Wednesday, March 28, 2012

query via email: discharged debt with an underlying lien survives bankrupty

I'm one of the many thousands of Americans who have been hit hard by the economic hard times and have been forced to short sale my home. Long story short....
I have a buyer who is an investor. He started working on the house before it closed and now has $15k invested into rehabing the house and we have hit a snag in the closing process.
A "lien" was found on the property that should have been found back when the house was refi'd. On my HUD Settlement Statement it shows I paid for a title search and it shows a charge for title insurance as well.
This lien holder was a secured loan taken out back in late 2004 to consolidate my medical bills. I eventually filed a Chapter 13 Wager-Earner plan and this account was included in the bankruptcy. It was reported to the credit bureaus the account has been closed, and shows a zero balance as paid through the bankruptcy which was discharged in 2007. My bankruptcy was discharged and paid off, along with a grant program I used to make home improvements and THAT lien WAS found and paid off, along with the bankruptcy when I refinanced the property.
When I refi'd the property, the original mortgage company was [redacted by dc]. They sold the loan to [redacted by dc] who subsequently was taken over by [redacted by dc]. I refi'd the property in 2007 to pay everyone off in my bankruptcy at 100% and was discharged after doing so. Keep in mind, this company has been reporting to the credit bureaus this account has been closed, has a zero balance AND was paid off through the bankruptcy. I even have a letter from this company's attorney stating the account has been closed and was discharged through the bankruptcy.
In trying to close this deal, the current title company performed a title search and FOUND this lien which should have been found and paid off in 2007 when I refi'd. They are refusing to remove the lien and are NOW in the first position ahead of [redacted by dc] and are stopping this short sale from going through. It's some little hole in the wall finance company and are extremely incooperative.
I called my attorney and he states the title company who handled the refinance are responsible for this. We have to place a claim with the title insurance company because it was the title company's mistake for missing the lien. As a result, my house may now foreclose and it will be put on my credit report as such.
The investor, shame on him, is upset with ME because I won't call this little finance company who SAYS they've been accruing interest all these years on an account that is reported to the credit agencies as closed AND their own attorney says has been closed. He wants ME to call them and negotiate a settlement amount and acknowledge I still owe them money just so the lien will be released and he can close on the house. My attorney has said I'm not responsible AND if HE wants to purchase the house HE should call them and negotiate a lower price to cover what is owed to get it released and close on the house. My attorney says it's his own fault he has invested money in a property he didn't even own yet.
Nevertheless, how do we find the title insurance company and underwriter to file the claim when the title company who closed on my refi deal has closed up and gone out of business to file a claim?
Any assistance would be greatly appreciated....

Wow.  This is a dilemma.  Let me divide the matter into two issues.

First, the buyer's problem is that he decided to work on a property BEFORE he owned it and BEFORE it was clearly proven that the title was clear.  I know you understand that I am not offering legal advice on this because I'm not an attorney but your attorney is correct that the BUYER created his own problem and unless you also made some kind of agreement to reimburse him for his imprudence, then I wouldn't worry about it.  Set that aside and concentrate on the other problem which is to clear the title to your house.

You have the second matter which is one we often find after bankruptcy - a discharged debt with an underlying lien or judgment which survives the bankruptcy,  It is my personal opinion that bankruptcy attorneys who fail to provide the extra step of asking the court to vacate the lien are doing a disservice to their clients.  When I have raised this matter with these attorneys they either know the lien will survive and don't care or they were ignorant of the law.

Your situation is compounded by the fact that the title agent who vetted your property in the refinance either missed the lien or didn't understand that it survived the bankruptcy. 

So, the truth is that two providers whose services you paid for allowed a lien to stay attached to your house and the reality is that the refinance title insurance was a loan policy and will offer no direct source of help and you need to fix this one yourself.

That is the heart and truth of the situation.  You would have had to deal with it at the time of the refinance if it had been discovered so this is just a delayed resolution.

As with any foreclosure, the lienholders expect to lose money and it is in their interest to make a short sale deal unless there is so much equity in the house to cover the foreclosure losses when the house is eventually sold after they go through all of the trouble - take it and then market it.  This will help you but you must also keep in mind that the title insurance you bought in the refinance insured your MORTGAGE lender that they have FIRST position.  This means that if you default and they have to move forward and foreclose, they will have to process a title insurance claim to deal with the finance company and get them out of first position.

The starting point moving forward is to acknowledge you are alone - no help from the old bankruptcy attorney or the title insurance company who insured the refinance.  Your job is to find a negotiated settlement for both lienholders and your buyer.  Hopefully they will all be motivated to mitigate damages and the deal you are offering is better than going through the title insurance claim process followed by foreclosure.

I am not saying this is easy but if the reality is that avoiding foreclosure or in the case of the finance company getting money now rather than later is the preferable alternative then you should be able to make a deal.

Either you or your attorney need to use good negotiating skills to pull it all together.  If not, then everybody except the finance company loses. 

I am sorry that I don't have better news but sometimes I think just clearly seeing the hand you are dealt does help.  Now you just have to play it and I do hope you win.

Your attorney sounds like a good one.  ;)


Monday, March 26, 2012

prior owner continued to use an open line of credit

This is the title claim we title agents are trained to avoid.  We take the extra step to freeze the line, if possible.  We have the seller sign a statement requesting that the line be closed and satisfied of record.  This is what we are supposed to do.  Yet, when we recently processed a refinance title insurance application, we were shocked to uncover a situation in which a prior owner [TWO owners back] was using a line of credit attached to our consumer's house.  How could this happen?

We started our investigation by contacting the bank and asking them to satisfy the mortgage.  That's when we found out that the line had a balance and was still in use.  WHAT?  The bank refused to satisfy or assist us beyond a courtesy call to the borrowers asking that they call us.

We then made contact with the title agent who handled the sale that included the supposed payoff of the mortgage.  This title agent is the one who SHREDDED her files and so we had no evidence to show the bank that they should have closed the line and satisfied the mortgage.  [Two ex-employees of the SHREDDER did offer some help by somehow getting into the computer system and reprinting documents so we had a clue about the contents of the HUD-1 and the policy.]

Next we made contact with the title agency who handled the next sale, the one where our consumer was the purchaser.  We asked if they had discovered the unsatisfied mortgage and they said yes, however, they did not pursue satisfaction.  They requested and obtained an indemnification letter from the prior title company.

So, we had the first agency who may not have followed good standards and asked for satisfaction.  Our clue that they may not have followed good standards is that they SHREDDED their files.

We have the next agency in line who also, in my opinion, didn't do such a good job.  If they had contacted the bank they would have discovered that the line of credit was still in use.  They also seemed to have insured over this unsatisfied mortgage without even disclosing its existence to their consumer.

We obtained a copy of our consumer's owner policy and then contacted BOTH title companies and had our consumer open a claim.

We got a great response from the claims department at First American.  The attorney from the other title company was no help except that he wanted us to take an indemnification letter.  We wanted more than that and First American sent demand letters to the prior owner and the bank.  They offered and we accepted indemnification with PERFORMANCE language.  Our consumer and lender were both on board and okay with this performance based indemnity as was my underwriter.  We closed this transaction this week and the good news is that First American was able to get a release from the bank prior to our closing - much sooner than expected. ;)

Wednesday, March 21, 2012

query: what does it mean to show a jr lien as an exception on a Title Policy

Normally a junior lien or subordinate lien would be shown on the ALTA loan policy in a special section dedicated to subordinate liens, however, if you need to show it as an exception, just add it to exceptions in Schedule B.

The title insurance underwriter should be able to assist you in the proper creation of the policy.

Tuesday, March 20, 2012

Wow....two big cheers in one day!!!! What's going on? Is sanity breaking out everywhere?

“In the past three years HUD and FHA have been busy tracking and taking action against FHA lenders that violated underwriting guidelines but with those cases beginning to ease up regulators are expected to turn to RESPA and affiliated business arrangements,” the article says.

Read more in Reverse Mortgage Daily.

query: I have subdivided the property i have a Line of Credit against. what now

You need to get approval from your lender before you sell any portion of that property.  What you need is called a PARTIAL RELEASE.  This will remove the mortgage lien from the part you sell.

can you hear me shouting and cheering...finally some logic!!!!!

The Illinois Department of Financial and Professional Regulation, Division of Financial Institutions said it has received inquiries concerning the practice of some title insurance companies and title insurance agents providing title searches without charging for those services if the transaction fails to close, and asking if such offerings are akin to illegal inducements.

Responding to the inquiries, the regulators released a statement titled, “Statement Regarding Free Title Search Services as Illegal Inducements” in which it opined that agents who do such work for free are putting themselves in jeopardy of being found to be providing an illegal inducement.

Tuesday, March 13, 2012

query via Facebook: starting a mineral rights research company

Diane, I was wondering if you could point me in the right direction. I'm trying to start a Mineral Rights Research company in Ohio. Any ideas where to start?

 Hi, Larry. I'm a PA based agency and not familiar with Ohio licensing laws. I'll post you question on Title Insurance Talk and see if someone else can help. Thanks for the question.  Oh, and sorry for slow response. I've been off sick for several days. ;) 

using web portals to submit title insurance claims

Here are links to the claims portals for the major title insurance underwriters:





You should expect to receive a response within a week assigning a claim number.  This is followed by the assignment of an attorney to your claim submission.  If you do not receive a prompt response, then I suggest filing the claim using the old fashioned method of certified mail.

Thursday, March 08, 2012

query: where to claim Pennsylvania inheritance tax withheld from escrow

We presume that a piece of PA real estate was sold at a time when the inheritance tax return had not yet been filed or the tax paid.  In this case, the title insurance agent would have closed and withheld funds in escrow to guarantee such a return would be filed with the state and proof of payment of any tax.

If you have filed the return and paid the tax, the place to start is to contact the title agency who withheld the funds in escrow at closing.  If the escrow was set up within the last five years, there is a good chance the funds are sitting in the agency escrow.

You may need some documentation of your transaction, so I suggest having on hand the HUD-1 Settlement  Statement and a copy of the escrow agreement.  Title insurance escrows in PA must be backed by a written agreement so you should have a copy.

If for some reason the title agency cannot be located, then look on the HUD-1 Settlement Statement - on the buyer's side - for the name of the title insurance underwriter.  You will find this in the 1100 section near the charge for title insurance.

If you are still having no luck, you could contact the PA Department of Insurance.  They write the rules for licensed agencies in PA and may be able to help.

  BTW When we hold this type of escrow we allow a one year period for resolution then if not resolved, when we have time, we send the money to the Register of Wills through a review process with the PA Dept. of Revenue who will then issue a release for the property in question.