Good Funds Law and New Title Insurance Regulations
| Publication year | 1989 |
| Pages | 233 |
1989, February, Pg. 233. Good Funds Law and New Title Insurance Regulations
In August 1987, the Colorado Commissioner of Insurance ("Insurance Commissioner") and the Director of the Colorado Real Estate Commission ("Director of Real Estate") formed a joint advisory committee ("Advisory Committee") to consider various questions regarding real estate settlement and closing services in Colorado. The Advisory Committee was also requested to develop a solution to the problem highlighted by the failure of a mortgage company known as Reliance Equities, Inc.,(fn1) and by the need to insure that the title company or other party responsible for real estate closings has "good funds" in hand before closing real estate transactions.
The Advisory Committee was comprised of members of all affected industries, including title insurance companies, mortgage bankers, home builders, real estate brokers, escrow companies, the Colorado Bankers Association, the Savings and Loan Association and attorneys. The meetings of the Advisory Committee were open to anyone who desired to appear and be heard. Everyone worked in a cooperative manner to find solutions suitable for all affected interests. Consumer's interests were looked after by members of each of the various industries, by the Insurance Commissioner, the Director of Real Estate and their respective staffs.
This article describes the problems considered by the Advisory Committee, the Committee's recommendations and the results of the Committee's efforts.
For several years, title companies have prepared settlement statements and conducted closings of real estate transactions at the request of the parties to the transaction, the real estate agent, the lender or the attorneys involved in the transaction. There has been an ongoing debate about who is responsible for providing and paying for these closing and settlement services. Colorado Real Estate Commission ("Commission") Rule E-5(fn2) provides that the real estate broker is responsible for providing and paying for a closing statement in a transaction in which he or she is involved as a broker.
The Commission, in an undated "Commission Position Statement,"(fn3) stated that if the parties separately contract with someone else, such as the title insurance company, to provide the closing and settlement services, the broker is not responsible for providing or paying for these services. The Position Statement also noted that where the title insurance company is acting as agent for the real estate broker in providing the closing and settlement services, pursuant to Rule E-5, the real estate broker is responsible for paying for these services. "[T]he broker may not do indirectly ... what he himself is forbidden to do."(fn4) The Commission's position was modified by the adoption of Rule E-37, which became effective on December 1, 1988. Rule E-37 makes the broker responsible only for the costs of document preparation as defined in Conway-Bogue Realty Investment Co. v. Denver Bar Association.(fn5)
Conway-Bogue is a benchmark case which was decided by the Colorado Supreme Court in 1957. It was an action to enjoin real estate brokers from preparing certain legal documents, giving advice as to the legal effect thereof and performing other acts allegedly constituting the unlawful practice of law. The court held that licensee real estate brokers should not be enjoined from preparing, in the regular course of their business, deeds and other related instruments, at the request of their customers and in connection with transactions being handled by them, when such work is done without assessing a separate charge.
In 1987, the Colorado legislature enacted H.B. 1119,(fn6) which expanded the definition of "the business of title insurance"
to include "the performance of closing and settlement services by a title insurance company or title insurance agent in conjunction with the issuance of any contract or policy of title insurance."(fn7) H.B. 1119, therefore, made it clear that title insurance companies were now permitted to perform closing and settlement services. However, the definition of closing and settlement services in H.B. 1119 left open certain questions, including who was responsible for preparing deeds and other similar documents. By including closing and settlement services within the definition of "the business of title insurance," H.B. 1119 impliedly provided that title...
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