Lawyers trying to persuade their banking clients to keep fighting to sell title insurance are circulating a 1986 letter from the Office of the Comptroller of the Currency that suggests banks have been dealing with title insurance for more than a century.
Banks are particularly appropriate issuers of title insurance considering the role they play in secondary mortgage markets, added William G. Glidden, assistant director of OCC's Legal Advisory Services Division. Glidden's letter thus could cheer bankers who were saddened when the 2nd U.S. Circuit Court of Appeals decided--and the Supreme Court let stand--that Section 92 "impliedy" bars banks in communities over 5,000 people from selling insurance products.
In his 1986 letter, written in response to a bank's request to become engaged in certain title insurance activities, Glidden said banks and trust companies "were closely associated with the title insurance business from its inception at the end of the 19th century until the Depression." Within 50 years after the first title insurance policy was issued in Philadelphia, he said, practically every bank and trust company in the city had its own affiliated title department.
Most states now restrict banks from engaging in title insurance, but corporations may still be formed in a number of states to engage in both title insurance and trust business, Glidden said. In addition. an operating subsidiary of a savings and loan association may act as an agent or broker for title insurance.
Although title insurance companies now tend to be independent of banks, "there remains a close relationship between certain banking functions and the title insurance business," Glidden continued. "For example, title insurance companies may perform functions similar to those of banks, such as dealing in mortgage loans, and depending upon state law, acting as transfer agents and engaging in the trust business.
"In addition, banks often sell, in the secondary market, the mortgage loans they have made," he added. "In order to provide for the salability of these loans, banks generally require the borrower to obtain title insurance on the mortgaged property."