“Imagine a world where real estate transactions are closed without title insurance.”

That’s the illuminating opening sentence of the article Getting Real about UCC Insurance for Real Estate by attorneys Ian T. Shane and Gary M. Markoff of the law firm Sherin and Lodgen.

In fact, there is a world where real estate transactions are being closed without title insurance – UCC title insurance. That world is the Accommodation/Equity Control Pledge world.

In a nutshell, a lender is making a loan secured by both a mortgage (deed of trust) and a pledge of the ownership interest in the entity that owns the real property. The lender is doing this because, in many states, it may take a lender from two to three years to foreclose on the underlying real property as opposed to the lender exercising its Article 9 remedies and gaining control of the property-owning entity in about 60 to 90 days. Quickly do the math of the cost to the lender in being able to seize control of the real property in just two to three months versus two to three years!  

Recently I had a partner at a major law firm tell me that all he needs title-wise when a lender is doing an Accommodation/Equity Control Pledge is a “real estate title insurance policy and a UCC search.”

You don’t even know where to start with a comment like that. A UCC search won’t cover perfection by opting into Article 8 and certificating the transaction. It won’t cover whether the certificate and related power were executed correctly. It won’t cover duplicate, lost or missing certificates. It won’t cover ownership interests or potential liens of prior owners of the property-owning entity. And as for the UCC search, what if the wrong debtor-name was searched? What if the search wasn’t in the correct jurisdiction? What if the search is simply inaccurate?

And amazingly enough, if the lender fully intends to exercise its Article 9 remedies and get control in 60 to 90 days, what use is the real estate title insurance policy? I guess if the lender does not properly perfect itself on the Accommodation/Equity Control Pledge (under Article 9 a secured party lender cannot avail itself of its Article 9 remedies if it is not properly perfected) and the lender has to do the 2- to 3-year real estate foreclosure, it has a title policy in hand for that.

I will end with one thought:

Imagine a world where real estate transactions are closed without UCC title insurance.

Read the article by Shane and Markoff on the Sherin and Lodgen website:

Getting Real about UCC Insurance for Real Estate Transactions

About the Author

Gary M. Zimmerman is Senior Vice President and Chief Underwriting Counsel for UCCPlus, a division of Fidelity National Title Group.