Commercial real estate lawyers are routinely asked to issue pro forma title insurance policies. A friend who routinely acts as lenders’ counsel recently told me he sees lots of pro forma policies coming from borrowers’ counsel, and they are not being handled appropriately. For that reason, I thought I’d list a few reminders for all of us.

What is a pro forma policy? It is a sample policy provided to the customer and customer’s counsel in advance of closing. It outlines the actual language and format the final policy will contain, in the event the transaction actually closes and the policy is actually issued. A pro forma policy is not intended to serve as a promise to issue the final policy. And it is definitely not a substitute for a commitment.

One excellent process is to never send out a pro-forma policy independently. When I was in private practice, I issued a pro forma as an attachment to a letter which said, basically, “A policy in the form attached may be issued when the requirements in Commitment #_____, dated _____ have been satisfied.” My lenders’ counsel friend nails this matter down further by issuing the pro-forma policy as an attachment to the commitment with a note in the requirements section to the effect that upon satisfaction of all applicable requirements, a policy in the form set forth in Exhibit ___ will be issued.

A note to this effect be added to the policy:  “NOTE: This is a Pro Forma Policy. It does not reflect the present state of title and is not a commitment to insure the title or to issue any of the attached endorsements. Any such commitment must be an express written undertaking on appropriate forms.”

The pro-forma policy and all endorsements should be clearly marked “Pro-Forma Specimen” or “Sample” and should not be signed.  Many lawyers have a large “Specimen” stamp to use in these situations. My lenders’ counsel friend told me he actually stamps pro forma policies coming from borrowers’ counsel. Not all lenders’ counsel are that accommodating.

Where the policy date and policy number are requested on the form, supply the note “None”.

These rules are very simple and comply with common sense. A pro-forma policy is not a policy and should be clearly shown in every instance as a sample. Following these very straightforward rules will keep you and your title company out of trouble. And, as always, call you underwriter if you have questions or concerns!