FBI raids Titleserv

The FBI raided Titleserv in Woodbury Wednesday morning, a little more than two weeks after the national title insurance agent closed suddenly.

FBI spokesman Jim Margolin said agents went with a search warrant as part of an "ongoing investigation." The search started at 8 a.m. and continued into the early afternoon, ending with agents leaving with boxes of records, he said.

Read more on Newsday.

What? You think you should keep the $25,000?

We closed a transaction last month.  We made a mistake.  Everybody makes mistakes.  That's why you need to buy an owner title insurance policy.

Our seller is a local appraiser, a popular appraiser who has been in the business for a long time.  Our title search revealed two mortgages.  We got two mortgage payoff letters.  The mistake happened in the HUD-1 preparation.  For some reason someone stapled the two letters together and the person who prepped the HUD omitted a primary procedure.  We require that the person preparing the HUD reads each and every page in a payoff letter just in case there are other charges or odd instructions.  If our HUD prep person had followed procedure, this mistake would not have happened.

Most of our procedures have been implemented through experience to prevent errors.  Sometimes employees don't really get the value of a procedure until they themselves make a mistake and then face danger.  This situation turned into a good training opportunity for two members of my staff to "own" the risks of being in the title insurance business.

It's a fallacy that title agents are not at risk.  We are.  If we make mistakes, the title underwriter will step up to the plate and take care of the consumer and their lender but they may turn around later and insist that we cover a loss.  Needless to say, that's why I insist upon hiring individuals who by nature are mortified if they make mistakes and on the whole they make very few.  Still, we are human.

Now, managing risk involves layers of checks and balances.  We had two other procedures which should have discovered this error before closing.  One was to provide a copy of the HUD-1 to the seller prior to closing so that a review could take place without the pressure of sitting at the closing table.  Sellers have personal knowledge of their own transaction and a missing payoff is something a seller should notice.  In this case, the seller received his preview HUD the day before closing.

The other procedure, which I have verified with my closer did take place at the table, is to look the seller in the eyes while reviewing the owner/seller affidavit and ask if there are any other mortgages against the property which are not being paid on our settlement statement.  We even have an extra place next to this clause for the seller to add an initial.  It's the only clause on the affidavit which is in bold and requires a separate initial.  We want the seller to pay attention to this clause and we want our closer to remember to follow procedure, hence the initials.

Our closer reports that the seller was bored and just wanted to sign the documents and wasn't really paying attention though he tried to get him to do so.

At any rate, the seller walked out of the closing $25,000 richer than he should have.  Now he wants to keep the money.  He won't get to keep the money.  That's not how it works.  I have no doubt that the attorney for our underwriter will have this resolved within a week, however, if not, our buyer and our lender will be entirely safe.    The mortgage would be promptly paid with an assignment to the title company who would then pursue other assets of the seller.  Under no circumstances will the individual keep the $25,000.  It's just like the bank depositing money into your account by accident.  It's not yours and you don't get to keep it.

Frankly, everyone in the transaction is less concerned about the error - because they know it will be fixed - than they are that the seller, a professional who should know better, would think he could keep the money.  It's pretty amazing.

tsumani of defalcations? well, maybe not but there sure has been loads of them

I remember sitting down with a group of regulators a few years ago making an effort to help them understand this business.  One of my goals was getting them to embrace the concept that a title insurance agent handles millions of dollars with little or no oversight.  The most frustrating part of that effort was the assignment of regulatory authority and that the oversight for management of escrow accounts was somehow being divorced from the oversight of insurance issuance.  I remain unconvinced that we need new legislation to make that connection, however, as with any law its the interpretation by regulators and courts that matters and at that time they weren't yet fully getting the escrow account angle.  I left the meeting feeling at least somewhat satisfied that I had given them fair warning that they should expect a tsunami of defalcations as the mortgage crisis resolved.

Had to raise this subject today because my Google alerts fished up three defalcations.  Those that hit the news are the only ones we see.  Hard to say how many are resolved without indictments.  I guess it hasn't been a tsunami and for that I am thankful.  A tsunami might have taken out the whole industry including the good title agencies.  That's what happened to the good mortgage brokers.  They virtually lost their wholesale business in a tide that rocked their world.

I am certain that underwriters are being diligent in their oversight of agents.  We see that in the seminars.  The nods and winks have been replaced with hard statements about what is proper conduct.  It's all refreshing and I do feel good that we seem to be on the other side of the darkness.  We're back in the light.  ;)

judge removes stay

FED LO compensation rule is in effect.

RESPANews if reporting LO compensation rule stalled by court

On the evening of March 31, the U.S. Court of Appeals for the District of Columbia Circuit stalled the implementation of the Federal Reserve’s loan originator compensation and steering rule. The court decided to delay the rule’s implementation until it could review the cases filed by National Association of Mortgage Brokers (NAMB) and the National Association of Independent Housing Professionals (NAIHP).

Read more on RESPANews.