Friday, June 27, 2008

query: what happens if a title company doesn't record a mortgage and takes off

When discovered, a few people have heart attacks, then calm down and move forward with a fix. ;)

The title company you are referring to would be a title agent and not the actual title insurance company, what we would call the title underwriter. The title underwriter would step in and take responsibility for fixing the problem since the agent was authorized to perform these acts on their behalf. Title underwriters are large insurance companies and not of the nature to take off, so the system has stability.

The mortgage lender, presumably, has a loan policy and so their position is insured. The borrower has signed a promissory note and related documents which would evidence the intention to create a secured interest for the lender. If the original mortgage document is missing, a new document would be presented to the borrower for signature and then it would be properly recorded.

query: who pays for the endorsements on the HUD-1

The endorsements you see listed on the HUD-1 are tied to the title insurance and most often, the loan policy. The terms of your sales agreement or local custom will determine who pays for the loan policy premium and the attached endorsements. In PA, it's considered a buyer cost.

Thursday, June 26, 2008

query via e-mail: unsatisfied HELOC

For instance I have a crazy situation where a borrower had a second and when the settlement happened the second was paid off and a new HELOC opened, but the old one was never closed, and even after calling the bank, Chase they did not close it. So the borrower used it and has been paying on it for over a year. Of course he is now in trouble financially. The problem is the new HELOC went into third position, the existing Chase one stayed in second. Isn't that all the title agents fault, Chase and Countrywide for not caring enough to get it all straight.
My guy is worried if he defaults on all of this they will come after him. He simply used a credit line they did not close after pay off. This client would be happy to pay someone for some good advice. Where is the liability? I need to try and negotiate a solution, but don't want to even call the lenders until I have a good handle if they can hold him responsible for this mess.

If the new HELOC lender has a title insurance policy insuring their position, they could make a claim to the title company if they suffer a loss. If they did not put title insurance in place they have no guarantee of lien position. The title agent has the responsibility of paying off the line of credit and if requested, sending a request for satisfaction and closure. They would only step in and have liability moving forward, in my opinion, if there was an insurance policy, owner or loan, that guaranteed an interest coming behind the satisfaction.
The lender who accepted the payoff has an obligation to satisfy - usually there is a state statute that rules - if the borrower or their agent followed the instructions in the payoff letter.
The borrower has an obligation to watch their own finances and control themselves.
That's pretty much it in my book. ;)

Any other thoughts?

Wednesday, June 25, 2008

no BS...this is true. Pennsylvania has an incredibly stable real estate market.

The Pittsburgh area isn't the only region in Pennsylvania where housing prices have been relatively stable and doing better than many other areas of the country.

In fact, the state as a whole has outpaced the nation in its ability to avoid a steep decline in home prices, according to an analysis carried in the latest edition of "The Pennsylvania Realtor" a newsletter published by the Pennsylvania Association of Realtors.

Read more....

consumers at risk when dealing with less than competent title agents

We have been working with an out of state limited liability company who is buying real estate in PA and flipping it on E-bay. He refused to register as a foreign LLC with PA so the bureau of corporations cannot issue a clear corporate lien certificate. We have confirmed with our title underwriter that this type of business activity is subject to corporate tax issues and therefore we are required to obtain a clear corporate lien certificate.

As his buyers are all cash, we offered to close with an exception in the owner policy but the buyer does not want to accept the lack of coverage.

In his refusal to face this liability, the seller has disclosed that no other title agent has raised this issue in any of his other transactions. I said that perhaps they simply put an exception in the coverage and failed to give the consumer notice. [Of course, they may have overlooked the issue entirely.]

He wanted to know what the real risk was and I said that should the Department of Revenue discover his business activities in the Commonwealth and his lack of compliance with their tax rules, they have the right to place corporate tax liens against all of the real estate that has passed through the LLC. The buyers are at risk.

Thankfully we required a nonrefundable deposit from this seller before releasing the title insurance commitment because it's clear to me he'll just switch it to a title agent doesn't know or doesn't care.

Any thoughts?

Tuesday, June 24, 2008

query via e-mail - alternatives to title insurance and other stuff

Ms. Cipa,

My name is Patrick Framel; I am a summer intern with the Texas Department of Insurance. I am working on a report for the Texas Legislature, regarding solutions to affordable housing issues. I have already been helped by some of your past blog entries, and was wondering if you had any insight on this report.

I'm wondering if there are any viable products currently being used in any states as alternatives to title insurance? In particular, are there any products that may be appropriate for smaller dollar amount transactions? (The title insurance industry here has been very reluctant to insure lower valued properties) Or, are there any title products currently available in other states that are used for contracts for deed or installment contracts?

I wasn't sure how to post a question to your blog, but if this is the method, feel free to post it.

Thank you very much for all your help,

Patrick Framel
Government Relations
Texas Department of Insurance
(512) 322-4149

Thanks, Patrick. Though I have never done it, I believe you can get title insurance which insures an equity position in real estate. In the case of an installment land contract, the document would be recorded and insurance covering that interest subject to the interests of others.

Mortgage lenders can be served by lien protection insurance if the state allows it. It's an umbrella type policy that covers their lien priority - not the same as title insurance, but a reasonable alternative. Lien protection does nothing for the owner, though. I have seen no viable alternatives for property owners. They are best served by getting owner coverage.

As for the lower values, in PA we have promulgated rates and anything $30,000 and under has the same premium. Though I am aware that some agents pass on the lower end of the business, most will service it. We have a large volume of business at $30,000 and under. Perhaps the legislature might consider making participation on that segment of the market mandatory in exchange for the issuance of license to insure at all.

Best wishes. It's a swinging time to watch the title biz. ;)


Follow up question:

What do you mean by "title insurance which insures an equity position in real estate?" Isn't that precisely what ordinary title insurance does?

Well, normal title insurance insures a vested ownership which is more than an equity position. For instance, if you have hand money down on a property under contract, you have an equity position but you are not vested in title.

I would be very happy if anyone out there has additional ideas or suggestions. Please comment.

query: how does a lender get priority

The mortgage lender first has the title searched and confirms prior to recordation of their instrument that they will have the lien priority they desire. A smart first lien lender will insist upon a title insurance loan policy to guarantee that position.

If the search reveals a lien in a superior position and the parties do not intend to satisfy that lien, they can negotiate for a postponement or subordination agreement. This agreement may or may not require a payment from the borrower for the privilege of moving the lien priority. The borrower should start negotiations for a postponement as soon as they are aware of the issue. Some lenders require an appraisal and the process might take time. Once approved, the postponement is recorded prior to the recordation of the new mortgage instrument and it effectively gives public notice that the new mortgage instrument has priority over the other lien even though the original recording date of the older lien is earlier.

Monday, June 23, 2008

query: what happens to my real estate title claim once I file it

Good question. Will it sit in a big pile gathering dust or will someone really start working on it? I've written about how to file claims, so I'll not repeat myself, but just say how you file it does set the stage.

You should look closely at the title policy and select the proper address for filing a claim. You want to send any claim via certified mail. Get evidence of the date you filed it. The title company will take note.

I also suggest sending a copy of the claim to the title agent or attorney who sold you the policy. They can't process the claim but they may help move things along.

Each title company has a claims department who evaluate the situation. They will decide if the claim has merit and how best to move forward. They have attorneys on staff and they also hire outside attorneys to help with litigation.

Your job is to monitor and make sure you are receiving attention. There are loads of claims being processed right now - much more than usual. Be vigilant. If you are not getting satisfaction, hire an attorney or contact the state insurance regulator.

Saturday, June 21, 2008

I'm back on the street doing closings.....

We reduced our staff this year as most did in response to the credit crisis. In the process, we shuffled our more experience staff into key positions, lost two employees for personal reasons and moved two closers in to fill those spots. We hired a new closer but were still left with only two full time closers and that's not enough. I decided to be the third closer and we have two other inside employees able to jump in and take closings if needed.

As the third closer, I'm not full time, I just jump in if the schedule gets too crazy for two people to handle.

Yesterday afternoon I got a panicked call from one of our favorite loan officers. He was on the beach with his family, hoping to enjoy a vacation. There was a renovation loan - FHA 203K - that he had been working on since February. It was finally ready to go but there was a catch. If it didn't close today, it would have to be postponed until next month because the borrowers were on their way out of town this morning.

I looked at the schedule and saw that our Saturday closer was already booked for a ten o'clock in Altoona. The 203K was in Pittsburgh, so I said, OK, I'm on it! We booked the closing for 8:30am so we'd be done and the borrowers could get out of town by 10am which was really important to them.

All went well and it did close, but I experienced a bit of disengagement with the borrower that I thought was worthy of a mention here.

In a construction loan or renovation loan, I take my time going over the obligations of the borrowers in the construction phase just to make sure they fully and completely understand. I do this by reading the construction or renovation agreement to them verbatim.

Trust me, it's not boring to the borrowers. This is a big project and they have spent a good deal of time thinking through the logistics. It's important that both lender and borrower are on the same page. So, this morning I read the rehabilitation agreement - including the part about the default of they don't comply with the terms. We paused. They expressed surprise and I said, yes, you must carefully consider the terms of this agreement. You cannot make changes without the lender's approval.

We continued and got to the deadline for the completion of the work. The borrowers both said "That ain't gonna happen." I said that they must take seriously the date in the contract. They expressed once again that there was no way that they expected to get the work done by that date. I once again reiterated that the terms are clearly spelled out and that this is the agreement. They decided to sign the agreement and proceed with the transaction commenting further that they would discuss it with their loan officer. I stopped and said that I have no idea to what extent the loan officer can adjust or change the agreement after closing. It is likely that he will not be able to do so. They decided to close anyway.

I offer that discussion here so that I can express to borrowers in the most sincere but firm way that you must take seriously the terms of any loan document you sign. I do hope that all works out for these folks. I hate to see anyone walk into a contract with the mindset of not taking it seriously. It's their choice. The lender's terms were clear. They accepted. Let's hope all goes well.

Saturday, June 14, 2008

query: the cost of title insurance on a condo

In PA the cost for title insurance on a condominium is not different than title insurance on any other piece of real estate. If you are getting a mortgage, your mortgage lender may want a condominium endorsement added to the loan policy. If so, the cost for the endorsement is $50.

BTW - Though I've never had a consumer ask for this extra coverage, the endorsement is available as an addition to an owner policy for a cost of $50, too. It's PA 810 which if the PA equivalent to the ALTA 4.-06 endorsement.

Here's what is says:

The Company insures against loss or damage sustained by the Insured by reason of:
  1. The failure of the unit identified in Schedule A and its common elements to be part of a condominium within the meaning of the condominium statutes of the jurisdiction in which the unit and its common elements are located.
  2. The failure of the documents required by the condominium statutes to comply with the requirements of the statutes to the extent that such failure affects the Title to the unit and its common elements.
  3. Present violations of any restrictive covenants that restrict the use of the unit and its common elements and that are contained in the condominium documents. The restrictive covenants do not contain any provisions that will cause a forfeiture or reversion of the Title. As used in this paragraph 3, the words "restrictive covenants" do not refer to or include any covenant, condition, or restrictions (a) relating to obligations of any type to perform maintenance, repair, or remediation on the Land, or (b) pertaining to environmental protection of any kind or nature, including hazardous or toxic matters, conditions, or substances, except to the extent that a notice of violation or alleged violation affecting the Land has been recorded in the Public Records at Date of Policy and is not excepted in Schedule B.
  4. Any charges or assessments provided for in the condominium statutes and condominium documents due and unpaid at Date of Policy.
  5. The failure of the unit and its common elements to be entitled by law to be assessed for real property taxes as a separate parcel.
  6. Any obligation to remove any improvements that exist at Date of Policy because of any present encroachments or because of any future unintentional encroachment of the common elements upon any unit or of any unit upon the common elements or another unit.
  7. The failure of the Title by reason of a right of first refusal to purchase the unit and its common elements which was exercised or could have been exercised at Date of Policy.
This endorsement is issued as part of the policy. Except as it expressly states, it does not (i) modify any of the terms and provisions of the policy, (ii) modify any prior endorsements, (iii) extend the Date of Policy, or (iv) increase the Amount of Insurance. To the extent a provision of the policy or a previous endorsement is inconsistent with an express provision of this endorsement, this endorsement controls. Otherwise, this endorsement is subject to all of the terms and provisions of the policy and of any prior endorsements.

Friday, June 13, 2008

take a this

thanks to Robert Franco for the heads up on this ALTA video

query: how long is mortgage title insurance effective

A loan policy aka mortgage title insurance protects the mortgage lender so long as they have an interest to protect. The interest of the mortgage lender expires when the note is paid in full and the mortgage is satisfied. If, however, the mortgage lender must foreclose, the loan policy converts to an owner policy for the lender and will protect them so long as they have an interest to protect.

So, let's say a mortgage lender forecloses and ends up owning the property, attempts to sell it a new buyer and that buyer's title agent finds a title problem which precedes the issuance of the loan policy. The mortgage lender could make a claim even though their original insured mortgage was divested in the foreclosure.

Consumers should take heed that a loan policy benefits the mortgage lender only. Your interests and the interests of the mortgage lenders are not the same. If you want protection, you must purchase an owner policy.

Thursday, June 12, 2008

query: can we refinance with a mechanics lien

If you have a valid mechanics lien against the property and your new mortgage lender wants first position, you won't be able to refinance unless the holder of the mechanics lien agrees to postpone their lien in favor of the mortgage lender. They may agree to postpone if you offer to pay them something. They'll still have their lien and they may need money enough to make a deal.

query via e-mail on the subject of cancellation fees

Hi Diane,

I found your blog when I was doing some research.

We were recently involved in a home purchase transaction, which failed to close.

We just received a bill from the closing attorney which included
$1324.06 for title commitment, which is the exact amount shown on the
HUD statement for title insurance. Since there was no closing should
we be charged this entire amount. I could understand being charged for
the labor involved but not the entire amount.

We are in West Virginia if that make a difference, and the company is
Old Republic Title.


Hi, Danny:

Let's see if we can get a response from a title agent or attorney familiar with WV. I am a firm believer that a cancellation fee should be charged for services rendered when transaction fails to close. The question is - what are the services for which you are being charged?

I would ask for an itemization of services performed. For certain, you should not be paying for title insurance because a policy is not being issued. It would be fair to charge for abstracting, examination, perhaps clearance of or work to attempt to clear title problems. There may have been document preparation and courier fees.

So, ask for more info. Ask for an itemized invoice.

Wednesday, June 11, 2008

DW checked in with this warning...

Hi Di!

Hope all is going well with you. Glad to see on Title Insurance Talk you are busy!! That's a good thing!

I had to share this with you because of the impact this could have on the unknowing consumer.

Sam and I got the attached letter in the mail today. (Feel free to post it if you want.) It is from a company called National Deed Service, Inc. They are letting you know that they will provide a certified copy of your deed to you for the bargain price of only.......$59.95!!!!! I was speechless when I read that!!! Westmoreland County charges $5.00 for a certified copy and $1.50 per page for handling. You could get the same thing for only $9.00!!! This is crazy! I wonder how many unknowing consumers would fall for this???

I tried to call the phone number to give them a piece of my mind.....just a recording, there is no real person to talk to. When you research it on the Internet, there are lots of posts about the company being a rip-off. I think I even saw a BBB violation of some sort.

I know alot of folks have come to read Title Insurance Talk, and I thought I might give you a little something to write about! I feel sorry for the poor customer who doesn't know any better.

Well, that's it for now. Tell everyone I said "hi!"

Di :-)

Thanks, Di. This is a scheme that is being played out all over the country. Homebuyers should beware. First of all, you are going to get your original deed from the title agent anyway so don't fall for the scam.

Wow, I can't believe it's been a week since the last post.

We are nicely busy and been cranking out title commitments without many problems. Hmmm...trying to think of something interesting that might have popped up. Most everything has been run of the mill stuff which is good. Keeps transactions moving and everyone happy.

Oh, we had a deal this morning......seller had filed bankruptcy. The attorney had gotten a court order to list the property but they forgot to go back and get a court order approving the specific sale. The attorney tells the parties that this might take two months to get. Geez.........everyone must have forgotten. Buyer had to put their plans on hold.

Must be a court order kinda week. We had one with an incapacitated seller. Thankfully there was a court order naming a guardian but they all forgot to go and get the court order approving the sale. Let's hope that one doesn't take two months.

Wednesday, June 04, 2008

removing exceptions from a title commitment

I had a credit union ask me to remove standard exceptions from Schedule B2 in a title commitment. This is my response and I thought I'd share it with you.

The title insurance commitment is like a mortgage loan commitment. The marking up by the title agent is like the mortgage loan underwriter clearing conditions. Marking up takes place at the time of closing as a final check list by the title agent that all issues have been complied with and then final instructions are given to staff for preparation of the policies. Exceptions are not removed form commitments. They are removed from policies. The following notes demonstrate how the Schedule B2 of the title commitment for the redacted file will be marked up at closing:
1. out
2. 300
4. out
6. 100
7. limit loan
11. 100
14. 300
The items not marked stay as is in the loan policy. Items marked "out" will be removed. NYDP means "not yet due and payable" and that language will be added in the policy. Endorsement 300 is the PA survey endorsement. Items marked 300 will be removed from the loan policy by way of the language in the endorsement. Endorsement 100 is the PA restrictions & covenants endorsement. Items marked 100 will be removed from the loan policy by way of the language in the endorsement. "Limit loan" on #7 means language will be added to the loan policy which limits the exception to under surface operations.

Tuesday, June 03, 2008

query: when you submit title insurance mortgage claim with old republic do you have to give proof of loss or damage

When you submit a title insurance claim to ANY title insurance company, you'll need to prove damage or loss are at least the threat of damage or loss. By threat, I mean that you should get your title insurance company involved in your defense if your are threatened by loss or damage related to items that may be covered by your title insurance policy. The title insurance company claims department will decide whether to defend, settle, whatever based upon the facts of the case.

Your job is to file the claim as soon as you know you are at risk. If you are unhappy with the response you get from the title insurance company, have your attorney review the matter.

query: how do mortgage underwriters take

I'm taking a good guess here because I used to be a mortgage underwriter back in the ole days when FICO wasn't king and underwriting involved the human brain. I gauge my reply on the return of manual underwriting and the likelihood that we have plenty of newbies looking at files who are now learning from their aged underwriting teachers just how to make these credit and saleability judgments.

The underwriter will take about an hour with your file once the file gets onto their desk - give or take 20 minutes or so. The issue really is how long it takes to get your file onto that desk.

We are living in the aftermath of a credit hurricane that trundled mortgage processing and underwriting staff and blew up all the rulebooks that the remaining staff had come to know and love. The business of mortgage banking is short staffed with folks who are having to re-learn their craft one file at a time.

This is good because it's a restoration of quality in decision making. This is hard on borrowers and loan originators and real estate agents because the greater real estate community and consumers have come to expect instantaneous decision making.

The rule is patience. I am hearing that it takes a file roughly two weeks to make it through the underwriting process.

Trust me, this will get better. Eventually you should expect manual aka human underwriting to stabilize at roughly 48 hours, give or take a day or so as volume swings.

In the meantime, don't totally freak if your mortgage lender calls you for more documentation because your loan application has been suspended. That simply means that you aren't rejected but you aren't approved. The mortgage lender thinks there may be merit in your loan approval but needs you to help them support a positive decision with truthful documentation. Cooperate and help your lender help you. Sometimes a good attitude is the tipping point in a manual credit decision. A mortgage underwriter is assessing your ABILITY to repay and your WILLINGNESS to repay. Willingness is all about attitude.