Saturday, January 29, 2011

We just finished our annual CPA audit and in the process heard an interesting title insurance claim story.

Yes, we pay to have our books audited annually by an independent CPA.  I wish it was a mandatory audit, but it's not.  I'm not a big government fan, in fact I'm an advocate for limited government - highly bent in the libertarian direction, BUT when a licensed entity has access to millions of dollars of other people's money, I think there ought to be some sort of formal audit standards which include 3rd party oversight.  That's not the purpose of this post, though, so let me switch gears.

The auditor sent out by our accountant this year is a nice young man who while asking some questions, mentioned that he was near the end of a multi-year title insurance claim.  I asked him to tell me the story because I always want to know how a consumer feels when faced with a title insurance claim and whether or not they are happy with the results.

In this case, he and his wife hired an attorney to handle the purchase of 20 acres of vacant land.  They SMARTLY decided to buy an owner title insurance policy.

This young couple bought the land with plans to build their dream home.  They are both accountants and so they are good planners.  When they purchased the land, they were childless and living in a small two bedroom house.  The plan was to build a four car garage with an apartment on top.  Eventually, when they started a family they would build a large addition which would become the main house.

The whole plan fell apart when they applied for a mortgage to do the first part of construction.  The bank used a different title agent to do the title examination for their loan title insurance policy.  This second title examination revealed that there was no legal recorded right of way to the land.  Though there was an old dirt road that looked like a right of way, it went over the land of the neighbor who when approached, refused to grant an easement.

They filed a claim with their title insurance company who then offered a nice chunk of change to the neighbor and met with another refusal.  Soooo....they went into arbitration and years later finally were set to go to court and on the eve of the trial, the neighbor finally agreed and accepted a paltry sum - much lower than the first offer and settled the matter.

Okay, well that shows the value of buying an owner title insurance policy, right?  The title company paid for all the legal work and the consumers eventually got their right of way.  On the surface, it all sounds peachy keen, however, this story helps to demonstrate the VALUE OF SELECTING A COMPETENT PROVIDER.

Now, I am not saying that we human beings do not make mistakes.  Everyone does, but we EARN OUR LIVING BY AVOIDING CLAIMS.  We do a full search and examination to ferret out details BEFORE the closing in an effort to help you avoid the entire claims process.  When you place an order for title insurance, pick your provider carefully.  Make certain you are getting a full search by a competent human being.  Keep your eyes open.  Read your title insurance commitment BEFORE you go to closing.  Complete your transaction with YOUR brain engaged.

WHY?  Well, let's discuss the rest of the story.  During the years this young couple's claim moved through the system, they had two children.  They had to buy a larger home and move on with their life, abandoning their plans for the dream home on their 20 acres.  Yes, in the end, they got their right of way.  Will they ever build there?  They don't know.  Life has moved on.  She is pregnant with their third child.  They are happy they bought title insurance.  In retrospect, they do wish they had paid more attention to the title work and not just trusted that the attorney did everything right.  They knew the dirt road was private but they presumed the attorney would check on the legality of the road.  Yes, the title insurance covered access but as you see from this case, the insurance is the safety net.  What you really want to do is avoid the problem in the first place.


Thursday, January 20, 2011

failure to closely guard the escrow account leads to big trouble.......

The indictment alleges that beginning at least as far back as 2004, a substantial shortfall began to develop in an escrow account maintained by Troese Title and Troese/Hughes for the receipt and disbursement of funds in connection with real estate closings carried out by both title companies. This shortfall is alleged to have been partly the result of mistakes made during the closing process on several transactions that required costly pay-outs to resolve, and partly from several large and long-undetected thefts by individual employees, although these factors did not account for all of the deficit. In the spring of 2005, Lukenich, the escrow accountant for the title companies, advised others at Troese Title and Troese/Hughes that the shortfall totaled at least $2 million. The shortfalls were further aggravated in 2006 through 2008 as the real estate and refinancing boom that had started in approximately 2002 first cooled, then collapsed.

Read more on FBIBaltimore.

Tuesday, January 18, 2011

Pennsylvania Gov.-elect Tom Corbett nominated a partner in the Saul Ewing law firm and former lawyer in the Pennsylvania Insurance Department to become the state’s next insurance commissioner.
Michael Consedine, Pennsylvania insurance commissioner
Michael Consedine
Consedine’s appointment awaits a confirmation hearing by the state Senate.

Read more on IFAWEB.

Wednesday, January 12, 2011

Wendy finds the darndest things.

Wendy's job is a critical part of our title examination process.  She receives the raw search reports from our abstractors.  She combs documents and notes just to be sure the abstractor didn't miss exceptions in their report.  She plots the metes and bounds description to see if it closes and looks anything like the map provided by the abstractor then she types our legal description.

I review Wendy's work and make some changes, then I create the title commitment along with notes to our closing coordination staff so they know what, if any, issues must be resolved before we close.

Wendy and I work together in the same office.  [Yes, when we had a larger staff and my job was almost all training and management, I stayed up on the top floor spinning plates, but now that there's only ten of us and we have a wonderfully trained staff, I don't need to spin the plates.  We all spin them together.]  Anyway, when I hear Wendy chuckling I know she has found something interesting.

Her favorite - what were they thinking? - kinda find are typos that stay in the chain.  Know what I mean?  Someone makes a mistake and all the other law offices and title agencies who continue to convey the property all type the same mistake without ever noticing.

Sometimes they glare out and you can't imagine why no one ever thought to ask why.  Like today's find.  Inexplicitly sitting in the middle of a sentence was the numeral 10.  Huh?  Wendy checked back a few deeds and found that once upon a time that odd numeral 10 was really the word is

Sometimes it's a missing course or two or three and since most offices don't plot, they never notice the missing piece.

So, I share this with you, dear reader.  If you are responsible for the conveyance of real property, you may want to review your process and include eyes on and brain engaged review of the legal description because you don't want the next person reviewing the chain chuckling in your general direction, eh? It could be Wendy.  ;)

Saturday, January 08, 2011

court rules against banks in pivotal mortgage case

"There is no dispute that the mortgagors of the properties in question had defaulted on their obligations, and that the mortgaged properties were subject to foreclosure. Before commencing such an action, however, the holder of an assigned mortgage needs to take care to ensure that his legal paperwork is in order," Justice Cordy wrote.  Read more in WT.

Okay, here's my lazy, I'm not going to read the case but will opine anyway, comment.  My first reaction reading this news yesterday was that it's just another example of the absolute degradation of standards in our industry.  I'm certain there are a bunch of others like me who used to do this stuff for a living that ask out loud - "Why didn't you just file an assignment?"

Back in the old days, every time a mortgage was sold, an assignment was filed.  Even when we pooled the mortgages into securities, the servicer acted in this capacity and accepted an assignment which was filed.  

The impetus behind the creation of MERS  wasn't bad.  There was merit in the idea that mortgage servicing of security pools or even whole loans could move within the MERS system without filing assignments.  The original mortgage was either assigned to MERS or MERS was nominated as the lender within the mortgage instrument.  It was presumed, I believe, that the last man standing, the servicing lender at the time of default, would receive and file an assignment from MERS prior to foreclosure.

I believe - and perhaps you will disagree and if so, I'd like to hear from you - that this wholesale dependence the industry fostered in technology cause a dearth of actual know how.  Is there anybody left in the business who remembers how it's supposed to work?  Did the folks who still had knowledge in their human brains retire or did everyone else decide to stop listening to them?

I consider this court's reaction like a well deserved wrap on the knuckles from good old fashioned teacher.  I'm sorry that it mucks up the party and I do hope that lenders jump in and get those assignments filed pronto.  

MERS isn't a culprit.  It's a tool which if used correctly works.  The overriding problem - the REAL problem behind all of the crap that has gone down is a chosen reliance upon tools of technology as replacements for human analysis and decision making.  

Mortgage backed securities aren't culprits.  They are a phenomenal tool when issued in conjunction with a due diligence system run by capable humans.

Tools are for use by capable and trained humans, not as replacements.  Someone has to be driving the bus and that someone should know how to drive and understand the rules of the road.  The bus should be monitored and maintained by a capable mechanic who understands how the bus works.  Consumers are riding the bus and the court is the traffic cop and the mortgage business just got a whopping ticket.  The bus isn't bad.  We needn't outlaw buses.  The cop isn't bad.  The cop is doing his job by keeping the roadways safe.

Wednesday, January 05, 2011

PA 400 Manufactured Housing Endorsement

Sorry, I'm at home as I write this and so I don't have the ALTA number in front of me.

Has anyone had any claim experience in which this endorsement comes into play?

We issue it all the time for lenders mortgaging a manufactured home or a mobile home which has been permanently attached to the land.

The endorsement doesn't really say much.   It simply includes the manufactured home in the definition of land.

So, here's the question posed to me today by a lender.  If the house is dragged off the lot and the lender acquires the property through foreclosure, how does this endorsement play into a claim?

My answer.  I have no idea.  Here's what the endorsement says...blah blah as mentioned above.

I don't see how this language gives the lender anymore coverage than they have in a situation in which the borrower violates the mortgage warranties and demolishes the dwelling.  In either case, the house was part of the land and in either case, the house is toast.

Anyone out there have experience with this kind of claim?

Tuesday, January 04, 2011

If the average title search is anywhere near as flawed as the document checks of the robosigners, we're in for some wild court cases.

To make that billion-dollar question even more chilling is the fact that, in many cases, the banks have already sold said homes to new buyers -- new buyers with title insurance of their own. If the average title search is anywhere near as flawed as the document checks of the robosigners, we're in for some wild court cases.

Read more: Hot potato time for title insurers |
And now all the brainiacs of TitleSmart, Next Ace, and short search lovers of old will be tested.

Sunday, January 02, 2011

Good morning and happy new year!!

We've had a good year and moving into 2011 are hopeful for another.

Much of what was good during 2010 I think is the result of the 2010 RESPA rules.  We experienced a tremendous change in the way lenders prepare for closings and also in the quality of consumer disclosure.

Gone are the days of tears and anger when consumers get their final figure of cash needed to close.  In 2010 the most comment reaction was "Is that all?, I thought it would be higher."  Imagine that!

We only had one instance in 2010 in which a lender wanted us to cross a line we wouldn't cross- ONE!  That's terrific.  We have a renewed sense of team playing and there has been a restoration of quality.  The bad guys stick out against a renewed culture of honesty.

While there still exists in some sectors a desire to go back on the pathway to faster cheaper automation, in the meantime I enjoy the pause during which we can give our consumers good old fashioned quality of service and product.  For now, we survive and prosper and our consumers have a safe haven.