North Dakota Title Insurance Exam

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North Dakota Title Insurance Exam Key Exam Concecpts

Here are 14 in-depth Q&A study notes to help you prepare for the exam.

Explain the concept of “marketable title” in North Dakota, and what specific steps a title insurance company must take to ensure a title meets this standard, referencing relevant North Dakota Century Code sections.

Marketable title, in the context of North Dakota real estate, refers to a title free from reasonable doubt, one which a prudent person, advised by competent counsel, would be willing to accept. It must be a title that assures quiet and peaceful enjoyment of the property and is readily alienable. To ensure a title meets this standard, a title insurance company must conduct a thorough title search, examining public records for any defects, liens, encumbrances, or other issues that could cloud the title. This includes scrutinizing deeds, mortgages, judgments, tax records, and probate proceedings. North Dakota Century Code (NDCC) Chapter 47-19 outlines recording requirements and the effect of recording instruments affecting real estate. Title insurers must adhere to these requirements to ensure proper notice to subsequent purchasers. Furthermore, NDCC Chapter 47-10.1 addresses marketable record title, providing a mechanism to extinguish certain ancient defects. The title company must also assess compliance with relevant zoning ordinances and environmental regulations that could impact the marketability of the title. Failure to identify and address potential title defects could expose the title insurance company to liability under its policy.

Describe the process of subrogation in title insurance claims in North Dakota. How does it affect the rights of the insured and the title insurance company, and what are the limitations on the title insurance company’s right to subrogation?

Subrogation in North Dakota title insurance allows the title insurance company, after paying a claim to the insured, to step into the shoes of the insured and pursue any rights or remedies the insured may have against a third party who caused the loss. This prevents the insured from receiving double recovery. The insured must cooperate with the title insurance company in pursuing these rights. The title insurance company’s right to subrogation is not absolute. It is generally limited to the extent of the payment made to the insured. Furthermore, the title insurance company cannot impair the insured’s remaining rights or remedies. For example, if the insured suffered damages beyond the amount covered by the title insurance policy, the title insurance company’s subrogation rights are subordinate to the insured’s right to recover the remaining damages. North Dakota law generally recognizes the principle of subrogation, although specific statutes addressing title insurance subrogation are limited. The terms of the title insurance policy itself will govern the specific subrogation rights and obligations of the parties.

Explain the differences between an owner’s title insurance policy and a lender’s title insurance policy in North Dakota, including who is protected by each policy and the extent of coverage provided.

An owner’s title insurance policy protects the homeowner (the buyer) from losses arising from defects in the title to their property. It insures the owner’s equity in the property and remains in effect as long as the owner or their heirs own the property. A lender’s title insurance policy, on the other hand, protects the lender’s security interest in the property. It insures the lender that their mortgage is a valid first lien on the property. The coverage amount typically matches the loan amount and decreases as the loan is paid down. The owner’s policy protects against a wide range of title defects, including fraud, forgery, errors in public records, and undisclosed heirs. The lender’s policy primarily protects against defects that could affect the priority of the lender’s lien, such as prior mortgages or liens. If a title defect arises that impairs the lender’s security interest, the title insurance company will either cure the defect or compensate the lender for their loss, up to the policy limit. The owner’s policy protects the owner’s investment, while the lender’s policy protects the lender’s loan.

Discuss the implications of the North Dakota Marketable Record Title Act (MRTA) on title insurance practices. How does the MRTA affect the search and examination process, and what types of title defects are extinguished by the MRTA?

The North Dakota Marketable Record Title Act (MRTA), codified in NDCC Chapter 47-19.1, significantly impacts title insurance practices by simplifying title searches and reducing the risk of claims based on ancient defects. The MRTA provides that if a person has an unbroken chain of title to real estate for 30 years or more, and no one else has filed a notice of claim during that period, then all interests prior to that 30-year period are extinguished, subject to certain exceptions. This affects the title search and examination process by allowing title examiners to focus primarily on the most recent 30 years of record history, rather than having to trace the title back to its origin. This reduces the time and cost of title searches. However, title examiners must still be diligent in identifying any notices of claim filed within the 30-year period, as well as any interests that are specifically excepted from the MRTA, such as mineral rights, easements, and interests of the United States. The MRTA helps to clear titles of stale claims and encumbrances, making real estate transactions more efficient.

Explain the concept of “insurable title” versus “marketable title” in North Dakota. Can a title be insurable but not marketable, and vice versa? Provide examples.

Insurable title and marketable title are related but distinct concepts. Marketable title, as previously defined, is a title free from reasonable doubt that a prudent purchaser would accept. Insurable title, on the other hand, means that a title insurance company is willing to insure the title, even if it has some minor defects or potential risks. A title can be insurable but not marketable. For example, a property might have a minor easement that technically clouds the title, making it not perfectly marketable. However, if the easement is rarely used and poses little practical risk, a title insurance company might be willing to insure the title, providing coverage against any losses arising from the easement. Conversely, a title might be marketable but not insurable. This could occur if there is a significant risk of future litigation or a complex legal issue that makes a title insurance company unwilling to assume the risk, even if the title technically meets the legal definition of marketability. The title insurance company’s risk assessment is a key factor in determining insurability.

Describe the process of filing a title insurance claim in North Dakota. What documentation is required, what are the typical steps involved in the claims process, and what recourse does the insured have if the claim is denied?

To file a title insurance claim in North Dakota, the insured must provide written notice to the title insurance company as soon as they become aware of a potential title defect or loss covered by the policy. The notice should include a description of the defect, the date it was discovered, and the estimated amount of the loss. Supporting documentation, such as copies of the title insurance policy, deeds, mortgages, and any legal documents related to the defect, should also be submitted. The title insurance company will then investigate the claim, which may involve reviewing public records, conducting legal research, and obtaining appraisals. If the claim is valid, the title insurance company will either cure the defect, pay the insured for their loss, or defend the insured in any legal action related to the defect. If the claim is denied, the insured has the right to appeal the decision or file a lawsuit against the title insurance company to enforce the terms of the policy. The insured should consult with an attorney to determine the best course of action.

Discuss the ethical considerations for title insurance agents in North Dakota, particularly regarding conflicts of interest, disclosure requirements, and the handling of escrow funds. Reference relevant North Dakota regulations or statutes.

Title insurance agents in North Dakota are held to high ethical standards to ensure fair and honest dealings with consumers. Conflicts of interest must be avoided or fully disclosed. For example, an agent should not steer clients to a particular title insurance company or service provider based on personal gain or referral fees, rather than the client’s best interests. Disclosure requirements mandate that agents provide clear and accurate information about the title insurance policy, including the coverage provided, exclusions, and limitations. They must also disclose any potential conflicts of interest. The handling of escrow funds is subject to strict regulations to protect consumers’ money. Agents must maintain separate escrow accounts for client funds and cannot commingle these funds with their own operating accounts. NDCC Chapter 26.1-21 addresses insurance agent conduct and requires adherence to ethical standards. Violations of these ethical standards can result in disciplinary action, including suspension or revocation of the agent’s license. Agents must prioritize the interests of their clients and maintain the integrity of the title insurance industry.

Explain the concept of “relation back” in the context of mechanic’s liens and how it impacts title insurance coverage in North Dakota. What specific steps can a title insurer take to mitigate the risk associated with potential mechanic’s liens that could relate back to a date prior to the policy’s effective date?

“Relation back” in mechanic’s lien law refers to the principle where the priority of a mechanic’s lien is determined not by the date the lien is filed, but by the date the work commenced or materials were first furnished to the property. In North Dakota, this is governed by N.D.C.C. § 35-27-02, which states that a mechanic’s lien takes effect from the visible commencement of operations. This poses a significant risk to title insurers because unrecorded work could have started before the policy’s effective date, giving the lien priority over the insured mortgage. To mitigate this risk, title insurers in North Dakota typically conduct thorough inspections of the property prior to issuing a policy to identify any visible signs of construction or improvements. They may also require affidavits from the property owner and contractors attesting that no work has commenced prior to a certain date. Additionally, the insurer may obtain a mechanic’s lien waiver or bond to protect against potential claims. Careful examination of building permits and construction contracts is also crucial. The insurer must also consider the potential for hidden or latent commencement of work, which may require further investigation and potentially an exception in the title policy.

Discuss the implications of the Marketable Record Title Act (MRTA) in North Dakota (N.D.C.C. chapter 47-19.1) on title insurance underwriting. Specifically, how does MRTA affect the search period required for a title examination, and what types of interests are typically extinguished by MRTA, requiring specific exceptions in a title policy?

The Marketable Record Title Act (MRTA) in North Dakota, codified as N.D.C.C. chapter 47-19.1, significantly impacts title insurance underwriting by simplifying title examinations and reducing the search period. MRTA operates by extinguishing certain ancient defects and encumbrances on title, creating a “marketable record title” after a specified period, typically 30 years, provided certain conditions are met. Under MRTA, a title examiner generally needs to search back only 30 years from the date of the examination to establish a marketable record title. However, certain interests are specifically excepted from extinguishment under MRTA, including mineral interests, easements, and restrictions that are specifically referenced in the chain of title within the 30-year period. Title insurers must carefully examine the 30-year chain of title to identify any such excepted interests and include specific exceptions in the title policy to protect against claims arising from these interests. Failure to properly identify and except these interests could result in liability for the title insurer. The Act also contains provisions regarding notice and preservation of interests, which must be carefully considered during the title examination process.

Explain the requirements for recording documents affecting real property in North Dakota, as outlined in N.D.C.C. chapter 11-18 and chapter 47-19. How do these requirements impact the insurability of title, and what are the potential consequences of recording a document that does not meet these requirements?

North Dakota law, specifically N.D.C.C. chapters 11-18 and 47-19, sets forth specific requirements for recording documents affecting real property. These requirements are crucial for establishing constructive notice and ensuring the insurability of title. Generally, documents must be properly acknowledged or proved, contain a legal description of the property, and be in a format acceptable to the county recorder. N.D.C.C. § 11-18-05 outlines the fees for recording, while N.D.C.C. § 47-19-06 specifies the requirements for acknowledgment. Failure to meet these requirements can have significant consequences. A document that is not properly recorded may not provide constructive notice to subsequent purchasers or encumbrancers, meaning that a title insurer may not be able to rely on the document to establish priority. This can lead to title defects and potential claims against the title policy. Furthermore, the county recorder may refuse to record a document that does not comply with the statutory requirements, further complicating the process. Title insurers must therefore carefully review all documents to ensure compliance with recording requirements before issuing a policy.

Describe the process of foreclosing a mortgage in North Dakota, differentiating between judicial and non-judicial foreclosure. What are the title insurance implications of each type of foreclosure, and what specific risks does a title insurer face when insuring title derived from a foreclosure sale?

In North Dakota, a mortgage can be foreclosed either judicially (through a court action) or non-judicially (by advertisement). Judicial foreclosure is governed by N.D.C.C. chapter 32-19, while non-judicial foreclosure is governed by N.D.C.C. chapter 32-19.1. Judicial foreclosure involves filing a lawsuit, obtaining a judgment, and selling the property under court supervision. Non-judicial foreclosure, on the other hand, is a more streamlined process that does not require court intervention, provided certain statutory requirements are met, including proper notice to the mortgagor and publication of the sale. The title insurance implications differ for each type of foreclosure. In a judicial foreclosure, the title insurer typically insures the title of the purchaser at the foreclosure sale, relying on the court’s judgment to extinguish any subordinate liens or encumbrances. However, the insurer must still ensure that all parties with an interest in the property were properly served and that the foreclosure proceedings were conducted in accordance with the law. In a non-judicial foreclosure, the title insurer faces greater risks because there is no court oversight. The insurer must carefully examine the foreclosure proceedings to ensure strict compliance with the statutory requirements, including proper notice, publication, and sale procedures. Failure to comply with these requirements can render the foreclosure invalid, exposing the title insurer to potential claims. Specific risks include defects in the foreclosure process, such as improper notice, failure to include necessary parties, or irregularities in the sale.

Discuss the legal requirements for easements in North Dakota, including the creation, scope, and termination of easements. How does a title insurer determine the validity and enforceability of an easement, and what are the potential liabilities associated with insuring title subject to an easement?

Easements in North Dakota can be created expressly (by written agreement), impliedly (by necessity or prior use), or by prescription (adverse use). The scope of an easement is determined by the terms of the grant or the circumstances surrounding its creation. Easements can be terminated by agreement, abandonment, merger, or prescription. N.D.C.C. chapter 47-05 addresses property rights generally, and while it doesn’t specifically detail easement creation, termination, etc., case law and general property law principles apply. A title insurer determines the validity and enforceability of an easement by examining the public records to determine if the easement was properly created and recorded. The insurer also assesses the scope of the easement and whether it is still in effect. This involves reviewing the easement agreement, any court decisions affecting the easement, and the physical characteristics of the property. Potential liabilities associated with insuring title subject to an easement include claims arising from interference with the easement, disputes over the scope of the easement, or the discovery of an unrecorded easement. The title policy will typically except the easement from coverage, but the insurer may still be liable if it fails to disclose a known easement or if the easement is broader than disclosed in the policy. The insurer must also consider the impact of the easement on the marketability of the title.

Explain the concept of “gap coverage” in title insurance and its importance in North Dakota real estate transactions. What specific searches and inquiries should a title insurer conduct during the gap period to minimize potential losses, and what types of title defects are most likely to arise during this period?

“Gap coverage” in title insurance refers to the period between the effective date of the title search and the date the deed or mortgage is recorded. This “gap” represents a period of risk for the title insurer because liens, encumbrances, or other title defects could arise during this time and affect the insured’s interest. In North Dakota, where recording delays can occur, gap coverage is particularly important. To minimize potential losses during the gap period, a title insurer should conduct a “gap search” immediately prior to recording the deed or mortgage. This search typically involves checking the county records for any new filings that could affect the title, such as judgments, tax liens, or mechanic’s liens. The insurer may also make inquiries of the parties to the transaction to determine if any undisclosed matters have arisen since the initial title search. Common title defects that can arise during the gap period include mechanic’s liens, tax liens, judgments against the seller, and mortgages or deeds recorded by the seller after the initial title search but before the insured’s deed or mortgage is recorded. Failure to adequately address the gap period can result in significant losses for the title insurer.

Discuss the requirements and implications of the North Dakota Uniform Partition of Heirs Property Act (N.D.C.C. chapter 47-32) on title insurance underwriting, particularly in cases involving fractional ownership of real property. How does this Act affect the traditional partition process, and what specific due diligence steps should a title insurer take when insuring title derived from a partition action involving heirs property?

The North Dakota Uniform Partition of Heirs Property Act (UPHPA), codified as N.D.C.C. chapter 47-32, modifies the traditional partition process when dealing with “heirs property,” which is generally defined as real property held in tenancy in common where there is no agreement in a record binding all the cotenants and at least one cotenant acquired title from a relative. The Act aims to protect family wealth and prevent forced sales of inherited property at below-market prices. The UPHPA introduces several procedural safeguards, including requiring a determination of fair market value, giving cotenants the right to buy out other cotenants’ interests, and, if a sale is necessary, prioritizing a sale on the open market rather than a partition in kind. For title insurers, this means increased due diligence is required when insuring title derived from a partition action involving heirs property. Specific steps include verifying that the property meets the definition of “heirs property” under the Act, confirming that all cotenants received proper notice of the partition action, ensuring that the valuation process complied with the Act’s requirements, and verifying that the right of first refusal was properly offered to all cotenants. Failure to comply with the UPHPA can render the partition action invalid, exposing the title insurer to potential claims. The insurer must also be aware of potential challenges to the partition action based on allegations of fraud or undue influence.

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