discounts - reissue and substitution rates

I just got off the phone with a mortgage broker called "Ideal something or other", closing a refinance transaction tomorrow, who is working with a title insurance agency who refuses to give his customer the reissue rate or substitution rate unless the customer proves that they bought an owner title insurance policy. I think the name of the title insurance agency is "Independence something or other."

Wow, I feel sorry for all the customers dealing with that "Independence something or other." How much money are they being overcharged? The regulations were revised back in August of 2005 - I'm pretty sure - and that means this "Independence something or other" has been overcharging for over a year now.

If you are a consumer reading this blog, please be advised that title insurers in Pennsylvania MUST give you the discount if they find evidence in your title search (within the applicable discount time-frame) of a deed to a bona fide purchaser for value, or an unsatisfied mortgage to an institutional lender. They have to ASSUME based upon this evidence that a title insurance policy was purchased. You are under no obligation to provide a copy of a policy or a HUD settlement statement as evidence.

Now if the title search does not show either of those instruments and you still feel you are entitled to a discount, then of course the title insurer is permitted to require additional documentation.

This "Independence something or other" also told the mortgage broker and the consumer that they are not entitled to a substitution rate if the loan amount is different or substantially larger than the mortgage they are paying off. That's a bunch of hooey.

Our rates manual clearly states that the consumer is entitled to a reissue rate if we find evidence of a prior policy - as stated above - within the last 10 years. We give 10% off the basic rate automatically, period.

Refinance consumers are given the substitution rate which is either 70% or 80% [70% 1-2 years, 80% 3-4 years] of reissue automatically if we find an unsatisfied mortgage of record during the last 4 years.

The mortgage broker, "Ideal something or other" said we had closed a mortgage transaction for these folks in November of 2004. He didn't give me their loan amount so I can't be specific on the discount but let's just say they are closing a $100,000 mortgage tomorrow. Let's compare costs:

"Independence something or other" will charge a basic rate of $858.75 unless the consumer provides a copy of their title policy or HUD settlement statement. They also said they will only give a reissue rate - not substitution - so at best these folks will get a reissue rate of $772.88.

If they had gone to any legitimate (using PA regulated rates) title insurer, they would only be paying a substitution rate of $618.30.

If they had come back to our office they would also have been able to use their $75 off coupon they got with their title insurance policy on the last transaction.

But alas, they decided to use Mr. "Ideal something or other" mortgage broker who likely referred them to Ms. "Independence something or other" title insurance agent.

Once again we get to say, please shop around before selecting your title insurance agent and YES you do have a choice - even when refinancing.

an old mortgage underwriter talks about "new fangled" risk assessment

When I made the transition from loan originator to mortgage underwriter, I made some costly mistakes. They weren't costly to me personally - they were costly to my customers. You see, given the reins of the power to approve mortgages, I took risk. I approved some folks with higher ratios and with sad credit stories. These were the types of cases on whose behalf I had argued as a loan originator. Now I had the power to say yes and I did. Guess what? I saw a few of those families go into foreclosure the first year. I felt bad and I learned my lesson. A responsible mortgage underwriter has the responsibility to use prudent risk assessment and understand that giving people what they want may not be the best path. It was a lesson in professional tough love and I haven't forgotten it.

Nowadays when I observe mortgage lending from a small distance, as a title insurance agent, and I see lenders taking outrageous (to me) risks, I know the circle will turn and the losses will be costly. I don't say anything because it's not my place. It's up to today's underwriters to assess the level of risk, but consumers DO have a choice and so for the record.....please consider being just a bit more conservative. This article discussing sub-prime lending may help you to understand that foreclosure is real. When it happens, you lose everything you have put into the house and more. There is emotional trauma. Sometimes the difference between safe homeownership and foreclosure is just buying a more modest house.

There are many responsible mortgage lenders who consider the risk and don't push people into bad decisions. Unfortunately, there are also predators who churn refinances - especially with homeowners who have an addiction to credit cards. They churn and refinance and churn and refinance until there's no more gravy then they leave the homeowner in the lurch soon to face foreclosure.

So, keep your head. Deal with reputable mortgage lenders and be happy.

If you don't believe people get arrested for "pretend" fraud

read this Fannie Mae report.

"pretend" "fake" "silent" seller second mortgages?????

I am truly trying to get some title work done today, so I will be back later to expound on this issue, but for now here's an interesting post.


OK - Here I am , back to expound. ;)

Let me divide “pretend”, “fake”, “silent” seller second mortgages into four categories:

Seller lures buyer into collusion to defraud the first mortgage lender.

Buyer lures seller into collusion to defraud the first mortgage lender.

Real estate agent lures both parties into collusion to defraud the first mortgage lender.

Mortgage loan broker or originator lures parties into collusion to defraud the first mortgage lender.

Notice a pattern here?

It’s always fraud.

The victim is always the first mortgage lender, though other parties may be harmed.

It's interesting that the person who comes up with the idea usually knows they are doing wrong. Some know it's fraud and don’t care, others at least know they are breaking rules. The sales pitch makes light of the matter, makes it seem like it’s no big deal – you know the “everybody does it” routine.

Don’t buy into that scenario. Refuse the deal and walk away. You do not want to face prosecution.

Let's talk about two real life cases I experienced in which people were instructed to defraud the first mortgage lender.

The first happened while I was a loan originator in 1980. I had just changed employers, taken on a new territory and if you remember that year, interest rates were in the double digits. The closing of the steel mills in the Pittsburgh area devastated our local economy and mortgage applications were few and far between. My product was FHA/VA mortgages. Before the layoffs started the mortgage origination staff was kept busy riding around town taking pictures of houses in default. It was tough and real estate agents and loan originators were desperate.

As I said I was assigned a new territory and started to solicit business from a group of real estate agents I had not previously worked with. One nice lady hooked up with me and started to send regular referrals. My boss was pleased. I had a few other sources of business, but she was the most reliable. People loved her and she sold a lot of houses.

It didn’t take more than a couple of months for me to get the vibe that something just wasn’t right. I started paying closer attention and realized that she was putting deals together with fake hand money and fake gifts – all money coming from the sellers. I’m sure the sellers were happy to sell their homes and the buyers happy to buy, but I stepped out of the picture. I didn’t accuse her openly, but I made no further contact. The following year I read about her arrest by the FBI. The FHA looks for patterns in foreclosures and they found her name on one too many. She was taken from her house in curlers.

The second example took place in 1999 when I was contacted by a vivacious sub-prime mortgage loan originator named Samantha. I never met Samantha but her personality screamed through the phone and all her customers loved her. This time the fraud was harder to see because it came all wrapped up with the first mortgage lender’s approval.

Samantha worked for one of the big mortgage lenders and they were approving sub-prime first mortgages with seller seconds. Their closing instructions included the terms and they instructed us to prepare the second mortgage. All fine and good except Samantha had instructed the parties – seller, buyer, and real estate agent – that the buyer really didn’t have to pay the money back. They had all agreed to artificially raise the sale price to cover the second. Everybody was happy except me. Even though I was just the title insurance agent in the transaction, my old mortgage loan underwriter cells were screaming FRAUD FRAUD FRAUD!

I contacted the mortgage processing/closing center and confirmed that they understood the terms and had no problem. Since I had my instructions in writing, I prepared to close. Just before closing Samantha called and instructed me to prepare a satisfaction for the second mortgage and told me to record it immediately. I called the mortgage processing/closing center and that’s when I realized the entire department was colluding to defraud their own employer. The written instructions from the underwriting department clearly approved terms of a seller second mortgage – a REAL seller second. I am certain that the underwriting terms had been negotiated into the price for a security pool and the underlying investors had rated the risk of the pool accordingly. Here we had a situation in which a leading mortgage lender had consciously decided to offer a high risk loan to sub-prime borrowers and their own employees, engaged in subterfuge, were escalating that risk into the stratosphere.

I refused to prepare the satisfaction and advised all parties that the terms of the mortgage called for a real seller second. Samantha advised the buyer to just close and deal with it later. Well, the seller died before a satisfaction was ever recorded and the last I heard from the buyer, they couldn’t get the estate to deal with it. The buyers were stuck. They couldn’t refinance or sell.

We had received numerous title orders from Samantha at the same time and were having the same experience on them all and in addition I found out she had counseled the some of the parties to create fake hand money. I contacted her boss and told him we did not want to close anymore of her transactions. They reimbursed us for the search costs. Samantha doesn’t work there anymore and I haven’t heard of her since.

These are just a couple of cases. I could go on and on and on. We say no to fraud all the time - it's a regular part of the job. Be strong. You can say no , too. None of us look good in stripes. ;)

Mechanics Lien Law Changes Start Soon!

I'll be back on to finish this post but for now, please read this memo.

Okay, I’m back. The memo is fairly clear and so I just want to add these comments:

Construction mortgage lenders in Pennsylvania PLEASE have your legal counsel look into the new guidelines. You MUST make sure your construction mortgage instruments are the right ones to take advantage of the protection offered under the new law.

Construction permanent mortgage lenders, beware, your mortgage instruments may not afford this protection – especially against third tier contractors, so-called sub-sub-contractors. PLEASE talk with your legal counsel.

So far our underwriters tell us Owner Title Insurance will NOT protect against mechanics liens. New construction homebuyers must take whatever measures they can to make sure all sub-contractors and sub-sub-contractors are paid in full. On a case-by-case basis, title underwriters will consider insuring the owner but expect indemnification agreements and perhaps a higher premium.

Everyone needs to have some more experience with the new law. Over time the guidelines will be refined and as that happens we’ll let you know.

I respectfully disagree with Terrance R. Monnie.

Read this follow-up to a prior post.

I disagree on two points.

While every state is different, I can’t imagine that Ohio has no instances in which unfiled lienable items are valid clouds on title. The nuances of knowing which potential unfiled risks may affect title and where to find them make the title examination process tough. You must have an expert title examiner review title and make the call. This is precisely the reason why a courthouse dump of raw data is only a small part of the examination.

I need to make this perfectly clear because much of the media hoo-hah about title insurance touts cheap $25 electronic courthouse searches as acceptable substitutes for a real title examination.

The case in question involves a municipal assessment and whether or not it was a valid lien against the property. In Pennsylvania, municipalities have three or five years to file a lien at the courthouse, depending on the nature of the service. During that interim “grace” period, the amounts owed are considered lienable and must be paid to clear title even though there is no lien filed at the courthouse. I presume Ohio has a similar system. If not, the municipalities would have to immediately file liens each and every time a charge was incurred and that would be ludicrous.

So the crux of the matter rests with whether or not the assessment paid by the Crookers was a valid lien, filed or unfiled. The fact that the window of time for filing had expired, giving the municipality no legal right to place a lien against the property, caused the denial of the title insurance claim. If the claim had been made before the expiration of the filing “grace” period, the assessment would have been deemed lienable and the title insurance would have covered it. So when Mr. Monnie says, “the important thing for the public to understand is that title insurance covers only those items contained in the public record” - I disagree. Title insurance covers both filed and unfiled items. If you rely on a search of the public records alone to ascertain the status of title to real estate, you don't understand the risks and are likely not a title insurance pro.

I also have to take issue with this statement: “If the sellers had a real estate attorney representing them at closing, Monnie agrees the closing would have been put on hold until the title insurance underwriter was contacted and a claim made on that policy.” Maybe, maybe not. The Crooker’s case is not that unusual and frankly, in my personal experience, insured sellers more often than not pay first, then contact the title insurance company on the advice of an attorney. Not every attorney understands title insurance. Not every attorney is an expert title examiner. So the moral of the story still stands.

MORAL OF THE STORY: Sellers faced with title clearance conditions should immediately contact their title insurer for resolution. Allow them to do their job and defend your title.

Builders put pressure on buyers to use their title company.

Here's an example. I couldn't figure out how to register to comment on this post, so here are my two cents. ;)

I agree that the loan offered by Wells Fargo is not unusual in today's market and I wouldn't consider it predatory lending. Most predatory lending occurs in a brokered transaction. The focus of predatory practices is in the total fees earned per transaction and the total is regulated. We've seen transactions re-structured just before closing because the mortgage lender determined that the mortgage broker was earning more than permitted under federal law.

You are right to be cautious about overextending yourself. I have been in the business for a long time and as a former mortgage loan underwriter, I am surprised at the level of risk both consumers and lenders are assuming. Unless you truly want to be "house poor", the good old fashioned 28/36 ratios are where most families will thrive.

Spec homes are high risk commerical mortgage lending. Builders and mortgage lenders do NOT engage in such speculation to keep workers busy. Far from it. They have gambled that they will be able to move the houses at profit.

The two issues in the post that DO concern me are the deposit retained by the builder and the attempt to force use of affiliated businesses.

The builder may have a legitimate right to retain the deposit. I would pursue the matter until that's determined one way or the other. Of course, if $1000 isn't worth your time, don't bother.

RESPA expressly prohibits required use of affiliated business arrangements - ABAs. The builder should have disclosed the relationships in writing in a special RESPA disclosure and BACKED OFF when you chose to go somewhere else.

Shopping for price and service are the powers - significant powers - held in the hands of consumers. Think for yourself. Keep your head. Real estate transactions involve a lot of money and emotion. That's a heady mix. Yes, buyer beware, but don't give up. There are plenty of honest builders, mortgage lenders, and title insurance agents who will help you find your new home.

Homebuyer Guide - Before You Start, Assess Your Situation

PAYING CASH – If you are buying your new home without a mortgage, call The Closing Specialists® at 888-680-5177 first for an idea of transaction costs. If the property is not in our service area, call a few title insurance agents in your market. Shop around until you are sure you understand the customary transaction costs and who typically pays for them, buyer or seller. You'll want to have this basic information in hand before you negotiate your purchase contract.

GETTING A MORTGAGE – The mortgage process will be a lot easier if you approach it with a plan.

How much cash do you have available for the transaction? Make copies of your bank or investment account statements. If you are receiving financial help from a relative, make some notes. Your lender will need to verify gift donor information.

Make a list of debts you owe including account number, monthly payment, and balance owed. If you think you may need to reduce your debt to get a mortgage, wait until you choose your mortgage lender. If you need to reduce debt, your lender will advise you which accounts to pay off in order to qualify.

Realistically calculate your gross monthly income. Make a copy of your most recent pay stub and the W2 form for last year. If you are self-employed, make a copy of your tax returns for the last two years. Any other source of income should be noted such as child support or social security.

Get a copy of your credit report to avoid surprises. You can skip this step if you want because your lender will order one anyway. If you find a less than perfect report, don't give up. Perfection is in the eye of the beholder and you may find a lender willing to work with you.

Now you are ready to start talking with mortgage lenders. Notice I didn't say start looking at houses? That's right. If you don't have cash to purchase, your buying ability is in the hands of mortgage lenders. Without a mortgage pre-approval, you are flying blind.

Consider the embarrassment and heartache you might feel if after having searched for your dream home and signed a contract, you didn't qualify for a mortgage. Worse, every time you look at a more affordable house, you or your spouse will be mentally comparing it to the one you really wanted and satisfaction may be hard to find.

Take your time, plan, and consider your options, one step at a time.

A seller, a municipal assessment, and a title insurance claim denial

Take a minute to read this article.

You have to read it carefully to get to the real truth because I see three mistakes, but none by the title insurer.

FIRST MISTAKE: Municipal authority failure to file a lien pursuant to statute.

SECOND MISTAKE: Closing attorney or agent raising the municipal assessment as a condition of sale presumably without considering validity of the lien.

THIRD MISTAKE: The sellers [insured homeowners] assumed the lien was valid, paid it, then contacted their title insurance company to make a claim.

If the lien had been valid, the title insurance policy would have covered it. Had the sellers contacted their title insurance company upon notification of the problem, rather than simply paying the assessment, the title insurer would have defended the sellers and enlightened the closing attorney or agent and the municipality.

When examining title prior to issuance of a title insurance policy, municipal accounts are reviewed and delinquencies or assessments are paid if deemed lienable. Balances that have matured beyond the statutory limit for lienability are not paid. In those cases we contact the municipality, explain why we are not considering the balance lienable, and if they don't understand, refer them to their legal counsel.

MORAL OF THE STORY: Sellers faced with title clearance conditions should immediately contact their title insurer for resolution. Allow them to do their job and defend your title.

Act 52 of 2006 Mechanics' Lien Law Changes in PA

Mechanics’ Lien law changes taking effect with any contracts entered into on or after January 1, 2007. Mortgage lenders and builders should seek legal advice now on how these changes will impact their business practices.

Here are a few of the changes:

1. The filing period has been extended from 4 to 6 months.
2. Another tier of potential claimants has been added – those contracted by sub-contractors.
3. The protection of properly filed No Lien Agreements has been significantly diminished.
4. Good news for lenders in that mechanics’ liens will be subordinate to certain types of mortgages. Lenders should pay close attention to the definitions in the act.

As title insurance underwriters struggle to create new guidelines, they expect a wave of claims. For now and until the industry has some experience under its belt with the new law, owner policies will likely NOT COVER mechanic’s liens.

We’ll keep you posted as new information is available. For now, good old-fashioned methods should be relied on. Do not start construction – no delivery of materials or breaking of ground – until the mortgage instrument is on record.

Impressive Real Estate Agents Read Title Insurance Commitment and Lose Sale to Protect the Buyer!

Great post. I’m impressed. I don’t think I have ever met a real estate agent here in Pennsylvania who routinely reviews title insurance commitments. In fact, I would guess most PA real estate agents have never read one. I’ll take that one step further and say that most PA title insurance agents don’t even mail a copy to the buyer for review before closing.

The other important point in your story is the visual notice of the easement on the survey. In PA, we don’t have survey standards and so even if the buyer decides to purchase a survey – which is rare – there's a high probability that easements won’t be drawn on the map.

Any consumer reading this post should take heed. Shop for a real estate agent like Kris or Steve Berg who is capable and cares enough to watch your back. Shop for a title insurance agent like The Closing Specialists® who will make the title insurance commitment available for review and approval prior to closing. Shop for a surveyor who will show all easements and restrictions so you have full knowledge of what you are buying and understand realities that may affect your use and enjoyment of the property.

Lawrence Walsh: Dirty deed has Baldwin couple up in arms

If you Google "The Closing Specialists" or "Diane Cipa", the link for this Post Gazette article will pop up. To my knowledge, Lawrence Walsh never did a follow-up piece. The claim was settled shortly after publication. Mr. Gruendl decided to accept the $650 offered by Al Watterson of Lawyers Title. A friend or acquaintance, after reading the article must have helped the Gruendl’s understand that they were entitled recovery of damages but not a refund of the insurance premium.

Following the incident, I sent a note to Mr. Walsh thanking him for the publicity and giving us a fine public example of title insurance in action.

The unnamed title searcher was the source of two claims that year, both outsales. In both cases, our file audit revealed that the searcher was aware that the lots in question had been deeded to other parties, but she failed to include this information in the reports sent to our office. The title searcher made an error in judgment. The outsales had occurred in the 70s and the properties had changed hands a few times. In each of these conveyances, none of the attorneys who prepared the deeds had noted the outsales. The searcher assumed that all of these attorneys had searched the title and that their judgment was better than hers. She assumed the attorneys were right and failed to report the outsales.

The Closing Specialists® and this searcher parted company. Even after reviewing the claims, she argued her case and we had to conclude that she might do it again.

So in each of these two cases, the seller’s deed included land that they did NOT own. In each case, the buyers decided to NOT get surveys. Thank heavens the buyers decided to purchase owner title insurance. If they had not, they would have had no recourse but to sue the sellers and hope for the best.

The Gruendl’s were more than compensated for the value of the lot. They paid the neighbor $530 and got a check from Lawyers Title for $650.

The other party – who did not go public and so shall remain nameless – received a much higher compensation. Lawyers Title had the property appraised. They apportioned the fair market value of the lot between the insured owner and the insured mortgage lender.

When the “dirty deed” article was published in the Post Gazette, friends and associates asked why I was silent. I simply have a policy of not commenting on a formal claim in process. I don’t think it’s fair to either the insured or the title insurance company.

So in the end, the dirty deed was human error – a bad search report, and the only way to protect yourself against human frailty in a real estate transaction is to buy owner title insurance.

I am a title insurance agent.

Everyday I work with prevention of title claims prior to closing and correction of title problems that are discovered later. Over my morning coffee, these are the problems on my desk to work out this morning:

1. File closed in 1999 with owner title policy. The insured just received notice of revival of a state tax lien from 1997 in the amount of $696. I’ll be reviewing our search file to see if the lien is valid. If so, how was it missed? If the lien is not valid, we’ll defend the property and fix the problem. If the lien is valid, it will be paid. The insured owner is covered.

2. I have a search that revealed a second mortgage in foreclosure. The sellers had filed bankruptcy and assumed they could ignore the foreclosure notice. They put the property on the market and sold it to a buyer who was smart enough to order title insurance. We suggested that the seller pursue a “short sale” – a reduced payoff with the lender to avoid foreclosure. I’ll help them process the short sale request later today.

3. I have a corrective deed to prepare and send out to a seller. Both the buyer and the seller failed to disclose there was a second parcel that should have been conveyed back in 2003 when we insured their title and closed the purchase transaction. When discovered, the seller’s attorney refused to assist the correction in any way even though he had prepared the original incorrect deed. We are fixing it.

4. In 2005 we held money from a seller’s proceeds to satisfy numerous liens. They had been paid but not satisfied of record. The seller’s attorney will not return our phone calls. We are hiring an attorney – at the seller’s expense from the funds in escrow – to resolve and satisfy the liens and clear the title.

These four simple cases are part of my normal everyday work life. Each of the files is covered by an owner title insurance policy and thus the work I am doing is part of that coverage. It’s unlikely that any of this work will be counted in claims reported by title insurance companies. This is the unseen work done by the folks who get the lion’s share of the title insurance premium.

This afternoon, I’ll have a new set of title issues to work on. I love my job and hope this helps you understand why an owner title insurance policy is a good investment.

Is title insurance enough protection?

Human beings we are, and it’s “people” problems at the heart of it all. Humans make mistakes; some steal, and most are poor communicators. An owner title insurance policy will protect the homebuyer from many of the risks, but not all.

A consumer should also buy a current up to date survey, making sure the surveyor actually does field work and research. The drawing should accurately show the location of easements, rights of way, and improvements/structures. It’s not safe to rely on the seller’s knowledge of lot line locations. They may be mistaken. Owner title insurance typically does not cover the location of structures or lot lines. So if you close without a survey and find out later that the garage is actually on your neighbor’s property or that lovely area for a garden is not yours, you’re on your own. You’ll either go to court or take your lumps.

Owner title insurance does not cover the condition of the structure. A smart homebuyer will take the time to hire professional inspectors and look at their reports before the closing. Keep in mind the age of the house and be realistic about your expectations. Every good home inspector will point out all the flaws they find. You, the homebuyer, will need to decide which ones are really important and then negotiate with the seller for repair.

I am amazed when a transaction falls apart because the buyer insisted that the seller make the house perfect. Unless you are buying a brand new home, try to keep your expectations realistic. It probably took a long time to find the right house in the right neighborhood at the right price. Don't blow the deal seeking perfection. A willing buyer negotiating with a willing seller will usually find the right balance and resolve their concerns.

Here's some language we use at closing to make sure both buyer and seller have reached an understanding:

"The undersigned buyer(s) and seller(s) agree that all terms and conditions of the sales agreement have been satisfied or waived.

The undersigned buyer(s) confirms that they have had an opportunity to inspect the premises to their satisfaction and that they have personally reviewed and accepted any inspection reports issued by contractors performing tests on their behalf including but not limited to septic dye test, termite/pest inspection, home inspection, etc.

For purposes of holding the real estate agents, real estate companies, Lender, its successors and assigns, and The Closing Specialists® harmless, buyer(s) agrees to accept property in "as is" condition. Representations and warranties from the seller are still being relied upon by the buyer(s) and are not hereby waived.

Buyer(s) and seller(s) further agree to hold harmless all/any real estate agents, real estate companies, Lender, its successors and/or assigns, and The Closing Specialists® from further liabilities and/or remedies related to the physical condition of the premises."

I know it's boring stuff, but signing this document at closing is a sort of "speak now or forever hold your peace" moment. We really do not want you to close until you are satisfied.

Do your homework before you go to the closing table. Order your survey and inspections as soon as the agreement is accepted. Review any concerns directly with the surveyor or inspector. Negotiate repairs, if necessary. Do a final walk thru right before closing to make sure the condition of the house is broom clean and as agreed. Then close knowing you have done as much as possible to protect your interests and enjoy your new home!

REAL LIFE TITLE INSURANCE COST COMPARISON

We occasionally collect HUD-1 Settlement Statements as proof of the sale of a residence to clear lender conditions. The following cost comparison is based on HUD-1 Settlement Statements prepared by three different title insurance agents for closings that took place in 2006. The fourth title agency quoted is The Closing Specialists® using our standard fee schedule. All quotes have been adjusted to show a premium based on $100,000. All of the actual transactions were close to that price level so I am presuming the underlying non-regulated fees would remain the same.

Set of facts: The sale price is $100,000 in a purchase transaction with a mortgage and the property was sold within the last ten years for consideration.

The fees used in the following comparison are those solely controlled by the title insurance agents:

#1 title insurance premium 858.75
loan policy endorsements 150.00
closing services letter 35.00
settlement or closing fee 285.00
lien letters 75.00
document preparation 0.00
courier fee 55.00
wire fee 20.00
notary fee 0.00

#2 title insurance premium 772.88
loan policy endorsements 150.00
closing services letter 35.00
settlement or closing fee 250.00
lien letters 15.00
document preparation 0.00
courier fee 15.00
wire fee 17.00
notary fee 35.00

#3 title insurance premium 772.88
loan policy endorsements 150.00
closing services letter 35.00
settlement or closing fee 250.00
lien letters 15.00
document preparation 0.00
courier fee 15.50
wire fee 10.00
notary fee 0.00

#4 title insurance premium 772.88 The Closing Specialists®
loan policy endorsements 150.00
closing services letter 35.00
settlement or closing fee 0.00
lien letters 15.00
document preparation 175.00
courier fee 25.00
wire fee 0.00
notary fee 0.00

#1 $1478.75
#2 $1289.88
#3 $1248.38
#4 $1172.88


Example #1 is from a title insurance agent who has overcharged the buyer by failing to give the reissue rate and adding $50 to the cost of lien letters. Both overcharges are unlawful. The remaining examples, including TCS, show routine differences in non-regulated fees. All four examples demonstrate that even in a regulated state there is good reason to shop around before placing an order for title insurance and closing services.

MARKETABLE AND INSURABLE TITLE

Marketability and insurability of title are subjective.

The Pennsylvania Association of Realtors (PAR) sales agreement handles it this way: "The property will be conveyed with good and marketable title as is insurable by a reputable title insurance company at the regular rates......."

I like this language. It leaves the insurability opinion in the hands of title insurance companies. The determination of insurability may DIFFER between title insurance companies, so the seller and the buyer have options. As long as they can find a reputable title insurance company willing to insure at the regular rates, the seller has fulfilled their obligation and the buyer is protected.


What happens if you can't find a reputable title insurance company willing to insure the land? Well, you have to look at the transaction more closely to see if the problem is curable or is there a way to isolate the insurability problem and still close.

A question of insurability was introduced last week in a news group based on a case being examined by a title insurance agent in our area. It’s an interesting case because it raises the question of whether or not insurable title was bargained for when the sales contract was negotiated. I’ve edited the discussion as it was published in the news group last week based upon additional information, which has since been made available to me.

For purposes of discussion, we’ll call our property owners Mr. & Mrs. Smith. Some years ago they purchased a lot in a recorded plan on which a house and garage were constructed. Adjacent to the lot is an unopened alley, a portion of which Mr. & Mrs. Smith have improved and maintained for over 21 years as their driveway and sole access to their garage. In our discussion we’ll refer to this parcel as the “alley lot”.

Unopened alleys or streets, sometimes called paper streets, when identified in a plan of lots are rights of way created by the developer when the plan is recorded. The rights of way are created for the use and enjoyment of all the lot owners in the plan, whether or not the alley or street is ever opened. Over time, people have a tendency to start using these areas as if they owned them. [SURVEY ALERT – This is a really good reason to have property surveyed. Even your seller may not know that side yard is really a paper street. ]

The “alley lot” became an issue when in 1994 a neighbor asserted his right to use it and attempted to access his property by going over Mr. & Mrs. Smith’s driveway. The Smiths objected and hired an attorney. Their attorney advised them to file a claim of adverse possession, which he did on their behalf. Filing the claim in the Recorder of Deeds office stopped the neighbor and the Smiths and their attorney took no further action.

Mr. & Mrs. Smith now want to sell their property. They listed the property for sale; their real estate agent found a buyer and negotiated a sales contract. The contract identified the property including the recording references for both the deed and adverse possession claim.

Let’s stop here for a moment and consider the process of negotiating a sales contract. Any good contract requires a “meeting of the minds”. In other words, do all parties share the same understanding of the terms as set forth in the contract. This is important. Think about it. How many times have you and a friend read something and come to a different conclusion? It’s a fairly common problem. So unless you are a party to the discussion underlying the words on the contract, you really don’t know if the parties had a meeting of the minds.

Consider the facts of this case as we know them. Mr. & Mrs. Smith own a lot with presumably good and marketable title. They have a claim of adverse possession on a portion of an unopened alley, the “alley lot”.

Now, consider the perfect meeting of the minds based on that set of facts. The Smiths fully understand that they do not own the “alley lot”. When they list the property for sale, they explain this to the real estate agent. The real estate agent understands and markets the property for sale, explaining the facts to the buyer. The buyer bargains for the property with full knowledge that he is getting good and marketable title to the lot on which the house sits and is acquiring any rights the Smiths may have under the claim of adverse possession on the “alley lot”. We’ll assume for now that we have a perfect meeting of the minds and move on with the transaction.

The buyer hired a title insurance agent to insure title and conduct their closing. The title insurance agent completed a title search and reported back to the buyers and Mr. & Mrs. Smith that the "alley lot" was uninsurable as the attorney had not completed the legal work necessary to quiet the title following the claim of adverse possession. The title insurance agent gave Mr. & Mrs. Smith two options - postpone closing and perform the necessary legal steps OR allow the title insurance agent to escrow all or a portion of their proceeds to close now and then have the legal work done later.

At this stage, if we still assume a perfect meeting of the minds based on the facts as we know them, we would expect the parties to raise a fuss and let the title insurance agent know they didn’t bargain for good and marketable title on the “alley lot”. In fact, in a perfect world the real estate agent would have contacted the title insurance agent before title was processed to alert them to the claim of adverse possession. This is not a perfect world and it’s not clear what the parties knew or understood. A title insurance agent at this stage is raising an issue of insurability based upon the facts, as they understand them. We have no idea whether the title insurance agent considered and rejected any other options before narrowing the choices for the Smiths.

I got involved because Mr. & Mrs. Smith have hired The Closing Specialists® as title insurance agent for their cash purchase of a new home. Mrs. Smith was concerned about the delay of both transactions and she called me to discuss some options. I told her I am not an attorney and thus could not give legal advice. I offered to post the topic in our news group so we could discuss possible solutions from the perspective of title insurance.

In the original post, I followed the lead of the title insurance agent on the case. I assumed that all parties expected good and marketable title to the so called “alley lot”.

In the post, I first suggested that as the title insurance agent, I would call the mortgage lender and ask if the value of their collateral would be impacted by the elimination of the "alley lot". I would hope that the main lot on which the house sits is where the real value lies. If the mortgage lender and their appraiser concur, they simply modify the appraisal so that it does not include the "alley lot". The mortgage property description would only include the main lot and the title insurance policies would only insure the main lot.

My second call would be to the buyer. I would ask if they consider the insurability of the "alley lot" material to the transaction. Do they care if it’s included in their owner title insurance policy? If they don't care, we can insure the main lot on which the house sits and Mr. & Mrs. Smith can use a Quit Claim deed to release any interest they have in the "alley lot" over to the buyer.So if the lender and the buyer agree that the "alley lot" insurability is not an issue, we can move forward and close.

Following that post I had a chance to speak with the title insurance agent who was processing the file and as you can imagine, there was some information I did not have. For instance, I did not know about the garage and the fact that the alley was the sole access to the garage. Well, getting to and from a garage would impact value along with the use and enjoyment of the property so there was no doubt that the title insurance would have to cover access. I argued that since the alley was a right of way in a recorded plan, the right to use it could be insured, however, its use would be subject to the rights of others. We conferred with a title insurance company-underwriting attorney who agreed.

The buyer could receive good and marketable title for the main lot with the house and an insured right of way for the use of the “alley lot” including the assignment of any rights the seller may have under the claim of adverse possession.

Thinking the matter was resolved, I was totally surprised this morning when Mrs. Smith called to say the buyer was insisting that they quiet title on the “alley lot” and obtain from the court full, good and marketable title. Quiet title actions are not cheap and I suggested to Mrs. Smith that she and her husband confer with their attorney, review the terms of the sales contract, and let him advise them on their options, etc.

Only the parties in this transaction know what was said and to whom and what promises, if any, were made or implied. We hope that all parties had a perfect meeting of the minds and clearly understood the facts when they made their bargain.

But what if they didn’t?

What if Mr. & Mrs. Smith misunderstood the adverse action claim and really thought they owned the “alley lot”? They would have set the stage for a misunderstanding and may have implied and promised good and marketable title.

What if the Smiths and their real estate agent fully understood the nature of the adverse action claim but the buyer didn’t comprehend it and thought he would own the “alley lot”?

What if everyone had a perfect understanding of the facts and bargained in good faith but the buyer has just changed his mind?

These are all possibilities and the resolution of who said what to whom, etc. is not the business of the title insurance agent. The paths to insurable title have been identified. The parties themselves will have to decide which path to take, insurable access rights, which already exist, or agree to change the underlying title by further legal action creating full good and marketable title to the “alley lot”.

I do hope that the parties are able to amicably resolve their differences and that sharing their story here in TitleInsuranceTalk will help you better understand the role of a title insurance agent.

TITLE SEARCH vs. ATTORNEY TITLE OPINION vs. OWNER TITLE INSURANCE

TITLE SEARCH vs. ATTORNEY TITLE OPINION vs. OWNER TITLE INSURANCE.....WHAT'S THE DIFFERENCE??

The difference is level of risk. The purchase of real estate is typically a family's largest investment. If you are in a position to choose whether or not to buy an owners title insurance policy, you need to understand the difference between the products.

TITLE SEARCH: I'm not sure about other states, but in Pennsylvania, there are no standards for a title search. Searchers or abstractors are not licensed or certified and even if they were, there are no standards; there are no minimum requirements. So what are you getting when you buy a title search? I have no idea. You might get a lot of information, or not. You'll likely get raw data from the courthouse records. If the searcher/abstractor gives you an opinion, they have no legal authority to do so, so how will you hold them responsible if there is a problem later? Maybe if you're lucky you can get a refund on the cost of the search. Basically you are alone and totally at risk.

ATTORNEY TITLE OPINION: This is kind of an old fashioned practice and I'm surprised how many folks still rely on this method. Even in situations where a mortgage lender is requiring a loan title insurance policy to protect the interest of the mortgage lender, we see homebuyers opting to take an attorney title opinion in lieu of an owner title insurance policy. I have reviewed many attorney title opinion letters and am surprised at what they do not guarantee. Many items that would be covered by an owner title insurance policy are not covered or guaranteed in an attorney title opinion. This is definitely a situation in which the consumer must obtain the opinion and carefully read it before closing. I would strongly suggest that you ask the attorney to compare in writing the differences between accepting the opinion vs. buying the owner policy. Often there is no difference in cost or very little but the difference in risk to the homeowner is material. The bottom line for homebuyers who choose to accept an opinion instead of insurance is that the opinion is only as good as the person who issues it and the guarantee that comes with it is only as good as that attorney's willingness and financial ability to perform if you get into trouble later.

OWNER TITLE INSURANCE: The title insurance industry is regulated at the state level. The industry has adopted national standards through the American Land Title Association (ALTA) and more narrowly defines those standards in each state. Because the title insurance underwriter is affirmatively covering risk, they have clear and detailed standards for search and examination of title. There is a defined due diligence method that must be executed prior to closing and insuring the title. Roughly 80% of the premium collected for title insurance goes to pay for search, examination, and clearance of potential claims - preventative actions - prior to issuing a title insurance policy. The title search and examination performed prior to the issuance of an owner title insurance policy is akin to the physical examination many people go through before they can purchase some types of health or life insurance. The title examiner is looking for pre-existing conditions and then resolving them prior to closing. Title examiners and underwriters do not want to pay claims so they are picky. Pickiness is good for the homebuyer. Buying an owner title insurance policy is buying protection.

OK, now if the examination is so thorough, why are there still claims? Well, the beauty of title insurance is the extra stuff it covers. The big two sources of claims are fraud and human error. Let's talk about error first. I'm sure you consider yourself a very careful person. Do you ever make a mistake? Of course you do. Everybody does. Setting aside possible mistakes by the title searcher/abstractor or the title examiner, what about the courthouse? Nowadays the Recorder's office is computerized. What if the data entry clerk misspells a name and a mortgage gets lost in the system or how about typo in a deed? Errors like this may not be found for years and can cause serious damage to the integrity of a title. What if the local taxing authority gives the wrong information to the title agent and the property goes up for tax sale the year after you bought it? These are common situations caused by human error that are covered by owner title insurance.

Finally let's talk about fraud. Identity theft is real. Sometimes the thief is a perfect stranger and sometimes the thief is someone close to the seller. Here's an example. A married couple separates. Let's say the husband moves out of town or goes on vacation - he's just out of touch with the property for a while. The wife decides to sell the house, take the money, and leave town to start a new life. She gets an accomplice to pose as her husband. He signs the deed. He might not even attend closing. He might get a willing notary who isn't that careful to acknowledge his signature. She takes the money and leaves town. You move into the house - make it your home, and then someday the husband comes and knocks on the door. What happens if the thief gets past the checkpoints? The most catastrophic title claim occurs - a total failure of title. If that happens to you, you'll be thankful you decided to buy owner title insurance.

Buying an owner title insurance policy is buying real protection. It's money well spent.