a) any effect on or impairment of the use of the land for residential one-to-four family dwelling purposes by reason of such lease, grant, exception or reservation of minerals or mineral rights appearing in the public records; and (b) any damage to existing improvements, including lawn, shrubbery and trees, resulting from the future exercise of any right to use the surface of the land for the extraction or development of the minerals or mineral rights so leased, granted, excepted or reserved. Nothing herein shall insure against loss or damage resulting from subsidence. ADDENDUM TO TEXAS SHORT FORM [PROPOSED REVISION] 2003 Texas Land Title Institute Express Insurance Page 1 December 2003

5 RESIDENTIAL MORTGAGEE POLICY ONE-TO-FOUR FAMILY [File Number: ] Addendum to Policy Number: SCHEDULE B (Continued) IN ADDITION TO THE MATTERS SET FORTH ON SCHEDULE B OF THE POLICY TO WHICH THIS ADDENDUM IS ATTACHED, THIS POLICY DOES NOT INSURE AGAINST LOSS OR DAMAGE BY REASON OF, AND THE EXPRESS INSURANCE IN PARAGRAPHS 1-5 OF SCHEDULE B SHALL NOT APPLY TO, THE FOLLOWING: (Here add exceptions pursuant to Rule P-2, P-5, P-8, or P-37) Texas Short Form Residential Mortgagee Policy of Title Insurance (T -2R Addendum) Affirmative insurance has been used primarily in eastern states in both commercial and residential transactions, in combination with endorsements that are generally available. Sometimes the affirmative insurance will provides specific insurance with respect to an encroachment, restriction or easement, and in other cases the affirmative insurance will provide coverage, such as contiguity insurance, where an endorsement is not available. Affirmative insurance is rarely used in western states, such as California, where CLTA or scrivener endorsements are drafted to respond to particular customer concerns. Procedural Rule P-39, which authorizes the most sweeping express or affirmative insurance available in Texas, was adopted effective October 30, It has been used by customers, in part, because of the lack of availability of many endorsements that are issued on residential and commercial transactions in other states. The most commonly issued endorsements, other than the environmental protection lien endorsement, have been comprehensive or restrictions, encroachments, minerals endorsements. Those endorsements are now available or under consideration in Texas at this time, as are a number of other endorsements that have recently been approved or published for adoption. With the adoption of various endorsements, the demand for express insurance should diminish. Simultaneously, a number of the procedural rules relating to endorsements have provided that the endorsements afford the exclusive means for insurance, and exclude separate express insurance. The following are examples of express insurance or alternative endorsements available in Texas: ACCESS: COVERAGE RULES DISCUSSION Abutter s Rights: together with abutter s rights of access to and from. Access Endorsement (T-23) (See Exhibit 1) Proposed Procedural Rule P-54: Any insured matter covered in the Access Endorsement (T-23) may be insured only by the use of this endorsement. Proposed Procedural Rule: P-54. A title insurer may issue the Access Endorsement only on Owner Policy or Mortgagee Policy on commercial land, not on residential real property. Any insured matter covered in the Access Endorsement (T- ) may be insured only by the use of this endorsement. Proposed Rate Rule: $100. The Access Endorsement (T- 23) does not explicitly refer to right of access. Express Insurance may not provide this coverage. This endorsement is similar to the ALTA Endorsement 17 (Access and Entry), which provides The Company insures against loss or damage sustained by the insured if, at Date of Policy: (i) the land does not abut and have both actual vehicular and pedestrian access to and from [insert name of street, road, or 2003 Texas Land Title Institute Express Insurance Page 2 December 2003

6 COVERAGE RULES DISCUSSION highway](the Street ), (ii) the Street is not physically open and publicly maintained, or (iii) the insured has no right to use existing curb cuts or entries along that portion of the Street abutting the land. The Texas Access Endorsement does not explicitly insure as to curb cuts. Access Indirect. State in Schedule A after description of access easement: together with access to and from by that easement abutting Street, more particularly described as follows: The proposed ALTA Endorsement 17.1 (Indirect Access and Entry) would insure access by an easement, by stating: The Company insures against loss or damage sustained by the insured if, at Date of Policy: (i) the easement identified as Parcel in Schedule does not provide that portion of the land identified as Parcel in Schedule both actual vehicular and pedestrian access to and from [insert name of street, road, or highway] (the Street ), (ii) the Street is not physically open road publicly maintained, or (iii) the insured has no right to use existing curb cuts or entries along that portion of the Street abutting the land. ADDITIONAL COVERAGE: Additional Coverage Endorsement (T-3) (See Exhibit 2) ADDITIONAL INSURED: Texas Bulletin 157 (July 31, 1992): On October 1, 1991, a new Mortgagee Title Policy form became effective in Texas. Pursuant to Sections 1(a)(i) and 12(c) of the Conditions and Stipulations in the new policies an obligor will not be an insured Procedural Rule: P-46.B authorizes additional tax and monetary lien coverage on Texas Residential Limited Coverage Junior Mortgagee Policy (T-44). Rate Rule: R-27.b is $25. There is no Rate or Procedural Rule for this language. This endorsement is available on the Junior Mortgagee Policy providing coverage for Junior Home Equity Loans. This language is consistent with the definition of the insured in Sections 1(a) and 12(c) of the Conditions and Stipulations Texas Land Title Institute Express Insurance Page 3 December 2003

7 COVERAGE RULES DISCUSSION under the policy. The Department of Insurance staff believes the proper designation of a named insured's successors or assigns, for Mortgagee Title Policies after October 1, 1991, should be: ABC Mortgage Company, and each successor in ownership of the indebtedness secured by the insured mortgage, except a successor who is an obligor under the provisions of Section 12(c) of the Conditions and Stipulations. " Proposed Additional Insured Endorsement (T-26) (Exhibit 3) ADJUSTABLE MORTGAGE LOAN: Adjustable Mortgage Loan Endorsement (T-33) (Exhibit 4) AGGREGATION: Aggregation Endorsement (T- 16) (See Exhibit 5) Proposed Procedural Rule P-57: This endorsement would be available on Owner Policy (T-1 or T-1R) on commercial and residential land if the insured conveys to a trust for which the insured is a trustee or beneficiary; a partner, member or stockholder of the insured pursuant to the agreement; or to a family partnership or corporation composed of members of the insured s family and the insured. Proposed Rate: 10% with minimum of $25. Procedural Rule: P-9.b(6): May be issued on Mortgagee Policy on commercial or residential land. Rate Rule: R-11(d) $20; R-4: policy may be issued for 125% of principal. Procedural Rule: P-9(b)(13) authorizes issuance on Mortgagee Policy on commercial or residential land. Rate Rule: R- 11.k $25. This endorsement is the same as the CLTA Endorsement Proposed Procedural Rule P-57 states that Any matter covered in the Additional Insured Endorsement (T-26) may be insured only by the use of this endorsement. This endorsement is similar to ALTA Endorsement 6 (Variable Rate Mortgage). Texas does not have the ALTA Endorsement 6.2 (Variable Rate Negative Amortization). This endorsement is same as ALTA Endorsement 12 (Loan Policy Aggregation). It is sometimes called the tie-in, cluster or spreader endorsement. It may not be issued with Owner Policy Texas Land Title Institute Express Insurance Page 4 December 2003

8 ALLOCATION: COVERAGE RULES DISCUSSION Example Schedule B language: The liability of the Company, exclusive of the costs which the Company is obligated to pay under the Conditions and Stipulations of this policy, shall not exceed the amount of $ as to, and shall not exceed the amount of $ as to. Section 8 of the Conditions and Stipulations of Owner Policy (T- 1) contains an apportionment clause that allocates liability among two or more tracts not used as one site, at values as of Date of Policy, if not otherwise agreed. Section 8 of the Conditions and Stipulations of Owner Policy (T-1) and authorizes allocation of liability. The allocation will limit liability as to separate tracts. Many insureds prefer not to agree to an allocation at the time of issuance of policy. ARBITRATION: The Owner Policy (T-1) may state: Section 13 of the Conditions and Stipulations of this Policy is hereby deleted. The Mortgagee Policy (T-2) may state: Section 14 of the Conditions and Stipulations of this Policy is hereby deleted. Procedural Rule: P-36 provides that, upon specific request of the proposed insured, the Company shall delete the arbitration provision. There is no mandatory arbitration clause in the Owner Policy (T-1R). The policy does not provide for compulsory arbitration if the insured is a natural person, if the policy exceeds $1 million, or if the arbitration clause is deleted. AREA AND BOUNDARY: The Company may delete the printed exception as to area and boundaries, save and except shortages in area. Short Form Mortgagee Policy, Schedule B: 2. Any shortages in area. This policy insures against loss or damage arising from any encroachments or protrusions, or any overlapping of existing improvements located on the land onto adjoining land, and encroachments onto the land of existing improvements located on adjoining land. Procedural Rule: P-2 authorizes a Company to accept evidence of an existing survey and an affidavit verifying the existing survey. The affidavit on residential real property must be the T-47 (See Exhibit 6). Rate Rule: R-16 15% of basic rate on Owner Po licy (T- 1), 5% of basic rate on Owner Policy (T-1R), and no charge on Mortgagee Policy (T-2) or Binder. Procedural Rule: None. Rate Rule: None. The proposed amendment to T- 47 authorizes the affidavit to except to improvements subsequently added and eliminates the requirement that evidence of survey be attached. The Company may not require an indemnity or discriminate between platted and unplatted residential real property in providing area and boundary coverage Texas Land Title Institute Express Insurance Page 5 December 2003

9 ASSIGNMENT: COVERAGE RULES DISCUSSION Assignment Endorsement (See Exhibit 7) Procedural Rule: P-9.b (1) and (2) may be issued on Mortgagee Policy to Ginnie Mae, Fannie Mae, VA, or HUD or on land that is not one-to-four family residence. Rate Rule: R-11.a. the minimum basic rate ($254) but not to exceed 50% of premium for original Mortgagee Policy. The endorsement is a down date of coverage, and is similar to ALTA Endorsements 10 and BALLOON MORTGAGE: Balloon Mortgage Endorsement (T-39) (See Exhibit 8) Procedural Rule: P-9.b (1) - may be issued on Mortgagee Policy on residential real property. Rate Rule R-11.h $25, or $50 if issued after issuance of Mortgagee Policy. There is no similar ALTA Endorsement. It has been issued on loans sold to Fannie Mae and Freddie Mac. COINSURANCE: Add to each Mortgagee or Owner Policy issued by separate Companies: This policy is issued contemporaneously with Policy No. of (Name of Title Insurance Company(ies) for $. The liability of the Company hereunder is hereby limited to (proportion) of any loss, but said liability shall not exceed the face amount of this policy. Procedural Rule: P-6 add coinsurance clause where multiple title insurers. Rate: P-6 If total amount of policies is in excess of $15 million, premium is calculated as though risk is insured in one policy and apportioned among the coinsurers. Texas coinsurance clause does not provide for joint liability. COMPLETION: Completion Endorsements (See Exhibit 9) Procedural Rule: P-8.a(2) may issue on Owner Policy after completion of improvements. P- 8.b(2) may issue on Mortgagee Policy after completion of improvements. No Rate. Procedural Rule P-8 requires a mechanic s lien exception during construction on a Mortgagee Policy insuring a construction loan mo rtgage. Because of this exception, the Mortgagee Policy will not insure priority. CONTIGUITY: Contiguity Endorsement (T-25) (See Exhibit 10) Proposed Procedural Rule: may be issued on Owner or Mortgagee Proposed Procedural Rule states that Any matter covered in the 2003 Texas Land Title Institute Express Insurance Page 6 December 2003

10 COVERAGE RULES DISCUSSION Policy if the Company receives acceptable survey and if the land is not residential real property. Proposed Rate Rule: $100. Proposed Procedural Rule: may be issued on Owner or Mortgagee Policy if the Company receives acceptable survey and if the land is not residential real property. Proposed Rate Rule: $100. Contiguity Endorsement (T-25) may be insured only by the use of this endorsement. This endorsement is the same as ALTA Endorsement 19 (Contiguity Multiple Parcels). Express Insurance: Any adverse right, claim or interest to strips, gores or tracts between the of the land and (describe boundary of adjoining tract that is not insured). Company insures the insured against loss, if any, sustained by the insured under the terms of this policy by reason of the enforcement of said rights as to the land. Company agrees to provide defense to the insured in accordance with the terms of this policy if suit is brought against the insured to enforce said rights as to the land. Express Insurance: Any claim that Parcel is not contiguous to. Company insures the insured against loss, if any, sustained by the insured under the terms of this policy by reason of the enforcement of said rights as to the land. Company agrees to provide defense to the insured in accordance with the terms of this policy if suit is brought against the insured to enforce said rights as to the land. DEED (SAME LAND; SAME AS DEED): Add to Schedule A description: and being the same land as the land described in that deed. DEFECTS IN TITLE: Proposed Procedural Rule provides that Any matter covered in the Contiguity Endorsement (T- 25) may be insured only by the use of this endorsement. The Rules do not particularly regulate the description to be used in a policy. Texas has not adopted the ALTA Endorsement 19.1 (Contiguity Single Parcel), which states The Company insures against loss or damage sustained by the insured by reason of: (1) the failure of the land to be contiguous along its boundary line to [describe the land that is contiguous to the land as defined in the policy by its legal description or by reference to a recorded instrument e.g.... that certain parcel of real property legally described in the deed recorded as Instrument No., records of County, State of ]; or (2) the presence of any gaps, strips or gores separating the contiguous boundary line described above. That endorsement insures contiguity to a parcel that is not insured. This language is similar to language in a Same Land Endorsement available in some states Texas Land Title Institute Express Insurance Page 7 December 2003

11 COVERAGE RULES DISCUSSION Express Insurance: "[Refer to suit, gap in chain of title, contract for deed, or option]. Company insures the insured against loss, if any, sustained by the insured under the terms of this Policy by reason of a final, non-appealable judgment of a court of competent jurisdiction that divests the insured of its interest as insured because of this right, claim, or interest. Company agrees to provide defense to the insured in accordance with the terms of this Policy if suit is brought against the insured to divest the insured of its interests as insured because of this right, claim, or interest." Procedural Rule: P-39.b. Rate Rule: None. Regulations relating to insuring around apply to outstanding recorded liens. Insurance against other matters is governed by underwriting standards of the insurer. This express insurance may be used to insure against a gap or adverse claim of title. It also may be used to insure against encroachments by adjoining owners, if deemed a reasonable risk. Express Insurance: "[Describe the adverse matter, such as an surface rights for mineral use, oil and gas lease, restriction, or blanket easement]. Company insures the insured against loss, if any, sustained by the insured under the terms of this Policy by reason of the enforcement of said rights as to the land. Company agrees to provide defense to the insured in accordance with the terms of this Policy if suit is brought against the insured to enforce said rights as to the land." DOWN DATE: Date Down Interim Construction Loan Endorsement (See Exhibit 11) Texas Residential Limited Coverage Junior Mortgagee Policy Down Date Endorsement (T-45) (See Exhibit 12) Limited Pre -Foreclosure Policy Down Date Endorsement (T-41) (See Exhibit 13) Procedural Rule: P-39.b. Rate Rule: None. Procedural Rule: P-9.b(4). Rate Rule R-11.c - $50. Procedural Rule: P-46.C. Rate Rule: R-27.c - $50. Procedural Rule: P-43.B. Rate Rule: R-26.D - $50. Regulations relating to insuring around apply to outstanding recorded liens. Insurance against other matters is governed by underwriting standards of the insurer. This express insurance is particularly suited for the most common encumbrances other than liens - easements, minerals, and restrictions. It may not be available if the insurance coverage may be provided by Endorsement T-19 or Proposed T-19.1 The Down Date Endorsements are record down dates Texas Land Title Institute Express Insurance Page 8 December 2003

12 COVERAGE RULES DISCUSSION Date Down to Mortgagee Policy (See Exhibit 14) Date Down Endorsement for Owner Policy (See Exhibit 15) Procedural Rule: P-9.b(4). Rate Rule: R-11.c - $50. Procedural Rule: P-9.a(3). Rate Rule: R-15 - $50. EASEMENT: Express Insurance: [Describe easement, such as blanket easement not in apparent use]. Company insures the insured against loss, if any, sustained by the insured under the terms of this policy by reason of the enforcement of said rights as to the land. Company agrees to provide defense to the insured in accordance with the terms of this policy if suit is brought against the insured to enforce said rights as to the land. Express Insurance Any right to use or maintain that easement described in Schedule B, paragraph, to the extent that such right of use or maintenance results in damage to [describe existing improvements in general or specific terms]. Company insures the insured against loss, if any, sustained by the insured under the terms of this policy by reason of the enforcement of said rights as to the land. Company agrees to provide defense to the insured in accordance with the terms of this policy if suit is brought against the insured to enforce said rights as to the land. Express Insurance: Any right of use or maintenance of the easement referred to in paragraph over or through the land. Company insures the insured against loss, if any, sustained by the insured under the terms of this policy by reason of the enforcement of said rights as to the land. Procedural Rule: P-39.b. No Rate Rule. Procedural Rule: P-39.b. No Rate Rule. Procedural Rule: P-39.b. No Rate Rule. This is the broadest express insurance against an outstanding easement. It is similar to the coverage provided by CLTA This express insurance is similar to coverage provided by CLTA In light of the adoption of the T-19 and T- 19.1, it may not be available when those endorsements may be issued. This express insurance is similar to coverage provided by CLTA In light of the adoption of the T-19 and T- 19.1, it may not be available when those endorsements may be issued Texas Land Title Institute Express Insurance Page 9 December 2003

13 COVERAGE RULES DISCUSSION Company agrees to provide defense to the insured in accordance with the terms of this policy if suit is brought against the insured to enforce said rights as to the land. Restrictions, Encroachments, Minerals Endorsement (T-19) paragraph 3(a): The Company insures the owner of the indebtedness secured by the insured mortgage against loss or damage sustained by reason of:...3. Damage to existing improvements, including lawns, shrubbery or trees: (a) which are located on or encroach upon that portion of the land subject to any easement excepted in Schedule B, which damage results from the exercise of the right to maintain the easement for the purpose for which it was granted or reserved. Proposed Restrictions, Encroachments, Minerals Endorsement Owner Policy (T-19.1): The Company insures the insured against loss or damage sustained by reason of 2. Damage to existing buildings (a) which are located on or encroach upon that portion of the land subject to any easement excepted in Schedule B, which damage results from the exercise of the right to maintain the easement for the purpose for which it was granted or reserved. Short Form Mortgagee Policy (T-2R), Schedule B: 4. Any easements or servitudes appearing in the public records; however, this policy insures against loss or damage arising from (a) the encroachment, at Date of Policy, of the improvements on any easement; or (b) any interference with or Procedural Rule: P-50. Rate Rule: R-29.A on Mortgagee Policy covering residential real property, 5% of basic rate, with a minimum of $25; on Mortgagee Policy covering other land, 10% of basic rate, with a minimum of $25. Procedural Rule P-50: Any insured matter covered in the Restrictions, Encroachments, Minerals Endorsement (T-19) may be insured only by the use of this Restrictions, Encroachments, Minerals Endorsement (T-19). Rate Rule: R-29.A 5% of basic rate, with minimum of $25 on residential real estate; R-29.B 10% of basic rate, with minimum of $25 on other land. Proposed Procedural Rule P-50: Any insured matter covered in the Restrictions, Encroachments, Minerals Endorsement Owner Policy (T-19.1) may be insured only by the use of this Restrictions, Encroachments, Minerals Endorsement Owner Policy (T-19.1). The endorsement to the Owner Policy would be available on land that was not residential real property. Proposed Rate Rule R-29: 15% of basic rate with minimum of $25. Procedural Rule: None. Rate Rule: None. Express insurance may not be available if similar to this coverage and if the endorsement is available. Express insurance may not be available if similar to this coverage and if the endorsement is available. This insurance is similar to the insurance provided by the Restrictions, Encroachments, Minerals Endorsement Texas Land Title Institute Express Insurance Page 10 December 2003

14 COVERAGE RULES DISCUSSION damage to existing improvements, including lawn, shrubbery or trees, resulting from the use of the easements for the purposes granted or reserved. Express Insurance: With respect to any right to compel removal of any part of improvements on the land that encroach into that easement [refer to easement], Company insures the insured against loss, if any, sustained by the insured under this policy by reason of the enforcement of said rights as to the land. Company agrees to provide defense to the insured in accordance with the terms of this policy if suit is brought against the insured to enforce said rights as to the land. Procedural Rule: P-39.b. Rate Rule: None. ENCROACHMENTS: Express Insurance: Encroachment by [refer to improvements that encroach, such as office building, garage, house, etc.] on, over or into that [refer to item subject to encroachment, such as easement, property line, private set back line, public set back line]. Company insures the insured against loss, if any, sustained by the insured under the terms of this policy by reason of a final, non-appealable judgment of a court of competent jurisdiction that orders the removal of this improvement because it encroaches over or into [refer to item subject to encroachment, such as easement, property line, private set back line, public set back line]. Company agrees to provide defense to the insured in accordance with the terms of this policy if suit is brought against the insured to require the removal of this improvement Procedural Rule: P-39.a. No Rate Rule. Procedural Rule P-50.A and B: Any insured matter covered in the Restrictions, Encroachments, Minerals Endorsement (T-19) may be insured only by the use of this Restrictions, Encroachments, Minerals Endorsement (T-19). Proposed Procedural Rule P-50.C: Any insured matter covered in the Restrictions, Encroachments, Minerals Endorsement Owner Policy (T-19.1) may be insured only by the use of this Restrictions, Encroachments, Minerals Endorsement Owner Policy (T-19.1). Procedural Rule P-50 is intended to supercede express insurance by the insuring provisions of the T-19 and T Endorsements, where applicable. The express insurance in P-39.a is suited to encroachments of improvements on the land over set back lines, easements and property lines, but is not beneficial for encroachments by adjoining landowners. In order to provide express insurance against encroachments under P- 39.a, the Company must amend the area and boundary exception Texas Land Title Institute Express Insurance Page 11 December 2003

15 COVERAGE RULES DISCUSSION because it encroaches as herein stated. T-19 Endorsement: 3. Damage to existing improvements, including lawns, shrubbery or trees: (a) which are located on or encroach upon that portion of the land subject to any easement excepted in Schedule B, which damage results from the exercise of the right to maintain the easement for the purpose for which it was granted or reserved 4. Any final court order or judgment requiring the removal from any land adjoining the land of any encroachment excepted in Schedule B. 5. Any final court order or judgment denying the right to maintain any existing improvements on the land because of any violation of covenants, conditions or restrictions or building setback lines shown on a plat of subdivision recorded or filed in the public records. Proposed T-19.1 Endorsement: 2. Damage to existing buildings: (a) Which are located on or encroach upon that portion of the land subject to any easement excepted in Schedule B, which damage results from the exercise of the right to maintain the easement for the purpose for which is was granted or reserved; (b) Resulting from the future exercise of any right existing at Date of Policy to use the surface of the land for the extraction or development of minerals excepted from the description of the land or excepted in Schedule B. 3. Any final court order or judgment requiring the removal from any land adjoining the land of any encroachment, other than fences, landscaping or driveways, excepted in Schedule Procedural Rule: P-50.A (Mortgagee Policy on residential real property), P-50.B (Mortgagee Policy on other real property). Rate Rule: R-29 5% of basic rate for residential real property, with minimum of $25; 10% of basic rate for other real property, with minimum of $25. Proposed Procedural Rule : P- 50.C, available For Owner Policy if land is not residential real property. Proposed Rate Rule: R-29 15% of basic rate, with minimum of $25. Procedural Rule P-50 provides that express insurance is not available for matters insured by this endorsement to the Mortgagee Policy. Proposed Procedural Rule P- 50.C provides that express insurance is not available for matters insured by this endorsement to the Owner Policy Texas Land Title Institute Express Insurance Page 12 December 2003

16 COVERAGE RULES DISCUSSION B. 4. Any final court order or judgment denying the right to maintain any existing building on the land because of any violation of covenants, conditions or restrictions or buildings setback lines shown on a plat of subdivision recorded or filed in the public records. ENVIRONMENTAL PROTECTION: Environmental Protection Lien Endorsement (T-36) (See Exhibit 16) EXTENSION OF BINDER: Extension of Construction Binder Endorsement (See Exhibit 17) FAIRWAY: Texas does not have a Fairway Endorsement to the Owner Policy. A Proposed Additional Insured Endorsement may be available in the future. The Texas Owner Policy (T-1) contains an expanded definition of the insured (See Exhibit 18). Procedural Rule: P-9.b(9) may be issued with Mortgagee Policy on land used or to be used primarily for residential purposes. Rate Rule: R-11.g - $50 (Proposed Rate - $25) Procedural Rule P-16 may extend the (one year) Binder by up to six six-month extensions. Rate Rule: R-13 -$25. This endorsement is not available for Owner Policies or commercial land. Exclusion 1(a) provides that the policy excludes matters relating to environmental protection, or the effect of any violation of these laws, ordinances or governmental regulations, except to the extent that a notice of the enforcement thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy. This endorsement is the same as the ALTA Endorsement 8.1. The Binder does not insure priority over later filed mechanic s liens. There is no standard ALTA Fairway Endorsement. The Fairway Endorsement might recognize coverage, notwithstanding changes in the title holder s structure or ownership of the title holder by investors, or notwithstanding certain affiliate transfers. Procedural Rule P-35 prohibits certain certifications from title 2003 Texas Land Title Institute Express Insurance Page 13 December 2003

17 FIRST LOSS: COVERAGE RULES DISCUSSION insures relating to continuation of coverage. First Loss Endorsement (T-14) (See Exhibit 19) FOUNDATION: Express Insurance: Any claim that the location of the foundations on the land violates those covenants, conditions and restrictions set forth in [refer to document]. Company insures the insured against loss, if any, sustained by the insured under the terms of this policy by reason of the enforcement of said rights as to the land. Company agrees to provide defense to the insured in accordance with the terms of this policy if suit is brought against the insured to enforce said rights as to the land. FUTURE INSURANCE: Texas has no Future Insurance Endorsement, agreeing to provide the same coverage on a future transaction, although that agreement is provided by the Binder and Commitment. GAP: Bulletin 152: The policy should be dated the date of recordation on current transactions. Short Form Mortgagee Policy (T-2R): Date of Policy: or date of recording of insured mortgage, whichever is later. Procedural Rule: P-9.b(11) may be issued with Mortgagee Policy if there is other collateral and if land is not residential real property. Rate Rule: R-11.i - $25. Procedural Rule: P-39.b. Rate Rule: None. Procedural Rule: P-35. Procedural Rule: None. Rate Rule: None. The endorsement acknowledges that the title insurer will not require acceleration or foreclosure of other collateral. It does not supercede the no loss exclusion where the remaining collateral exceeds the amount of debt. Texas does not have a Foundation Endorsement (such as the CLTA Endorsement 102.5). Procedural Rule P-35 prohibits certain guarantees, certifications and affirmations as to coverage. However, Article 9.57 provides that one of the remedies of the Company is to reissue a policy. The Commitment for Title Insurance excepts in Schedule C to 4. Any defect, lien or other matter that may affect title to the land or interest insured, that arises or is filed after the effective date of this Commitment. This matter is 2003 Texas Land Title Institute Express Insurance Page 14 December 2003

18 COVERAGE RULES DISCUSSION Downdate to Junior Mortgagee Policy (T-45): [The Company may add the following if it considers the risk insurable and if the Insured s Mortgage is described in Paragraph B of this Endorsement: Date of Endorsement is the date shown above or the date of recording of the Insured s Mortgage, whichever is later. ] LIENS: typically resolved at closing, and gap coverage is given if the closing occurs at the title company. Express Insurance: "[Describe the lien]. Company insures the insured against loss, if any, sustained by the insured under the terms of this Policy by reason of a final, non-appealable judgment of a court of competent jurisdiction that orders foreclosure of said lien on the land. Company agrees to provide defense to the insured in accordance with the terms of this Policy if suit is brought against the insured to foreclose said lien on the land." Express Insurance: "[here describe the lien]. Company insures the insured against loss, if any, sustained by the insured under the terms of this Policy by reason of a foreclosure of said lien on the land. Company agrees to provide defense to the insured in accordance with the terms of this Policy if suit is brought against the insured to foreclose said lien on the land and to take action in accordance with the terms of the policy if the holder of the lien commences a foreclosure action based on said lien." "Exception No. is hereby deleted. Company provides insurance as to said lien in accordance with the terms of this Policy." Procedural Rule: P-39.c may be used if lien may be foreclosed judicially (such as a paving lien, mechanic s lien, or ad valorem tax lien not subject to summary seizure sale) and if the title insurer complies with Procedural Rule P- 11 for insuring around. Procedural Rule: P-39.c may be used if lien may be foreclosed nonjudicially (such as federal tax lien, judgment lien, deed of trust) and if the title insurer complies with Procedural Rule P-11 for insuring around. Procedural Rule: P-39.c may be used if the title insurer complies with Procedural Rule P-11 for insuring around. Typically the insurer will require an indemnity from another title insurer, an escrow of money or a letter of credit to insure around. Express insurance is a most feasible method of insuring around, since it further evidences disclosure of the lien. Typically the insurer will require an indemnity from another title insurer, an escrow of money or a letter of credit to insure around. Express insurance is a most feasible method of insuring around, since it further evidences disclosure of the lien. Typically the insurer will require an indemnity from another title insurer, an escrow of money or a letter of credit to insure around Texas Land Title Institute Express Insurance Page 15 December 2003

19 COVERAGE RULES DISCUSSION Express Insurance: "Company insures the insured against loss, if any, sustained by the insured under the terms of the Policy if this item is not subordinate to the lien of the insured mortgage." Mortgagee Policy, Schedule B: 1. The following restrictive covenants of record itemized below, but the Company insures that any such restrictive covenants have not been violated so as to affect, and that future violation thereof will not affect, the validity or priority of the mortgage hereby insured (insert specific recording data or delete this exception) T-19: 1. The existence at Date of Policy of any of the following: (a) Covenants, conditions or restrictions under which the lien of the mortgage referred to in Schedule A can be divested, subordinated or extinguished, or its validity, priority or enforceability impaired.2. Any future violation on the land of any existing covenants, conditions or restrictions occurring prior to the acquisition of title to the estate or interest in the land by the Insured, provided the violation results in:(a)invalidity, loss of priority, or unenforceability of the lien of the insured mortgage; or (b)loss of title to the estate or interest in the land if the Insured shall acquire title in satisfaction of the indebtedness secured by the insured mortgage. HOME EQUITY: Equity Loan Mortgage Endorsement (T-42) (see Exhibit 20) Procedural Rule: P-11.b(8). Rate Rule: None. Procedural Rule: None. Rate Rule: None. Procedural Rule: P-50. Rate Rule: R-29 5% of basic rate on mortgagee policy covering residential real property, with minimum of $25; 10% of basic rate on mortgagee policy covering other land, with minimum of $25. Procedural Rule: P-44. Rate Rule: R-28.A 10% of basic premium rate. This language may be used on a Mortgagee Policy to insure that a lien is subordinate to the insured mortgage. This provision insures against loss of the lien because of provisions in covenants that provide for reverter or for a lien for assessments. Procedural Rule P-50.A and P- 50.B provide that Any insured matter covered in the Restrictions, Encroachments, Minerals Endorsement (T-19) may be insured only by the use of this Restrictions, Encroachments, Minerals Endorsement (T-19). P-44 provides that D. The Company may not provide Express Insurance (pursuant to P-39) as to matters set forth in 2003 Texas Land Title Institute Express Insurance Page 16 December 2003

20 COVERAGE RULES DISCUSSION the Equity Loan Mortgage Endorsement. Supplemental Coverage Equity Loan Mortgage Endorsement (T-42.1) (See Exhibit 21) INCREASED COVERAGE: Increased Value Endorsement for (T-34) (See Exhibit 22) Mortgagee Policy: may increase to 125% of principal amount of loan to include legal interest (capitalized or otherwise). Procedural Rule: P-47. Rate Rule: R-28.B 15% of basic premium rate. Procedural Rule: P-9.a(2) (for Owner Policy). Rate Rule: R-3.c basic rate less premium paid for prior Owner Policy, but not less than minimum basic premium rate. Rate Rule: R-4. P-47.A.3) provides that 3) The Company shall not provide Express Insurance (pursuant to P-39) as to matters set forth in the Supplemental Coverage Equity Loan Mortgage Endorsement (T-42.1), whether or not the Company issues T Unlike the reissue of an Owner Policy under R-3, this endorsement does not down date the Owner Policy (T-1) or Residential Owner Policy (T- 1R). INSURED (NAME OF): Owner Policy: Title Insurance means insuring, guaranteeing or indemnifying owners of real property or others interested therein against loss or damage suffered. Mortgagee Policy: Bulletin 157 provides that the insured may be [Name of original mortgagee], and each successor in ownership of the indebtedness secured by the insured mortgage, except a successor who is an obligor under the provisions of Section 12(c) of the Conditions and Stipulations. LAST DOLLAR: Last Dollar Endorsement (T-15) (See Exhibit 23) Procedural Rule: None. Procedural Rule: None. Procedural Rule: P-9.b(12). Rate Rule: R-11.j - $25. This endorsement to the Mortgagee Policy may be issued if there is other collateral and if the land is not residential real property. Absent this 2003 Texas Land Title Institute Express Insurance Page 17 December 2003

21 LEASEHOLD: COVERAGE RULES DISCUSSION endorsement, Section 9(b) of the Conditions and Stipulations provides that payment in part by any person of the principal or other obligation secured by the insured mortgage, or partial satisfaction or release of the mortgage shall reduce the insurance pro tanto. Leasehold Mortgagee Policy Endorsement (T-5) (See Exhibit 24) Leasehold Owner Policy Endorsement (T-4) (See Exhibit 24) Residential Leasehold Endorsement (T-4R) (See Exhibit 24) Express Insurance: Any right or claim of breach of [refer to lease or specific paragraphs of lease as to which coverage is given] prior to Date of Policy. Company insures the insured against loss, if any, sustained by the insured under the terms of this policy by reason of a final, non-appealable judgment of a court of competent jurisdiction that divests the insured of its interest as insured because of this right, claim or interest. Company agrees to provide defense to the insured in accordance with the terms of this policy if suit is brought against the insured to divest the insured of its interests as insured because of this right, claim, or interest. Express Insurance: "Company insures the insured against loss, if any, sustained by the insured under the terms of the Policy if this item is not subordinate to the lien of the insured mortgage." Procedural Rule: P-9.b(5). Rate Rule: R-4. Procedural Rule: P-9.a(1). Rate Rule: R-3.a. Procedural Rule: P-9.a(1). Rate Rule: R-3.a. Procedural Rule: P-39.b. Rate Rule: None. Procedural Rule: P-11.b(8). Rate Rule: None. This endorsement to the Mortgagee Policy is the same as the ALTA This endorsement to the Owner Policy (T-1) is the same as the ALTA 13. This endorsement to the Residential Owner Policy (T- 1R) is similar to the ALTA 13. The Leasehold Endorsements do not insure against a prior default under an existing insured lease. Schedule B of the Owner and Mortgagee Policy provides that This policy does not insure against loss or damage (and the Company will not pay costs, attorney s fees or expenses) that arise by reason of the terms and conditions of the leases and easements, if any, shown in Schedule A, and the following matters This language may be used on a Mortgagee Policy to insure that a lease is subordinate to the insured mortgage covering a fee Texas Land Title Institute Express Insurance Page 18 December 2003

22 COVERAGE RULES DISCUSSION Schedule B: Rights of tenants (or listed tenants) in possession under unrecorded leases as tenants only, without any option, right of first refusal or other right to purchase the land or a part thereof. LOCATION: Schedule A: together with the improvements located thereon know as [refer to Street Address]. MANUFACTURED HOUSING: Manufactured Housing Endorsement (T-31) (See Exhibit 25) Supplemental Coverage Manufactured Housing Unit Endorsement (T-31.1) (See Exhibit 25) MECHANIC S LIENS Schedule B Exception: "Any and all liens arising by reason of unpaid bills or claims for work performed or materials furnished in connection with improvements placed, or to be placed, upon the subject land. However, the Company does insure the insured against loss, if any, sustained by the insured under this Policy if such liens have been filed with the County Clerk of County, Texas, prior to the date hereof." Procedural Rule: P-3, P-5. Owner Policy (T-1): Section 1(d), Conditions and Stipulations. Mortgagee Policy (T-2): Section 1(d), Conditions and Stipulations. Residential Owner Policy (T-1R): Paragraph 1.e, Conditions. Procedural Rule: P-9.b(7) (Mortgagee Policy). Rate Rule: R-11.e - $20. Procedural Rule: P-9.b(7) (Mortgagee Policy), P-9.a(4) (Owner Policy). Rate: R-11.e (Mortgagee Policy) - $50; R-15 (Owner Policy) - $50. Procedural Rule: P-8. Rate Rule: None. In commercial transactions, the title company may decide to rely upon a certification of rent rolls for limiting the tenants exception. Each policy definition of land includes improvements located thereon that constitute real property. Texas does not have a Location Endorsement (CLTA 116). This endorsement is similar to the ALTA 7 Endorsement and may be issued with a Mortgagee Policy. This endorsement provides additional coverage, and may be issued with an Owner or Mortgagee Policy. The policy must contain the mechanic s lien exception if the Owner s Policy includes contemplated improvements or if the Mortgagee Policy includes costs of construction. The Mortgagee Policy with such exception will not insure priority over mechanic s liens. MINERALS: Restrictions, Encroachments, Minerals Endorsement (T-19): 3. Damage to existing Procedural Rule: P-50.A and B. Rate Rule: R-29 on Mortgagee Policy covering residential real Procedural Rule P-50.A and P- 50.B state: Any insured matter covered in the Restrictions, 2003 Texas Land Title Institute Express Insurance Page 19 December 2003