Tuesday, May 29, 2007

short sale and arms length notice

I just examined title for a cash transaction - $38000.00 - on a fast track to close before month end.

Title indicates the buyer is the brother of the seller. He sold her the property in 2000 for $43000.00. Sister is now in foreclosure and the lender is seeking close to $40000.00 to cover costs and interest.

At face value, I would say these folks are likely negotiating with the lender for a short sale.

I'm okay with that so long as the lender acknowledges that they are aware that the purchaser sold the property to the current owner for $43000.00 and that he is her brother.

With that info in hand, I am totally okay if lender wishes to avoid additional expense and sell the property now.

Why do I care? Well, these folks are asking the lender to take a $2000+ hit. It's entirely possible that the property may be worth more if it was offered for sale on the open market to parties who have no vested interest. My job is to give the lender the facts. They make the decision.

Saturday, May 26, 2007

query: difference between cashiers check and certified check

A cashiers check aka teller check is issued by the teller at the bank. It's not your personal check. The bank will type one of THEIR checks and the teller will sign it. You will be noted as the remitter.

A certified check is YOUR check which has been stamped certified by the teller. The teller freezes these funds in your account. The check can't bounce.

Both types of checks can be forged. It's easier to forge a certified check so many title agents will no longer take certified checks.

Many title underwriters would prefer wires, but haven't made it mandatory. If we continue to see claims due to forged cashiers and certified checks, look for a switch to ALL WIRE funding at some point in the future.

Thursday, May 24, 2007

query: how long does it take title insurance to pay a claim

There really is no easy answer to that question.

If it's a clear and simple matter such as unpaid taxes, the process moves very quickly. If fact, the title underwriter may ask the title agent to pay the taxes and then follow up with a reimbursement check to the agent.

Other types of claims will take longer because first there is a determination of the claim validity, then a determination of the amount of damages.

From the perspective of the insured, it's really important to contact the title company as soon as you think there may be a claim. Having the title company involved from the beginning may mitigate damages and make the resolution move more quickly.

Sunday, May 20, 2007

Saturday, May 19, 2007

query: can't get title insurance because of unreleased contract

This is a sticky topic. The rights of a purchaser in a sales contract do not simply disappear. They can cloud title unless released.

A title insurer will consider the length of time that has passed since the date of the contract and the circumstances before deciding whether or not to insure over the equitable rights of an unreleased purchaser.

The issue is most often a seller holding hand money. If the seller hasn't come to terms with a purchaser and obtained a full release of the contract, technically the purchaser may still have the right to complete the purchase. Be careful and if necessary seek legal counsel.

query: does homeowner insurance cover costs to defend against quiet title

Do you mean hazard/fire homeowner insurance? If so, the answer if no.

If you mean an owner title insurance policy, contact your title insurer immediately to see if the matter is covered.

query: is subdivision required in PA if doing parcel split to family member

The fact that a parcel split is taking place between or for the benefit of family members would not negate the requirement for legal subdivision. Most jurisdictions require subdivision approval at least at the county level. If it's only an incidental boundary change, you may not need approval but you'll still need to record a subdivision.

Friday, May 18, 2007

query: settlement statement how do I know if my mortgage payoff balance is correct

Ask for and review the mortgage payoff letter. You are entitled to a copy. The title agent and you should not be relying on verbal payoffs, so there IS a letter available for your review.

If the letter doesn't make sense, take a moment to contact your mortgage lender. Mistakes do happen and it's better to get the payoff right before sending money than trying to fix it later.

Wednesday, May 16, 2007

query: does title insurance affect APR

In my experience, title insurance is not considered a finance charge and therefore is not included when calculating the APR.

I would advise that you get an official opinion from your own compliance officer so that you are following company guidelines.

Tuesday, May 15, 2007

query: state inheritance lien divest through foreclosure pennsylvania

Well, let your underwriter be your guide, but if I were the title agent I'd consider it divested if the PA Department of Revenue was given notice of the foreclosure. I would be looking for the PA Department of Revenue on the 3129 Affidavit.

If the foreclosing attorney overlooked the potential inheritance tax, they can still go to the Department and seek a release for the real property.

query: benefits of seller assist at settlement

The benefit is clear. A seller willing to help a potential buyer who is cash poor has a better chance of selling their house.

Here's how it works. Let's say the property is listed at $150,000 and the buyer having looked at the property wants to offer $142,000, but because the buyer also wants the seller to assist financially, the buyer raises the offer by the amount of the assistance to $149,000 and puts a clause into the agreement such as "Seller agrees to pay up to $7000 towards buyer costs as determined by mortgage lender."

There are three key points to remember when dealing with a seller assist.

  1. Don't artificially raise the sale price beyond fair market. If you start at the list price and add a seller assist on top of that then you'll likely have a problem with the appraisal.
  2. Mortgage lenders will only permit the seller to pay up to the actual closing costs. Be careful to NOT over estimate the costs. You'll end up paying a higher price for the house than necessary.
  3. Each mortgage program has a specific guideline setting a cap on the seller assist. Ask the loan officer for the cap in writing up-front. The cap is off the radar of way too many loan officers and I've seen many buyers horrified when at the last minute a mortgage underwriter caps the seller assist at a figure much lower than the amount in the agreement of sale. Confirming the cap early in the transaction will allow you to have realistic expectations.
So, used properly, seller assists are a really good tool for getting more people into more homes.

Oh, and one more thought. The real sale price is the sale price with the seller assist added. Don't allow either party to be confused. The seller should understand that the gross sale price is the higher figure and they should show their tax preparer the HUD-1 Settlement Statement to document the amount of costs paid on behalf of the buyer to cover any tax concerns.

Monday, May 14, 2007

new incentives for consumers going over big!

Our Choose & Save program has gotten off the ground with a big bang.

It absolutely proves to me that consumers have NO PROBLEM paying a non-refundable deposit to cover abstract costs in exchange for a reduction in fees.

It's a valuable exchange for my company. We are incenting consumers to give us complete info in legible form with a deposit in exchange for lower closing costs.

We're more productive. Cash flow is better since we don't have to front the money for the abstract and lien letters.

I see it as a win-win.

Saturday, May 12, 2007

query: will title insurance reveal a previous buyer foreclosure

The answer is possibly.

Foreclosure actions are filed at the courthouse. An abstractor searching title who finds a foreclosure on another property in the same county may report it to the title insurer.

Since the foreclosure does not affect title to the property in question, it's unlikely that a title insurer would cite it in the title commitment.

So, there is a chance that a prior foreclosure might be included in a title commitment schedule B1, even though it has no impact on the property in question, but the odds are against it.

It is more likely that a buyer's prior foreclosure will turn up in a mortgage credit report.

Friday, May 11, 2007

query: does non-borrowing spouse sign the HUD

In my opinion, this is a lender preference issue.

If the lender doesn't care, I will have the non-borrowing spouse sign the HUD if they are vested in title. If not vested in title, I don't have the non-borrowing spouse sign the HUD.

query: previous owner never satisfied his mortgage would I be responsible

An unsatisfied mortgage is a lien against your real estate. Hopefully, the mortgage was paid in full and it's just a clerical oversight - the lack of satisfaction. So, let's just consider both cases.

If you purchase property with an outstanding mortgage and the Note hasn't been paid in full, the mortgage lender has the right to foreclose on your real property. It doesn't matter that YOU did not sign the Note. In this situation, you're in real trouble because you'll have to pay the Note to obtain satisfaction.

In most cases, the Note has been paid in full and the unsatisfied mortgage is simply a cloud on title.

When we find an unsatisfied mortgage from a prior owner on record, our first step is to contact the lender. We want to know if the Note was paid. If it was, we remind the lender of their obligation to satisfy the mortgage of record. We ask for a formal letter acknowledging that the Note has been paid in full and that the lender will process and file a satisfaction. We only trust institutional lenders. If we are dealing with a private mortgage lender, we will not insure title without a satisfaction piece in hand.

If we can't find the lender, we'll contact the owner's title insurance company and request an indemnification letter. We can only take this route if the owner is covered. If the only title insurance in place protects the lender, we can't get indemnification. This is a good example if why it is so important to purchase an owner policy.

So, with either an institutional lender "paid in full - will satisfy" letter or title underwriter indemnification letter in hand, we'll agree to insure and move forward with the transaction.

If we can't get either, we'll escrow funds from the owner pending resolution. The owner of the property must then hire an attorney to clear title.

Thursday, May 10, 2007

query: effect on title closing when garage built over an easement

Unless otherwise agreed to by the parties or decreed by a court, be prepared to move the garage.

If the mortgage lender assigns value to the garage as collateral, they may require correction prior to closing.

TIRBOP Polices and Rates, continued

5.9 EXTENSION OR MODIFICATION OF AN INSURED LOAN

A. Where a mortgage which has been previously insured is still in effect, and that mortgage is to be amended by an extension or modification agreement, an endorsement to the existing policy or a new policy may be issued by the same Insurer which covers the extension or modification agreement, after continuation searches have been obtained covering the period from the recording date of the mortgage through the recording date of the extension or modification agreement. The Charge for the issuance of an endorsement to an existing policy or the issuance of a new policy to provide coverage to insure the mortgage as amended by the extension or modification agreement shall be made in accordance with subparagraphs B through D below.

B. The Charge for a new policy or endorsement to an existing policy issued in conjunction with an extension or modification agreement, that does not increase the unpaid principal balance, shall be calculated on the basis of the unpaid principal balance with the applicable rates:

Up to 5 years........................................50% of reissue rate
Over 5 years to 10 years.........................70% of reissue rate
Over 10 years......................................100% of reissue rate

C. The Charge for a new policy or endorsement to an existing policy less than 10 years ago in conjunction with an extension or modification agreement that increases the unpaid principal balance shall be calculated in two steps. First, the Charge for the new policy or endorsement that relates to the unpaid principal balance of the loan immediately prior to the increase shall be calculated as set forth above in paragraph B. Second, the Charge for the new policy or endorsement which relates to the increase in coverage amount, i.e., the difference between the unpaid balance of loan immediately prior to its increase and the new coverage amount, shall be 80% of the reissue rate.

Example: On January 1, 1997, owner modifies his mortgage loan (originally created in the amount of $100,000 on January 1, 1991) by increasing the amount of the loan to $150,000. The unpaid balance immediately prior to the modification is $80,000. The Charge for the new policy or endorsement is calculated as follows: 70% of the reissue rate for $80,000 of coverage to which is added the difference between (i) 80% of the reissue rate on an $80,000 policy and (ii) 80% of the reissue rate on a $150,000 policy. [Note from DC. Hey guys, don't confuse this formula with other rates. This is only used for an extension or modification of an existing mortgage. You don't use this formula for a refinance.]

D. If under a modification agreement, new property(ties) are added, 80% of the reissue rate shall be charged from dollar one based upon the value if the new property(ties), together with charging the applicable rate under paragraph B of this Section, based upon the unpaid principal balance of the loan. Any increases in the unpaid principal balance of the loan shall be charged the applicable rate under Paragraph C of this Section.

Sorry....I'm bailing on this part of the manual. I just can't see typing any more of this section because folks hardly ever do modifications. Call your underwriter if you need a copy of this part.

Wednesday, May 09, 2007

query: when to order a date down for title commitment

If your underwriter has no specific guideline, 30 days is a good rule of thumb. It's more of an art than a science. You are balancing the unique risks of the title with the risk that something may have been filed in the interim. So, if I have a high risk seller, pending issues, I'm more likely to do interim checking if a closing is delayed. If the seller is low risk I may wait.

In any case, under no circumstances should you record documents without a final bringdown. (That's what I call a date down.)

On that subject, you should have procedures in place to deal with last minute surprises. What do you do if the abstactor finds something? Who is notified and whose job is it to immediately resolve the matter?

We're a table-funding state. We disburse at the closing table before recording in most transactions. We use a strongly worded disbursement affidavit to tie up loose ends with the sellers in exchange for the check. If they won't sign the affidavit, they don't get their check until the documents have been recorded.

High risk sellers don't get the choice. We won't give up the money until the final bringdown has been completed and documents are safely recorded.

There are still some unexpected surprises like new mortgages that the seller forgot to tell us about. When the abstractor calls our office with that kind of scenario, we consider it a "stop, drop and roll" procedure. FIRST, we protect the money. If the money is out the door, our bank is notified to stop payment on the proceeds check. We have 24 hours to undo a stop payment and that gives us time to work out a resolution.

Take a moment to consider how your office handles this kind of crisis. Thinking through the possiblities while you are calm is much better than when a problem arises. Also, giving your staff clear instructions now will help them to face the problem head on when it happens so they will not be tempted to hide the facts. Remember you are working as a team and you need everybody working together to mitigate damages.

query: right to choose title insurance laws

There may be some state legislation that covers this. I am unaware of any in Pennsylvania. The only federal law I am aware of that touches the subject is RESPA. You can find some information here on HUD's site.

For transactions covered by RESPA - those involving federally related mortgage loans - the buyer has the right to select the title insurer so long as the seller isn't paying for the insurance. At least that's my take on the subject.

In any case, if someone is telling you what company you are required to use for your own title insurance, tell then to take a hike. It's your real property. It's your risk and it's your money.

query: difference between effective date and issued date on title commitment

The abstractor will note a cover date of the title search. This is the date through which the courthouse records are up to date in the index. The abstractor can't go further in time than the records allow. The cover date would be the effective date of the title commitment. The date of issuance would be the date the commitment is issued by the agent.

As an example, I may be examining an abstract today, May 9th, with a cover date of May 1st. My effective date of the commitment is May 1st even though I am issuing the commitment today.

Commitments are good for 6 months. While we may do bringdowns before the issuance of a policy it is not necessary to keep reissuing title commitments. Some mortgage lenders have a hard time understanding this, especially when a transaction closing has been delayed.

If the title commitment effective date is older than the lender likes, we don't re-issue the commitment, we simply write a letter giving the dates of the interim bringdowns. That usually satisfies the lender.

deed in lieu of foreclosure

Just for the record, a deed in lieu of foreclosure does not divest liens and encumbrances.

Almost every time we find a deed in lieu of foreclosure in title, the underlying mortgage sits unsatisfied. In Pennsylvania - I can't speak for other states - the mortgage must still be satisfied of record.

Lenders - PLEASE bear this in mind - and take care of it sooner rather than later. Thank you!!

Tuesday, May 08, 2007

query: what the heck is quiet title

Quiet title is an action by the court to resolve an outstanding issue affecting title.

Here's an example. Let's say we have a seller conveying two parcels of land, both of which have been in the family for years. Our seller, now elderly, has presumed that she was the sole owner of both parcels. Our title search reveals that both parcels were conveyed to her by her father fifty years ago, however, at the time of the conveyance, her father only owned 50% of the second parcel. The other 50% had been owned by his cousin.

It's the job of the seller to clear title to the 2nd parcel and to do that, she will have to find the heirs of her 2nd cousin. If they cannot be located to sign a deed, the seller will hire an attorney to file an Action to Quiet Title.

The attorney will take the matter to a judge. The judge will order that advertisements be placed in search of the missing cousin or heirs. After a prescribed time has expired, the attorney goes back to the judge to report that no one responded to the ads, and the judge issues an Order extinguishing the rights of the parties, thus quieting title.

TIRBOP Polices and Rates, continued

5.8 ASSIGNMENT OF MORTGAGE

A. When the mortgage being assigned was not previously insured, the Charge for a policy shall be based on the amount of the unpaid principal balance. There is no additional Charge when the mortgage or the assignment of mortgage is part of a single transaction being insured.

B. When an assignee desires an endorsement to an existing policy changing the name of the Insured only and does not require a change in the effective date of the policy nor require that the assignment by included as an insured instrument, the Charge shall be $25.00.

C. Where the Insurer is being asked to insure an assignment of a previously insured mortgage and the assignment of mortgage is being made within 10 years from the date of the execution of the mortgage, the title must be certified down from the date of the recording of the mortgage, through the date of the recording of the assignment. A new policy or endorsement to the existing policy furnishing coverage up to and including the date of recording of the assignment shall be issued for 60% of the reissue rate provided that it is being issued by the same Insurer which issued the original policy.

The provisions of Paragraph C of this Section are not applicable to the Approved Attorney Procedure.

TIRBOP Polices and Rates, continued

5.7 PERMANENT LOAN FOLLOWING A CONSTRUCTION LOAN

When a policy has been issued on a construction loan mortgage, and within 6 months from completion of the building, the same mortgagor executes a new mortgage, the Charge shall be 50% of the reissue rate provided that the new policy is being issued by the same Insurer which issued the previous construction loan policy.

The provisions of this Section are not applicable to the Approved Attorney Procedure.

Sunday, May 06, 2007

query: owner title insurance on a foreclosed condo

Well, there are two policies in play. The loan policy which is now acting like an owner policy for the lender and the new owner policy which you surely are buying.

Do NOT buy real estate that has gone through foreclosure without also buying an owner policy.

Once the real estate has gone through sheriff sale and is now the property of the mortgage lender, the lender will likely hire a law firm to represent them in the sale. These law firms - the ones who specialize in REO, lender owned foreclosed property, will NOT make any of the normal guarantees. It's entirely a buyer beware kind of situation.

It doesn't matter if the property is a condo or not, buy title insurance.

Now, on the subject of condos, there may be a provision in the condo documents that allows a party acquiring title by judicial sale to forego condo fees. Be very careful if you run into this kind of situation. Condo associations typically don't understand this loophole and are likely to attempt to lien the unit. If you are caught up in this kind of an argument, get legal advice from an experienced real estate attorney.

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search engine queries

Back in March when the idea popped up to answer search engine queries, I had no expectations, just went with the flow. Now, having a couple of months under the belt, I see that the same questions come up over and over again. It's not that we have fewer queries but that the topics have been covered and folks hitting the site are finding what they were looking for.

That makes me happy. This has been a fun project.

calculating the aggregate adjustment

Wow, I had no idea how many people were trying to figure that one out until the Do you like math? post went up.

The site is getting regular search hits with that query. Very interesting. If the explanation is not sufficient or you have other questions, please let me know.

query: ohio first lienholder not notified of foreclosure and not listed on payoff

Well, something stinks in Denmark.

The lien may or may not have been properly recorded. The foreclosing attorney may have relied on a defective title search. There are numerous scenarios that could have caused this to happen. Humans make mistakes.

The lien either survived foreclosure or not. I suggest seeking competent legal counsel. If you are the lienholder, select your attorney carefully because you want someone familiar with real estate law and the foreclosure process.

If you are purchasing the property, I presume you are insuring the title. The title insurer won't take chances and will want that lien cleared before they insure your title. If you are uncomfortable, seek legal counsel.

I repeat, humans make mistakes. Do not purchase real estate without buying an owner title policy. It's the only insurance that covers human mistakes that impact your ownership.

Tuesday, May 01, 2007

query: non-borrowing spouse rights

I have to limit my response to PA. Spousal rights vary from state to state.

Pennsylvania is not a community property state. We don't have dower rights in Pennsylvania. Theoretically married individuals can buy and sell property on their own without their spouse.

Our divorce law, however, mucks up title because a party in a divorce action can make a claim that marital property was used to purchase, maintain or improve the real property. These potential marital rights must be dealt with.

The specific query speaks to the rights of a non-borrowing spouse. To that end, I am limiting my comments to matters of creating a valid lien for the mortgage lender.

To create a valid mortgage lien in PA, the title agent will require that the non-borrowing spouse go on record approving the mortgage. This can take the form of a recorded spousal waiver, subordination of marital rights or simply signing the mortgage instrument.

If the spouse signs the mortgage, we add language amending the instrument so that the purpose of the signature is clear. We want to preserve the note integrity so the "co-mort" clause as we like to call it clarifies that the spouse, the co-mortgagor, is not a borrower on the note.

These procedures are used whether or not the non-borrowing spouse is vested in title.

Some lenders - particularly FHA lenders - will not allow these methods. They maintain that the FHA requires that the non-borrowing spouse relinquish all ownership, including marital rights by deed. I don't really like this arrangement however, if the lender makes the requirement a written condition of the mortgage and the borrowers accept the terms, we'll prepare the deed.

I do wish the FHA would reconsider this position. It would make more sense to preserve marital rights and simply permit the mortgage to go on record with priority over the marital rights. I file this wish in the box that says "There's the real world and there's the world of mortgage underwriting."