Tuesday, April 19, 2011

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.


Rick said...

In Florida that is called Civil Theft and is subject to triple damages. Similar thing happened to me and I got 3 times the amount the seller tried to keep.

Rick (again) said...

P.S....not to mention insurance fraud!

Anonymous said...

Shame in this seller, hope to hear that this has been settled soon. He knows better, but it seems that greed always takes over.

Diane Cipa said...

As a followup, the seller/appraiser ignored the communications from the claims attorney. They moved forward and hired a litigation attorney and asked me to get a payoff letter so they could take care of the mortgage today. When I called the bank for the payoff they said they were processing a loan for their customer [the seller/appraiser] which he would use to payoff the mortgage next week. The legal process is postponed awaiting resolution.

Last week the selling agent had asked for an update and I included the listing agent and the buyer's mortgage lender in my response which expressed the hope that peer pressure might come to bear on him to see the matter of honor, etc.

I'm pretty sure this email was shared with the seller/appraiser. Interestingly the response I got from the lender, a local bank, was that they would move to sanctions based upon character if not resolved.

Just such an unexpected reaction from someone in the business. Glad it looks like it will resolve itself. ;)