Saturday, June 30, 2007
That changes if you intend to take an ownership interest in the property, whether you are a spouse or not. In cases in which a lender agrees to a non-borrowing co-owner, in PA, that person will be expected to sign the mortgage to create a valid lien.
So, if your name goes on the deed, expect to sign a mortgage at minimum. Most lenders will also have you sign the TIL disclosure (truth in lending).
If the transaction is a refinance and you are a non-borrowing spouse, expect to sign the mortgage and the right to cancel form.
Signing a mortgage is not the same as signing the note. You are not borrowing the money. You are simply allowing a lien on property in which you have an interest.
In PA spouses have potential marital rights. Lenders will want a lien position that is superior to those rights.
If you are a title agent, make sure you add language to the mortgage which clarifies the purpose of the signature of the non-borrowing party. I do this on the description rider.
Friday, June 29, 2007
We wondered whether our seller had purchased title insurance and found that they had so we contacted the attorney who had handled the purchase on their behalf. We found that the attorney hadn't issued the policy. He had obtained the title insurance for his clients through another attorney who was a title agent. We asked for a copy of the policy intending to request indemnification.
Guess what? Not only had they not issued an owner policy, the loan policy had exceptions for the life estates!!!! I couldn't believe it. The consumer trusted his attorney to look out for his interest. The consumer paid for title insurance and got none. The lender - a local bank - trusted the attorney to give them first lien position and didn't get it. I've got to wonder whose interest was served?
It's even more screwy because the cover letter faxed to us with the policy is addressed to the consumer and clearly states that it's their policy. It's not, of course. It does the consumer no good to have a loan policy. I wonder if the attorney even knows the difference.
We are escrowing funds pending resolution and payment of the inheritance taxes. What a shame that this consumer has to bear responsibility for something that should have been taken care of before they purchased the property. TWO attorneys, count em, TWO attorneys..........yoi.
Her web site is LenderLiabilityLaw. You've got to check it out along with her two blogs.
Paula, you rock!
Don't take no for an answer. If the mortgage lender refused to comply with your written request, contact your state banking department for assistance.
You are entitled to this information.
Wednesday, June 27, 2007
This morning I mentioned the beginning of modern mortgage lending in a post about lender requirements, saying, "The art or science of organized mortgage lending has evolved through trial and error over many decades starting, really, since the Great Depression."
Imagine my surprise to see Robert Franco saying Happy Birthday to the FHA! Seems it all started June 27, 1934.
How about that? I absolutely had no idea that today was the day!
LOL......... of course, we do.
Just look at these files awaiting scanning in my office.
Granted, these files contain our title abstract and lien letters and file notes, but all other documents have been signed by the consumer - usually at the closing table.
The skinny files are cash transactions and include the very basic needed to convey real property.
The big fat files are mortgage files. Differences in the number of documents vary by program and lender. Amazing, huh?
OK, in case you didn't know, our federal government is trying to fix the problem. Have you seen the proposals submitted for consideration? If not, here are a few:
Federal Trade Commission
National Association of Mortgage Brokers
National Association of Independent Mortgage Bankers
Mortgage Bankers Association
Mortgage Bankers Association - HUD-1 proposal
National Association of Realtors
National Association of Realtors - 2
These links were provided by RESPAnews.com and they wrapped it up by saying...
"Clearly, there are a lot of issues in play on the mortgage disclosure reform front at this time, and it is unlikely that they will all be resolved soon. However, as RESPAnews was going to press with this story, the Senate Banking Committee was holding yet another hearing on ways to fix the problems of the mortgage industry, so we may yet see new recommendations surface from that."If you have a favorite disclosure or some ideas of your own, why not shoot a letter off to your legislators or HUD. I'm certain they would appreciate consumer feedback.
I am very interested in your opinions, so please feel free to comment here. It would be a good conversation, don't you think?
Yes, the seller IS ultimately responsible and they SHOULD pay for it. If the matter goes to a court, I am certain they would be REQUIRED to pay for it. The title company will decide how much money is involved and how much trouble it will be to force the issue with the seller.
The art or science of organized mortgage lending has evolved through trial and error over many decades starting, really, since the Great Depression. The combined experience of generations of mortgage lenders has been encapsulated in the uniform underwriting guidelines of FHA, VA, FNMA [Fannie Mae], and FHLMC [Freddie Mac]. It's all based on the worst case scenario of foreclosure.
Foreclosure is a mortgage lender's ultimate solution. They don't want to go there and have underwriting guidelines in place to avoid foreclosure, but if the borrower absolutely defaults, the remedy is foreclosure.
Now, let's get back to your question, why does your lender require a clear title policy? Your lender might say it's because the guidelines say they have to have it, but the REAL reason, the "Buddha truth" behind the underwriting guidelines is that clear title = ownership = freedom to engage in real property conveyance.
Lenders have learned that title problems may interfere with their ability to foreclosure. What if the mortgage lien was placed on a property that was partially owned by an individual who had not signed the mortgage document? In that case, the mortgage lender doesn't have a perfected lien and may not be able to foreclose.
Here's another problem. Your mortgage lender wants first lien position. What if there is some other entity who is in first position, unknown to your lender? Well, whoever is in first position gets paid first - they have priority. THEY can foreclose and place your mortgage lender's interest in jeopardy.
Now, let's say the mortgage lender has completed foreclosure and now owns your land. What if they go to sell the property and find that the house is built 12 feet unto the neighbor's land? Maybe YOU bought the property without a survey and didn't ever know that, but the person who buys the property after foreclosure is a more savvy buyer. He gets a survey and finds the flaw. Well, now that the flaw is discovered, the lender must rectify the problem before they can sell. The loan title insurance policy typically has survey coverage which will cover damages the lender may suffer in this case.
The bottom line is that morgage lenders are the ultimate knowledgable purchaser of real estate. As an industry, their underwriting guidelines have been developed through many tens of thousands of transactions. Pay attention to those guidelines, they are the voice of experience. You'd be wise to follow their advice and require clear title yourself. You'd be wise to follow their lead and get a survey so you know what you are buying.
There is wisdom in traditional mortgage lending that got lost in the ridiculous idiocy of subprime lending and we all know where that's got us. Good old fashioned mortgage lending - safe & secure homeownership.
Thursday, June 21, 2007
Thanks for the query because you raise a perfect case demonstrating why a final walk-thru prior to closing is so very important.
Buying a piece of real estate is like a marriage. It's really better to resolve issues before you say "I do." Do all your homework BEFORE you close.
Let's say you have the horrible experience of finding major alterations in a final walk-thru. Just imagine how much more horrible that situation would have been if you closed and THEN found major alterations. Once you close, you lose your leverage with the seller. If you find big problems in the final walk-thru, you can still negotiate resolution before the seller walks away with the proceeds.
So, let's talk about a final walk-thru. We need to put it into perspective. You must be realistic and bear in mind that the final walk-thru is not your time to do a home inspection. A home inspection is done early in the transaction, not at the last minute. If you neglected to have the home thoroughly vetted and at the last minute start lookly more closely than you have before, I just don't think that's fair. In my mind, the purpose of the final walk-thru is to make certain that the seller hasn't altered the house, hasn't removed any features or chattels that were to remain, and that the house hasn't suffered any damage since your last inspection.
If you find that the seller has made alterations or removed items that you expected would remain or the house has suffered some kind of damage, you must negotiate with the seller for resolution before you close. If the matter cannot be resolved prior to closing, you may opt to get a contractor's bid for repair or replacement and have the seller place funds in an escrow pending resolution.
Keep in mind the mortgage lender will want to have a say in any monetary negotiations between buyer and seller. Most mortgage loan guidelines prohibit cash credits from seller to buyer.
From a homebuyer's perspective, it's just so important to buy title insurance, buy a survey, buy a home inspection, and do a final walk-thru. Don't skip any step. Be careful. Work with reputable companies and be well.
Tuesday, June 19, 2007
Be careful who you choose, especially for a home inspection. I much prefer using a fully independent home inspector, even one the Realtors don't like.
The last time we purchased a house, my husband and I used a guy I call the "ninja" inspector. He comes dressed in black, He's real tough. He climbs up on the roof, looks into every nook and cranny and gives you the dope on everything, I mean everything! Realtors dread him and would NEVER recommend his services.
Now, when you use a tough inspector, I have to caution you to be REALISTIC. You are NOT buying a new home and you shouldn't expect perfection. Be happy that you are getting TRUTH and buying an inspection that let's you know what will need fixing.
Don't expect the seller to fix everything the inspector mentions. "Ninja" told us about ten things. We had the seller fix the septic tank and took care of the other things ourselves after closing.
Comparing that to our previous experience with a home inspector who dealt with agents regularly who gave us a big binder and very little useful information. He totally missed a broken pane of glass which I would have like corrected prior to close and he also missed numerous other issues which I wouldn't have asked the seller to deal with but bugged me that he missed them.
So, consumers are better served when they think for themselves and don't allow one person to control your whole transaction. That's too much power in one person's hands. Pick your own lender, pick your own title agent, and pick your own home inspector.
If you are a lien holder and intend to make an appearance, I'd give the title agent a heads up.
Monday, June 18, 2007
Loan goes south.
Lender starts foreclosure.
Folks give lender deed in lieu of foreclosure.
Folks list property and sell it for $84000 and negotiate a short sale. Lender approves short sale netting $69000. HUH?
I get this file for title examination. There's an original unrecorded deed from lender back to folks. HUH?
File notes say lender looked at title and said no thanks, don't want to deal with it. HUH?
We find two judgments but otherwise title is ok. Might not be quite enough for short sale but it will be close. HUH?
Am I missing something?
Saturday, June 16, 2007
In a mortgage transaction, the lender will want you to pay the premium for the first year in advance. If you are escrowing for taxes and insurance, the lender will also set aside a small amount at closing towards the next year premium.
So, you'll pay the first year up front, small amount at closing, and 1/12 of the annual premium with each mortgage payment into escrow.
Owner title insurance in all states except Pennsylvania offers some coverage for matters that may be shown by a current up to date survey. So, in PA, it's really foolish to buy without a survey. In the other states, I would still want to see the location of the lot lines, structures and easements.
Without a current survey in hand, a REAL survey, you have no idea what you are actually buying. Why take that kind of risk with your most important possession?
Friday, June 15, 2007
Can't close without money from the buyer.
Can't close without hazard insurance.
Can't close without mortgage loan approval.
Can't close without seller mortgage payoff letter.
Can't close without executed deed from seller.
Can't close without mortgage loan documents.
Can't close without mortgage lender funding.
Can't close without HUD approval.
...and on and on and on and on......... BUT there are circumstances in which the title company is at fault and should apologize for doing a bad job. It's really just like anything else. It's very hard to judge from one transaction whether or not the title company is a victim of circumstances or a poor performer. The professionals who work with title companies every day can usually tell the difference. It's a little harder for the consumer. My suggestion is to listen, try to relax and hear them out. Make the best of whatever is happening but if logic tells you the transaction is truly out of control, call management and have them step in to fix it.
As for repeat business, same as any service, go with demonstrated good providers.
A real mortgage underwriter- one not swayed by kickbacks, gifts, or conflicts of interest - is weighing risk. Part of the risk assessment is your willingness and ability to repay the debt. It's those two items you must address in your letter.
I presume the normal documentation for loan approval has the underwriter on the fence so your letter is a chance to spin the argument in your favor and perhaps gain loan approval.
Remember, mortgage loan underwriters have heard a million sob stories. Sobbing and "oh, woe is me" stories won't cut it unless you have some kind of unusual and overwhelming circumstance beyond your control AND you can demonstrate that you recovered from the obstacle sufficiently to perform under the repayment terms of the loan. Talk about how the situation has been rectified so that moving forward, you'll be responsible.
Willingness to repay is little more tricky. Willingness is self-evident when the borrower has a reliable credit record combined with sufficient income. I presume you are weak in one of those areas. Your job in the letter to is demonstrate an overwhelming motivation to preserve and protect the project for which you are borrowing. Does something really important to you fully depend on the loan? Circumstances are always unique but if you can clearly help the underwriter understand that this is a case of NEED and not just WANT and that you are fully committed and highly unlikely to walk away, you have a marginal chance of a positive response.
A good underwriter makes their decision based upon the facts. A good underwriter knows it's not safe to rely on motivational letters from prospective borrowers, SO the odds are against you. BUT, it never hurts to try. Good luck!
Thursday, June 14, 2007
Mortgage lenders normally only negotiate in short sale situations. They are motivated by the desire to avoid foreclosure. In a short sale, the lender will review the terms of the transaction and the net proceeds. If they are convinced that they will not make more by taking the property and selling it after foreclosure, they will accept a reduced payoff.
Now, that all said, we ARE in a different environment and new rules are being made to respond to the subprime crisis. It is entirely possible that some lenders may try new ways of avoiding foreclosure. So, ask away. Maybe you'll find a lender willing to negotiate fees.
Wednesday, June 13, 2007
Tuesday, June 12, 2007
Husband and wife buy property in 1996 for $72500.00.
They mortgage it in 2001 for $82875.00 - subprime.
They also divorce in 2001.
Mortgage foreclosure in 2006 with funds due lender $95876.22.
Sheriff's deed to lender in 2006 $2811.00.
Deed to our current seller from lender in late 2006 for $49,900.00.
Pending agreement to our buyer now for $119,500.00.
I have no problem with this scenario. I will report it to the lender with the flip note and I know the lender won't care either. This is a perfectly normal recovery out of foreclosure.
Can you see the difference between the two transactions?
Yes. I now have a very specific paper trail.
The senior service provided a copy of an appraisal for $35,000.00 dated in December.
The deed into the straw buyer for $33,000.00 was signed n January and recorded in February.
The appraiser loaned the straw buyer $33675.39 in January. A mortgage was recorded with a mortgagor name that doesn't really match the straw buyer deed but was intended to secure the debt. I don't know if the bad name was a ruse to throw off the paper trail or simply just bad work.
A deed was executed in March from the straw buyer to the appraiser for $46700.00. It was held by an attorney and only recorded last week pending our proposed closing.
The appraiser intends to sell the property to the new buyers for $127000.00.
The appraiser is threatening my staff. Says if we don't remove the flip alerts from the title he will tell his agents to stop using our title agency.
I reported the incident to our real estate commission on line yesterday and will discuss it with the FBI this morning. Let the chips fall where they may. I will not stand by and watch a thug steal. There is no difference between this and looking out your window at an old lady being mugged. It's just not right.
Monday, June 11, 2007
AND YES - that's what I consider it.
You tell me how this is any different than a thug knocking down an old lady on the street to steal $20?
Listen to this extra info before you answer the question.
I called the senior service representative who signed the deed under the power of attorney and asked how the market value had been determined. She said they had an independent appraisal done and due to the condition of the property were told it would only sell for around $45000 if fixed up and $33000 if not. The elderly owner said he didn't have the money to fix it and agreed to sell the property for $33000.00.
Mind you, I checked and he had purchased the property for $49000.00 in 1979.
I asked the senior service representative who had done the "appraisal" and guess what - BINGO - the Realtor who is now selling the house for $127000 (correct amount)!!!!!
It appears the house was smelly, needed painting and fumigated. The first buyer - the straw buyer was a flooring guy. I figure the difference in their deals is probably what the cleaning and new carpets cost - $33,000 and $46500 - $13500. Gee, I bet our poor seller would have paid that to make the difference of $94000.
This just makes me sick.
I am sorry to sound so unprofessional because I'm not really thinking about stylistic writing or content, I'm just venting.
On top of it, of course, the Realtor is threatening to tell everyone NOT to use our services because we shed the light of day on his smarmy, creepy deal.
This poor seller - who is apparently capable has been rooked out of tens of thousands of dollars and I am steaming, just steaming.
Sunday, June 10, 2007
We order title and find that the property isn't even in the Realtor's name. Hmmmmm....we find that the property was conveyed - recently - early in 2007 - from what appears to be an elderly homeowner - via a Power of Attorney - to a man for $33,000.00.
Two things catch my eye immediately. First, the sale price for my transaction is around $125,000.00. Secondly, the Power of Attorney names some kind of senior services organization as the attorney in fact or agent as we call them here in Pennsylvania, probably a non-profit.
I issued the title commitment with a flip alert. We move forward thinking that our seller really is the guy who just bought the property for $33,000.00 and that the sales agreement had the wrong info on it. NO..........the agreement is right. Our Realtor has a deed in hand - unrecorded - wherein he has purchased the property for $46,500.00 from the other ($33,000.00) guy and HE is selling it to our buyers for $125000.00. The Realtor's attorney is trying to get the deed recorded ASAP, etc., etc. etc. There is also some kind of screwy mortgage between these two - the $33,000 guy and our Realtor - that got missed because it was so poorly drawn as to be unfindable in a normal title search. Nevertheless, having been told about it, I decided to REVISE my title commitment and add the satisfaction of the goofy - sorry - screwy mortgage and the intervening deed into our Realtor seller and added yet another flip alert.
You might be asking about these flip alerts - our reputable mortgage broker cetainly did.
Well, guess what? Lenders have started making claims against title insurers based on the failure to adequately disclose flips. Yes, that's right! Simply reciting a 24 month chain isn't sufficient. You have to give a bigger heads up - one that will be noticed. Two underwriting attorneys have suggested to me that they really prefer that I write a separate letter warning of a flip and attach it to the commitment. Since that isn't a mandatory procedure, I am happy with the alert we use. Lenders do seem to be noticing it. In fact, the lender in this case has rejected the mortgage on account of it.
My point of view on flips is that my job is to give the facts to all parties and let them decide. It's their decision. So, if the buyers have the facts and don't mind paying $125000.00 for a house just recently purchased for much less, that's their business. If the lender has the facts and is still willing to lend, that's their business.
This case, though is kind of bugging me because the original seller - so recently divested - really isn't aware. The decision to sell at that price was made by an "agent", a senior service of some kind who I would think has a fiduciary duty to the principal, the elderly man who owned the home. Our title abstractor who lives nearby the house was curious so he took a drive by and said even from the outside with no updating he thought the house was worth at least $100,000.00. So, you've got to wonder about the "agent" who sold the house under the Power of Attorney. What concievable motivation did that individual have for throwing away all of that equity?
My first thought was, well, perhaps the elderly man is incapacitated and the "agent" from the senior service thought it best to rid him of assets so he could go on Medicaid. That lead me to think the ones harmed are the tax payers, then I had a chat this evening with the elderly parents of a friend.
We have to make some assumptions, First, it seems likely that this elderly gentleman has no family and is alone. My friend's mother pointed out that the care he may be receiving on Medicaid may be less nice than that he may receive if he were able to use the equity in his home. I don't know how far roughly $80,000.00 goes these days, but it seems like it's just really not right that this person was rooked out of what may have been his life savings.
This deal is still in progress and I wonder if there are any AARP folks out here reading this who may want to comment. What are these senior services and is this how they normally do business?
It's a very dangerous prospect for the real property business and the idea can only thrive in the absence of true recognition of what title insurers really do.
The traditional, honest, respectable, quality driven title insurer performs a thorough search of title, examines the data and makes corrections to the underlying issues BEFORE issuing a title policy. Traditional, honest, respectable, quality driven title insurers operate independently of Realtor and mortgage lender ownership or oversight and thus do not suffer from conflicts of interest.
Traditional title insurers guard the quality of land records, thus maintaining a stable, marketable inventory of real property for mortgage or sale. It's this function of title insurance which has become thoroughly misunderstood and forgotten and will no longer exist IF ignorance reigns supreme and so called lender pay title insurance is adopted as the new norm.
The title industry lost it's way after RESPA was altered to allow affiliated business relationships. This form of legalized kickbacks through profit sharing laid fertile ground and cover to those who bastardized the intentions of the new RESPA rules while at the same time encouraged a whole host of disreputable business practices wherein title charges to consumers continued to increase to cover gifts and kickbacks and sham profit sharing programs.
Consumers lost not only a competitive marketplace for fees and service, they lost the independent oversight of a quality title insurer motivated to protect the underlying transaction.
We have made much progress in these last few months shining the light of truth on the bad practices. Regulators and lawmakers are doing good work.
I am very concerned that the prospect of lender pay title insurance has been raised in the agenda and hope that regulators and lawmakers will understand that the concept is not grounded in principles which will protect the consumer. Rather, the products like Radian and TitleSmart, are children of the bastardization process that followed the RESPA reform of the 80s.
Remember, lenders will never absorb additional costs. It's economic law. The consumer will pay for whatever product comes with the mortgage, one way or another.
Lenders will be motivated to protect their interests only, not the consumers, so look for only a minimal lien protection, just enough to make the loans meet FNMA/FHLMC saleability standards. Those FNMA/FHLMC standards are likely to be ignorant of the underlying risk of losing the corrective forces in the title examination phase in which traditional, quality title insurers find and fix problems and so you must also expect over time, accumulation of title clouds and problems which WILL surface eventually and affect marketability of the underlying real estate.
Consumers, as layman, can't be expected to fully understand the issue and therefore depend on regulators and lawmakers to guard their interests at this time. Mortgage lenders, Realtors, and the title insurance industry at large have shown themselves collectively to be unable or unwilling to police themselves and work for the benefit of the consumer. Until we have order restored in the real property business and replace bad actors with responsible leadership, we must rely on lawmakers and regulators to make careful, thoughtful decisions with regard to systemic change.
Please, please, lay aside plans and considerations for a lender pay title insurance product which in the long run will cause much harm. Traditional title insurance as a product is not broken. It's the delivery system that needs fixing. The most favored course of correction will be found in competition - free from conflicts of interest that naturally form in affliliated business and bundled services.
Independent providers not beholden to a single or few sources of referrals are your best chance of fair pricing with qualitiy of service. Release traditional title insurers from the legalized yoke and expection of affiliations and you will free a resource to the consumer. You will do more to restore order by clearly outlawing revenue sharing of any kind. Independent providers will then focus their attention on the true decisionmaker, the consumer, and fight for their business. Technology, product and pricing will naturally benefit the decisionmaker. YOU can decide who the ultimate decisionmaker will be - Realtors, lenders or consumers. I for one believe we are safer having the consumer in the decisionmaking role. Afterall, it's the consumer's home and money at risk. Let's give them back their power and stop this revenue sharing melee once and for all.
Friday, June 08, 2007
And let's look at it from another perspective. Even if not legally liable for some crazy reason, why not return money if it's receipt was based upon an innocent mistake?
Seems like a simple act of kindness.
OOOOOhhhhh - Profile views are up to 900! When we hit 1000, I say we break out the champagne and the beer.
When the Google Adsense revenue - which goes up about one cent a day unless notaries are visiting - they're big ad clickers - hits $100 we'll get our first big check! YOOOO, what a money maker. We're just around $98.76 and the tension is mounting. I see a big party around the corner.
Not that we need any big excuses for a party but these seem like two HUGE events deserving some celebration.........ok back to title work. See ya!
A is in first position. B is in second.
The property owner refinances A. A is satisfied and a new lien, C, is recorded, moving B to first position.
If C intended to take first position, the parties should have contacted B and obtained a postponement or subordination agreement prior to closing the transaction. If you are C or C's title insurer, sounds like you have some post closing repair work on your plate. Good luck.
Thursday, June 07, 2007
and it ends there.
If you're out there and want to finish the thought, please comment on this post and I'll be happy to throw in my two cents. :)
In the case we closed last week, time was a big consideration. Our buyers really wanted to close on Friday so they could move over the weekend. The whole transaction moved pretty quick from the original order date. We believe in rolling with the punches and as much as we can within the confines of ethical and lawful behavior, accommodate our customers. TCS staff takes a "can do" attitude and gets some pleasure when we can make things happen.
So, when the inheritance tax issue came up, we contacted the current owner immediately and started communications with their title agent. The prior post explains what happened.
A request from one title company to another for indemnification over an issue clouding title is a common temporary fix to a problem. It should only be used to clear title issues that are obviously easy to resolve with follow-up by the title company who issued the prior owner policy.
Notice I said OWNER POLICY. If the owner of the property didn't purchase title insurance, we can't seek indemnification.
So, in our case, we contacted the current owner's title insurance company, Guaranty Title & Trust and requested that they issue an indemnification letter for the inheritance taxes we believed were owed on a prior estate. If they had agreed, they would have faxed us a letter indicating that our title underwriter and our title agency would be held harmless should a claim arise from the underlying question of inheritance taxes. It's basically an extension of the old title insurance over the new title insurance.
Indemnification letters take about 48 hours to get when a title underwriter responds quickly but upon receipt we can close.
Guaranty Title & Trust refused to indemnify. In my opinion, unreasonably so, but I had no choice but to seek another path to a successful closing and fulfill our customer's hopes, if possible.
As luck would have it, the Realtor in the transaction was also the prior owner. She had sold the house two years ago to our seller AND she had an owner title insurance policy which she faxed to me with haste. I reviewed it and seeing no exception and that it had been issued by Old Republic, knew they would take care of this issue for us. Though I was confident that Old Republic would issue an indemnification letter, we had run out of time. We were inside of the last 24 hours to close and unless the parties wanted to postpone the closing into the following week, we'd have to close with an escrow aside.
We asked the current seller and the Realtor - the prior owner - if they could put up $2500.00 in escrow to cover the inheritance tax issue pending resolution. Both said yes, but in the end the Realtor - the prior owner - put the money up. Our current seller had gone subprime if you remember from the prior post. He had done 100% financing with that lender, had a second mortgage still owing to the Realtor - the prior owner, and hadn't paid any property taxes since purchasing the property two years before. He was facing imminent foreclosure and tax sale and really hadn't enough money to cover an escrow. [Pretty typical subprime story.]
So, happily we were able to close on time and everyone was happy.
Indemnification letters put the onus on the prior agent to look at the title issue raised, determine if it's legitimate and if so, cure the problem. It's a fairly routine process. We get indemnification follow-up letters from title underwriters a few times each year. Most often, the underlying issue isn't a problem and we can explain that and they move on or it's an unsatisfied mortgage and we contact the paid lender again and push them to file a satisfaction.
With escrow set asides, the onus is on the escrowee - whoever put up the money - to follow-up and cure the problem. In this case, we instructed her to contact Realty Abstract and give them a copy of our title commitment. We know them to be a knowledgeable and reputable title agency and told her they would know what to do. Within 48 hours they had their abstractor pull the estate file noted in our commitment. Their abstractor, Ray, who is a good buddy with our abstractor, Tim, got to raz him over his mistake. Tim called me immediately to own up to his error and apologize. He's a perfectionist and rarely - rarely makes mistakes so he was duly mortified. He is human - and therefore WILL make mistakes. THAT'S WHY IT IS SO IMPORTANT TO BUY OWNER TITLE INSURANCE. So within a few days, the matter is resolved and everybody is happy.
Most title issues can be handled with indemnification letters or escrow set aside pending cure. There are some that can't and those are the ones that may or may not be curable. Those type of title issues postpone closing pending cure. If you happen to pick a piece of real estate and the title insurer refuses to close without curing a defect, please don't be mad at the title company. They are doing their job and protecting you. Believe me, they want to close because they'll make money if you close. Realize that even if your transaction does NOT close, you will owe for the title search and examination. Lots of work was done to get to that point. It's just like the home inspector. You pay him to tell you if there are problems with the house. You pay the title examiner for the same kind of service.
Be well and let's hope your title is clear. Remember to insist on owner coverage. Don't blindly waive it or think it's unimportant. Even the most fastidious humans make mistakes and that's why you want coverage from a reputable company.
Wednesday, June 06, 2007
What a crock! I wouldn't touch that baby with the proverbial ten foot pole. I doubt the legality will escape lawmakers for too long.
FBI - Are you paying attention to this mortgage fraud enabling tool?
Birny Birnbaum, executive director of the Center for Economic Justice says consumers don't have power. Do you agree or disagree?
I disagree - big time.
Mr. Birnbaum doesn't understand how the system works and that's ok because he's not immersed in it as I have been for over 30 years. Here's how it works - very simply - each party protect its own interest.
Setting up "lender pay" products of any kind empower big vendor management systems that offer revenue sharing to mortgage lenders. The motivation, if affiliations such as this remain legal, is to get the cheapest, fastest, most profitable product for the lender. That doesn't normally translate into cheapest, fastest, most profitable or beneficial product for the consumer.
Unless a fiduciary duty is enforced through new laws, regulations, or through court actions, lenders on the whole will continue to act in their own interest rather than consider that they have any duties to protect the interest of the consumer.
That said, consumers have enormous power. YOU control the transaction. YOU choose the Realtor. YOU tell them which lender you want to use. YOU tell everybody which title insurance provider you want to use.
YOU, THE CONSUMER, HAVE THE POWER AND YOU MUST USE IT or LOSE IT!
Think about it. You are just discovering the power that you really have in a real estate transaction and here are regulators and consumer advocates trying to come up with a way to take that power out of your hands. They don't understand that they are removing from your hands the very weapon with which you can best protect yourself.
Well, the good thing is that they intend to study the issue and I am certain that the facts will support a good conclusion. I trust that truth will prevail.
"Now that new National Association of Insurance Commissioners’ (NAIC) rules regarding the development of model laws has interrupted the Title Insurance Issues Working Group’s efforts to revise the Title Agents and Title Insurers Model Acts, the panel of state regulators has turned its attention to possible title insurance “alternatives,” including the “lender pays” paradigm." as reported by The Title Report, a trade periodical. [Sorry, due to copyright concerns I can't share their whole articles. You need to be a paid subscriber to access all material on their site.]
First, money is fungible. A mortgage lender is not going to go in the hole to absorb an extra cost. It's hard enough to make a profit as it is. Saying a mortgage lender will pay for title insurance is a ruse - a shell game. The consumer WILL pay for it in some other way, but and this is really the important BUT, the consumer will receive no benefit.
I have yet to see a "lender pay" title insurance alternative that offers owner coverage.
Anyone who reads this blog or my "old" Radical Title Talk blog knows that I am a defender of the consumer in a real property transaction.
I would really hate to see regulatory reform move forward under the guise of helping the consumer that due to ignorance, actually hurts the consumer.
There are many things wrong with the delivery system for title insurance. I've tried to be part of the solution to that problem and still stand ready to help anybody or anyone who is working towards that end.
In that spirit, I add this caution. The title industry, due to it's failure to adhere to standards of good business conduct, has lost much of its stature as a reliable spokesman. I believe you should be wary of much of what the trade associations like ALTA [American Land Title Association] say, BUT they will be right on some issues. This is one of those issues.
Well, a loan policy is issued for a specific mortgage loan. When that mortgage loan ceases to exist, the loan policy coverage stops. That is why you have to buy a new loan policy every time you refinance. That is also why you would likely be getting a reduced rate for title insurance in a refinance transaction. Reissue rates typically apply. If you aren't getting a reissue rate, ask why.
Now, an owner policy for title insurance is different. It lasts a good long time. Not only does it last for as long as you own the property, it also survives the sale and continues to protect you against claims after you have sold the property. Let me give you an example. We just closed this transaction last week.
Our seller had purchased the property in 2004. He bought title insurance through a title agent recommended by a subprime mortgage lender. I'm sure you have been hearing about all the problems with subprime mortgage lending, right?
Well, part of the problem with subprime mortgage lending that many news organizations missed is that they typically referred their customers to CRAPPY title insurers! No way! Yes, way!
We found an inheritance tax issue and asked the seller for a copy of his owner title policy so we could help him start the claim process. He remembers paying for it but can't remember ever getting the policy, SO, we call his title agent.
The CRAPPY title agent identifies the transaction, but can't produce a copy of the owner policy. They want us to call their title underwriter and see if they have a policy. How crappy is that?
Then we find out just how CRAPPY the title underwriter is. THEY acknowledge the transaction, but can't find a policy either. When I ask about the inheritance taxes and whether or not they'll indemnify us so our seller can proceed to close while they go back and fix the problem, they say NO. Even though they can't see a copy of the policy, they are absolutely sure inheritance taxes are an exception to the coverage. BULLOCKS! I have never seen inheritance taxes as a standard exception. It's a rare exception indeed - in fact I have NEVER seen inheritance taxes listed as an exception in title coverage.
So, without coverage in hand - and I recommended that he report these CRAPPY [cough, cough-- Nations Direct and Guaranty Title & Trust--cough, cough] title insurers to the PA Department of Insurance - we looked to the previous owner for relief. Why?
Well, the inheritance tax issue existed before our seller took title. He could go back to the prior owner and make a claim. He contacted her. She has an owner title insurance policy which she was able to fax to me. She put money into escrow for us to hold so we could close and give her time to process a claim through her title insurance company, which I know to be a reliable and reputable company, Old Republic.
Isn't that interesting?
The case raises two good points. First, make a good choice when you pick your title insurance agent. There really IS a difference in quality of product and service. Secondly, make sure you receive your title insurance policy after closing AND keep a copy of it - even AFTER you sell the property.
Oh and BTW, if you need a quick and easy why to spot a potential CRAPPY title agent, most of them use notary signing agents to close their transactions because they are too lazy to do the job themselves. Be safe. Deal with title agents who perform their own closings. They take pride in the work and care about quality, so they are likely to care about you, too.
Here in Pennsylvania, as a title examiner, we check the Register of Wills for estates that impact the property we are insuring.
I would advise that you call the Register of Wills for your county or stop by the courthouse with the death certificate and last will and testament, if one exists. Most folks hire an attorney to guide them through the system, but some do not.
When the house is sold, the title insurance company will advise you on matters affecting the property with regard to the estate. Their job is to clear title to issue title insurance so at least those issues would be taken care of.
I'm sorry for the loss of your father. Take care and good luck.
Radical Title Talk was our sister blog. It was a conversation directed at Realtors, mortgage lenders, and title insurers. I had a real need to say a few things to the industry and Radical was a good bully pulpit.
Through Radical I learned that I was not alone, that there were many Realtors, mortgage lenders, and title insurers who were honest, hard working, good people, afraid to speak out against the bad people with bad ideas that seemed to have taken over our industry.
Through the process of writing Radical, I had a chance to share thoughts on just about every issue facing this industry. For now, I can't think of any else to say that would be helpful.
Truly, the end of the story rests WITH YOU.
Much has happened since October of last year. Almost every state in the union is looking into predatory lending, subprime lending, pricing and practices in affiliated businesses selling real estate, mortgage lending and insuring title. Our federal government is revisiting RESPA and adding new laws and regulations to restore order.
During these past months since October, there has been a process of discovery by the media and by consumers like you. You now know you have choices. The way you use your judgment to make those choices will determine how the industry and government respond to the efforts expended over this period of discovery.
YOU decide if we go back to the old ways or some new morphed version OR find a free marketplace with competition that serves your interests.
When you choose a Realtor, when you choose a mortgage lender, when you choose a title insurer, please do so mindfully.
YOU are the judge. YOU have power. Use it well, my friend.
Friday, June 01, 2007
For some reason, giving false information in a mortgage loan application doesn't seem like a crime to folks. It is. So be careful, please.
Even if a loan officer tells you it's okay, it's not. Do not overstate your income, overlook liabilities, or suggest you have money in the bank that doesn't exist.
Be truthful. If that means you don't qualify to buy the home you want, try a different lender. If all the lenders say you don't qualify then believe them. The loan guidelines have been calculated to prevent foreclosure and nobody wants you to have to go through that kind of hardship.
Be realistic. It's better to live in a more modest house than to lay awake at night wondering how to make ends meet.
Give yourself the gift of a peaceful mind. You deserve it.