Tuesday, December 31, 2013

Nisha wonders if a post closing request for proration of HOA fees is out of line.

Hi Diane,

I came across your blog while finding any answer for my recent issue.

I closed on my home on Jun 24, 2013 as buyer. 

As per the listing agent of the seller, she told us that seller has paid HOA due in advance for 2013 and we don't need to pay for this year. This was our verbal understanding.

Same reflected in HUD statement. 

But now almost after 5-6 months, we got an email from seller asking for us to prorate this amount. Can you please advise us. They are saying that they did not notice this during closing. They are also saying that they will go to lower court if we did not pay.

Thanks & regards,


Hi, Nisha:  It is customary to prorate the HOA fee but not required.  Take a look at your sales contract.  Typically the contract will include language in which the parties agree to prorate taxes and items such as the HOA fee.  

This is one of those unfortunate situations in which everyone would have preferred it to be done correctly at closing but the error isn't discovered until later.  If you are unable to pay the seller the prorated amount, offer to make payments.  Most courts would see this as an act of good faith especially if the title agent failed to do an agreed proration at closing.

If you truly believe you should not have to pay the proration, ask the seller to show you where in the sales contract a proration agreement was outlined.

Thanks for checking in.  Good luck and Happy New Year!


Friday, December 13, 2013

We stand our ground and we do business with lenders and real estate brokers who want quality of service.

Quality of service means that we all work together to maintain integrity of standards to protect consumers, the mortgage lender and the title insurance underwriter.

This sometimes does mean that we choose to not do business with providers who have a different idea.

About a month ago we received a title order from a mortgage broker that we thought had gone out of business.  It was a sub-prime shop known to bend rules.  I was leery but we agreed that they might have cleaned up their act and that we would watch the transaction closely so we processed the order.

Turns out the transaction is a FHA mortgage and the mortgage broker - with the help of an employee of the mortgage lender - were coaching the buyer on how to avoid the FHA prohibition against using funds to acquire a separate but adjoining property which is also a commercial property. They expected us to close a concurrent transaction for the adjoining property being sold to the buyer by the same seller for $1.

NOT GOING TO HAPPEN.  We explained the hows and whys of mortgage fraud to the consumer, real estate agent and mortgage broker. This transaction could only take place if the mortgage lender put in writing that they were aware of the concurrent transaction and approved of it.  The mortgage broker, of course, said the mortgage lender "didn't want to know" about the concurrent transaction so that would not happen.  I said that we would refuse to close and insure the deal.

Interestingly when the real estate agent and I discussed the details of the structuring of the transaction to this point, the real estate agent said she was conferring with her broker who told her to make certain that the mortgage lender was approving everything.  What they hadn't considered was a rogue employee. They thought they had lender approval for the concurrent transaction and were shocked when told the lender "didn't want to know" about it and thus would not actually approve the transaction as is was truly structured.

I am sorry to know that there are employees on the front lines of FHA lending operations who don't get the reality of compliance with the FHA guidelines.  It's not okay to "not know" about something that you clearly know about. It's not okay to direct people to handle things "off HUD" or in a separate transaction. It's not okay to hide material facts from your employer or the mortgage underwriter.  You put your whole organization and everyone's jobs at risk because the FHA can shut you down.

We won't be accepting any new title orders from that mortgage broker.  We only deal with honest companies, not fraudsters.

Monday, December 02, 2013

and now for something completely different... ;)

My friend, Joe Stierheim, is a good storyteller. His novels are easy to read, relaxing page turners with a positive spin. Joe always makes me think. These types of stories are hard to come by with all the focus on killing and guns in entertainment. This novel is the back story of a mountain man. I met this character in another novel by Joe and he was so interesting that he decided to explore what it was that made the man.

You might enjoy this book or one of Joe's other novels which are available on Amazon.com.

The mysterious Mountain Man is seen by three men on a photographing trip in the Cascade Mountains. News articles appear in local newspapers and then are repeated in national papers and on TV. The legend of the Mountain Man of the Cascades is resurrected. Is he real or is he fiction, only a myth? At the end of his expedition to the remote sections of the Cascades, only Jeff Baker, nature photographer, knows. And he is not telling—for very good reasons.


Tuesday, November 19, 2013

Here's hoping my lunch mate misunderstood the instructions of her boss.

Attended a seminar today which included 3 CE credits.  At lunch I sat with a young lady who works for a regional bank as a mortgage processing trainer.  She said she had been asked at the last minute to come to the seminar and doesn't really know much about title insurance.  Fair enough.

I asked if she was getting credit for the course and she said no but that the person she was sitting in for would get credit.

Pregnant pause.......

I decided to let this one go.  If the folks who are in charge don't have a way to verify who is there, that's their problem.

I felt bad for the young lady who apparently has a boss with bad habits but perhaps she simply misunderstood and they sent her there for education and not as a stand in for a licensee.

Saturday, November 16, 2013

Had a crazy closing yesterday defending a FHA lender against a real estate broker who doesn't get it.

Any FHA veteran underwriter remembers the "why" behind the HUD-1 Addendum. The FHA does not want the borrower to receive money from the seller directly or indirectly.  WHY?  Because forensic auditing of defaults and foreclosures show that borrowers who put their own money up for the minimum investment have a better chance of avoiding default.

Over the decades the FHA has refined rules to define what constitutes acceptable sources of cash for the minimum investment that must come directly from the borrower.

While the FHA does allow seller assistance for closing costs, this assistance is limited so that the minimum investment rule is maintained.

Back in ye old days scofflaw seller and real estate brokers would do things like silent seconds, fake hand money and fake gifts to skirt the FHA rules.  The FHA thus created the HUD-1 Addendum that requires the seller, buyer and settlement agent to sign off that they are not aware of any money moving to the buyer directly or indirectly.  The language of the addendum reminds signors of stiff penalties for making false statements.  Lying to the FHA is criminal.

Carefully using the phrase "directly or indirectly" the document covers on HUD-1 money transfers and off HUD-1 money transfers.  It also covers any circuitous route that the creativity of the parties might birth thinking that they are getting one over on the FHA.

Granted lots of people negotiate transfers of money without intending to commit a crime.  The most common is the repair credit.  Something is discovered in an inspection and the easy fix is for the seller to just give the buyer some money - on or off HUD.  WRONG. No can do on the FHA mortgage.

If you are involved in a FHA transaction and you want to be sure that you aren't going afoul of the rule, then simply present the facts in writing to the FHA underwriter and request a written response.  If the FHA underwriter says it's okay then you get a pass even if the FHA auditors disagree with the FHA underwriter.  You see, the FHA underwriter has the authority to make decisions and takes responsibility for the transaction meeting eligibility standards for the FHA insurance.  If the FHA auditors later decide that a mortgage lender didn't follow the FHA rules, then the mortgage lender is in trouble.  Conversely, if the FHA auditors find a problem that YOU created unknown to the FHA underwriter, then YOU are in trouble with possible criminal charges and you might even receive a demand for payment in full on your mortgage.

So, what happened yesterday?  Well, on Thursday, while creating the HUD-1 Settlement Statement I noticed a notation on the real estate brokerage commission statement referencing a referral fee to be paid by the selling agent.  I called the agent because I didn't have enough information to know if this referral fee should be on the HUD-1.  The agent explained that we didn't need to put it on the HUD-1.  The buyer's wife is a licensed agent and they would be paying her a referral fee after closing.

The old FHA red flag flew up in my mind.  Sure that the real estate agent had no knowledge of the FHA rule, I explained that we need to get lender approval for the off HUD payment of the referral fee since it was going back to the buyer's wife. I can't sign the HUD-1 Addendum because I have knowledge of an indirect transfer unless the FHA lender approves.

I contacted the lender who checked with the FHA underwriter.  The answer was an absolute NO WAY.

I contacted the buyer and explained that the referral fee would not be an issue if he switched to a conventional loan or paid cash for the property.  I asked if he wanted to postpone his transaction and switch loan programs.  He said no.

The buyer's wife and her broker were not happy and they contacted the selling agent's broker and insisted that the referral agreement was between the two agencies and it had nothing to do with the FHA mortgage.  The selling agency broker called me for an explanation and once he understood how the FHA rule works, he agreed and told the wife and her broker that he could not pay the fee without lender approval.

Yesterday, a couple of hours before the closing, we received a letter from the wife's broker asking the underwriter to reconsider if they agreed to keep the fee and not give any portion to the wife of the buyer. I forwarded that letter to the lender.  The FHA underwriter took the matter to the president of the mortgage company for a formal decision.  The president - who I found out used to be a DE underwriter, said that not only could they not pay the referral, she also wanted us to get a letter from the selling agency broker stating that he would NOT pay the referral fee. She agreed with my concern and said she wouldn't sign the HUD-1 Addendum either given the knowledge of this indirect fee even with his promise to not give it to the wife.

I obtained the required letter from the selling agent broker and spoke with the buyer who then told me that his wife's broker would still pursue the matter after closing.  I then explained that since he decided to use the FHA program that he had to live within the rules and they need to drop the matter.

As the closing started, I contacted my closer and told him I was sending a statement for the buyer and his wife to sign that included a number of affirmations including that he had been given the chance to postpone and change programs, that he understands the grounds for acceleration of the debt as described in the mortgage instrument.  Since it was the wife who had signed the original referral fee agreement on behalf of her agency, I asked the selling agent to present the agreement and mark it voided and have the wife sign acknowledging the void.  I told the selling agent and my closer that if we did not get both signatures on the affirmative statement and her signature on the voided referral agreement, that we would not close.

The wife called me and said she refused to sign for the void and I told her to contact her broker and have him sign.  She called him and he gave her the authority to void the referral contract.  We closed.

Got a big thank you from the selling agent and she did infer that the referral broker was still going to have his attorney review the paperwork.

This was a very interesting transaction because at every level 2 old DE underwriters - the president of the lender company and me - got to train some youthful participants in the nuances of the how and why of the HUD-1 Addendum and what it means to stay vigilant and keep a transaction honest.

Trust me.  You do not want to ignore an indirect transfer of money to the buyer in a FHA transaction unless you're willing to face criminal prosecution.

Thursday, October 31, 2013

flood insurance sticker shock

Perhaps you've already heard that FEMA has new rules for flood insurance.  We are getting reports that a new elevation certificate is required and these certificates are pricey.  Once the new quote comes in, it's higher than expected.  For instance one family selling their home told a buyer they were paying $400 per year for flood insurance.  Under the new system their buyer will have to pay $2300.

We are also hearing that there may be legislation moving to delay or change this new FEMA rule.  What have you heard?

glory hallelujah....notary signing agents will have standards!!

During the MBA Annual, a special committee of major lenders and title companies known as the Signing Professionals Workgroup announced the creation of best practice standards for notaries handling loan signings. These recommendations were the result of a year-long investigation and discussion for new notary standards within the mortgage process.
“After the Consumer Financial Protection Bureau issued the ‘Service Providers Bulletin in April 2012, financial institutions have been held accountable for verifying the credentials of their third-party service providers,” said Thomas Heymann, president and chief executive officer of the National Notary Association. “Until now, there were no consistent or broadly acceptable standards for the notaries who represent lenders at the signing table.”
In said CFPB Bulletin, lenders were told to verify that their service providers complied with federal law and maintained “appropriate training and oversight of employees or agents.” In addition, lenders are expected to establish ongoing monitoring programs, and put in place enforceable consequences for providers who fell short and failed to quickly address their shortcomings. For these reasons, the NNA and the members of the SPW committee felt compelled to act and shore up this end of the process.

Saturday, October 26, 2013

Nine title companies run by one employee in one office?

A Kentucky law firm is in the crosshairs of the Consumer Financial Protection Bureau for its operation of nine title insurance companies.
The bureau sued the six-lawyer Louisville firm, Borders & Borders, on Thursday, claiming the title companies were used to pay kickbacks for work referrals, report the Wall Street Journal Developments Blog, the Louisville Courier-Journal, and the National Law Journal.
The suit (PDF) alleges the law firm paid for referrals by operating nine joint-venture title insurance companies with local real-estate agents and mortgage brokers. The nine companies didn’t have separate office space and were operated by one law firm worker, the suit says. The CFPB claims the split profits for title work were illegal kickbacks that violated the Real Estate Settlement Procedures Act.


But principals at the firm publicly disagreed with the CFPB's findings.
"This case concerns a number of title agencies that were affiliated with our firm several years ago," Borders & Borders said in a statement. The firm calls the title agencies 'affiliated business arrangements,' and says they are "expressly allowed by RESPA."
"There were disclosures to every consumer, as required by the statute, and in every instance in which title insurance was issued through the agencies, the consumer approved," the law firm said. "We note that the CFPB does not allege that there was any consumer harm, or that any consumer paid a penny more for title insurance issued through the agencies in question. Instead, the CFPB is trying to enforce its own version of rules that are not only not in the statute but which have been declared unconstitutional by a United States District Court. We are very disappointed by the CFPB’s conduct, and we will certainly defend the case vigorously."
The Department of Housing and Urban Development kicked off the initial investigation, prompting Borders to shut down its joint ventures. The case was then moved to the CFPB in July 2011 when the bureau obtained RESPA enforcement authority.

Tuesday, October 08, 2013

title company wants to change borrower net proceeds after the rescission period has expired

  I just refinanced my house, We signed all the FINAL HUD FORMS! The title co sent us a check for the amount that we are getting from the lender, This was the final hud settlement forms . Now the title co wants me to hold the check and says they will stop payment on it if we deposit it. Everything was notorized and witnessed. After waiting the required 3 day resition period everybody was funded. Now he says I have to wait! Is this legal after closing and can he change the amount of our proceeds? Something seems to be fraudulent!

If the figures are being changed, you should be eligible for another 3 day rescission period.  Contact your lender immediately and tell them what is going on.  Tell them you insist that they inform the title company that it is too late or that they redo the closing statement and give you another 3 day right to cancel. Tell them you will contact the Consumer Finance Protection Bureau and the state banking department if they refuse to grant another right to cancel period. If you still don't get help, in addition to contacting these agencies you might want to talk with an attorney about sending in the cancellation form and rescinding the transaction anyway.

The entire purpose of the federal right to rescind on a refinance of a primary residence is to give the consumer a period of time to review the terms and the dollars involved in the refinance.  You have to have REAL figures to consider before you waive your right to cancel.  If these figures were wrong - and they might be legitimately in error - then you need to have good figures back in front of you with the right to cancel.

If the reality is that you would have cancelled if you had correct figures, then I believe you still have that right.  If the reality is that you would not have cancelled if you had the correct figures, then you might want to just go along with the correction.  There is a difference between a legitimate error and a bait and switch situation.

Hope this information is helpful.


Saturday, September 21, 2013

query: one week before closing freddie mac listing agent finds a problem with title do they still have to honor contract

The specifics of your case should be reviewed by your attorney, but in general unless the Freddie Mac sales contract gutted provisions that the property would be sold with good and marketable title, I would think Freddie Mac would have a chance to correct the problem. If they can't within the allotted time, the parties may or may not agree to an extension.

Wednesday, September 11, 2013

TIP - Change the locks when you buy a house.

Yesterday I was copied on a letter from a woman who purchased a house recently.  Title insurance doesn't cover this type of loss.  I'm not certain that she can hold the agents responsible. It's a good reminder to take control of your property upon purchase by changing the locks.  You never know who has keys and should not rely upon and statement from the seller.  Just change the locks.

"I will also be contacting you in another email requesting restitution from
Ms. redacted and Mr. redacted for not appropriately providing a completed
disclosure state for this property and also, allowing keys to the property
to remain with individuals whom I did/do not know.  

This was my home as of redacted 2013, which was accessed by individuals
without my authorization, with items being removed from the house after my
father and I did a walk through on redacted 2013.  The carpet in the bedroom
upstairs was urinated on; furniture left in the home was removed or changed
out, light fixtures were removed and replaced with others; the hot water
valve on the hot water tank was broken after we tested it; the refrigerator
portion of the refrigerator no longer works; cables were taken out of the
house; there was a self and holy water holder in the hallway upstairs.

This is completely unacceptable.  On Monday, redacted 2013, someone whom I did
not know, nor my parents', brought keys over to the property and would not
leave their name because individuals had been coming and going from my home.
If the family of Mr. redacted wanted items out of the home, I should have
been contacted to set up a time when I was on-site. This was unethical and
against the law.

 I do believe I paid for and purchased the home, all of the utilities and
homeowners insurance is in my name along with the responsibility. Now, my
family can identify this(these) individual(s).

 And, I will be seeking damages and restitution based upon the Pennsylvania
Code of Real Estate from both estate agents, Ms. redacted and Mr. redacted."

Friday, September 06, 2013

query: what does it mean "liens to be divested"

Usually when we talk about divesting liens, we are talking about foreclosure. Divesting can also take place in a judicial sale of real estate aka a free and clear tax sale.

What happens is that a court action is used to clean the title.  If proper procedure is followed certain types of liens can be cleaned from the record - or divested.

For instance, if a mortgage lender is in first lien position and they foreclosure, if they gave proper notice to a second mortgage lender, then  the second mortgage lien is divested through the foreclosure action.

Some types of lien are not typically divested such as municipal liens or property taxes.

query: what is an unsatisfied mortgage

When a mortgage lender receives payment in full that mortgage lender must file a document at the county courthouse to let the public know that the mortgage has been satisfied.  In PA mortgage lenders have 60 days to file this document.  It is not uncommon for mortgage lenders to fail to file the satisfaction document and so unsatisfied mortgages are a constant source of title insurance claims.

When a title search reveals an unsatisfied mortgage the first order of business is to determine whether or not the mortgage had in fact been paid in full.  If not, then someone must pay the balance before the mortgage lender will file the satisfaction document.

If the mortgage has been paid in full, there are options for moving the transaction forward.  The best option is to contact the mortgage lender and get them to file the satisfaction.  This may take time and if time is of the essence other options may be more appealing.  The title insurance agent who is in charge of the current transaction will decide whether or not they will accept a letter of indemnification from a previous title policy or perhaps they may accept a letter from the mortgage lender affirming that the loan is paid in full and that they are in the process of satisfying the mortgage.

There are some cases in which the mortgage lender cannot be located and there is no acceptable way to cover the unsatisfied mortgage with indemnification.  In these cases the owner of the property may need to hire an attorney and file an action to quiet title and remove the mortgage lien.

Thursday, September 05, 2013

Obamacare rude awakening for small business owners

Health Care Reform impacts ALL of your employees - even those who are part-time, seasonal, and currently not eligible for or purchasing benefits - as well as all of their family members. A key provision of the Affordable Care Act is the "Individual Mandate," which requires most individuals to purchase health insurance coverage or pay a penalty.  

On August 27, 2013, the IRS issued final regulations on the individual mandate. The rules clarify whether certain types of coverage are acceptable. 
The penalty for not obtaining health insurance coverage will be phased in over a three-year period, as follows:

2014: The penalty will start at $95 per person or up to 1 percent of income.
2015: The penalty will increase to $325 per person or up to 2 percent of income.
2016 and after: The penalty increases to $695 per person or up to 2.5 percent of income.
The penalty is calculated on a monthly basis and will be assessed for each month in which an individual goes without coverage!

The ChamberChoice Client Resource Center can help your employees and their family members understand the Individual Mandate. The health care arena is changing and all individuals have a responsibility to comply with new legislation or pay a penalty. Our representatives can help any individual sort through the confusion, understand their options and responsibilities, and find the solution to meet their specific needs.  

Please share the enclosed Health Care Reform bulletin with your employees and encourage them to call our CRC at 1-800-377-3539 to speak with one of our licensed representatives.

Wednesday, September 04, 2013

Richard wants to know if the seller has to pay taxes that the title agent failed to collect.


I would appreciate your thoughts on this situation:

Preliminary title report lists property taxes for the current year as due, supplemental taxes as payable.  But it doesn't show up in the HUD-1, so seller receives more than she would have if they were accurately reflected. Two months later, the title company tells the seller they have to reimburse the title company for the taxes they paid (the ones in the title report).  Would seem they made a mistake and while they may not be required to pay all the taxes, the seller shouldn't have to pay their fees, since as the title company's representative has indicated they "screwed the pooch".  

Your thoughts much appreciated.

Hi, Richard.  One of the documents required for title insurance is an owner/seller affidavit used to bind the seller legally in the event of just such an error.  Title insurance covers human error.  Some errors happen in the closing process because people are human and often rushed at the end of the process.  There are checks and balances in the system to help find and eliminate these types of errors.

The seller has personal knowledge of the property and thus should have noticed that the taxes were not collected on the HUD-1.  The affidavit is supposed to jiggle their memory.  When the seller signed that affidavit, the seller affirmed that all taxes are paid or are being paid on the HUD-1.  The affidavit is made for the purpose of inducing the title insurer to insure.

The seller should pay the taxes.  If the seller does not, the title insurer may litigate to recover damages.

It's a bit like having a store clerk give you the wrong change or a bank accidentally depositing money into your account and discovering the error later.  It's not your money and you can't keep it.  In this case, the seller was unjustly enriched. ;)


Saturday, August 31, 2013

title claim tip....

If you are selling your property and your buyer's title insurance agent says there is a pre-existing lien that you need to pay and they want you to just pay for it then file a title insurance claim later, DON'T DO IT. Sometimes the buyer's title insurance agent is wrong.

The first job of a title insurance company when faced with a possible lien is to determine if the lien is valid.  If the lien is valid and it's covered by your title insurance, then they will pay it for you.  If, however, the title insurance company determines that the lien is not valid, they will explain this to the buyer's title insurance agent and help you to proceed with your transaction and close.

If you simply agree to pay for the lien and expect to recover from your title insurance and it is determined that the lien was not valid, you won't recover your funds.

We most often see this in PA with municipal services.  There is a 3 year window for filing municipal liens for things like water and sewage service.  If the municipal authority fails to file a lien in that 3 year window, they can't attach the unpaid balance to the property.  Just because they ask for the money on a lien letter doesn't mean that it must be paid.  A simple discussion with their solicitor usually resolves the matter.

We have a pending claim in our office concerning PA inheritance taxes.  In this case an attorney/title insurance agent who was representing both buyer and seller in a transaction found what he thought was a valid lien, paid it from the seller proceeds and then told the seller [our insured] after closing to recover the funds under their policy.  The claim isn't formally resolved but from the moment it hit our office and we sent it to the claims department, at every level each person who reviews it, says it isn't a valid lien and they don't understand why the attorney paid it.  He could have held the funds in escrow while his sellers filed a claim.

So, don't let the money out of the door before talking with your title insurer.

Friday, August 16, 2013

Wow, a request for a kickback and another request to collude to defraud a lender all in the same week.

This post goes out to mortgage lenders with a shout out to not let your guard down.  Loan officers need training to understand what they can and cannot do.

This post also goes out to title insurance companies with a shout out to not let your guard down. Title agents need training to understand what they can and cannot do.

When  loan officer calls and wants special pricing for their transaction, we say no.  We don't even give ourselves special pricing when we do our own transactions.  We keep the slate clean.

When a loan officer tells real estate agents and the borrower that "they don't need to know" about an addendum, we help them understand that they are colluding to defraud the mortgage lender.

We have to stand our ground to support good practices and have a zero tolerance for RESPA violations and fraud.  Don't you agree?

Wednesday, August 14, 2013

our response to an attorney refusing to have his client sign the owner/seller affidavit

"This is a problem.  Despite Atty. redacted experience in successfully refusing to have a seller sign the Owner/Seller Affidavit, we must insist upon the seller signing the document.  It is a mandatory affidavit for title insurance.  Any attorney who issues a policy without having this affidavit is doing so in violation of their contractual relationship with the title insurance company.  We don't violate that contract.  That said, since this is a cash transaction, the buyer may, if she chooses, accept a broad exception to her coverage which would except risks covered by the affidavit - effectively gutting her policy. In my opinion the refusal to sign the Owner/Seller Affidavit is no less a concern than if the estate had refused to sign the Seller Disclosure or the PAR sales contract and the various related disclosures contained in the real estate brokerage file."

"The bottom line is that this transaction belongs to redacted and redacted.  I am prohibited by Atty. redacted from contacting Ms. redacted directly.  Otherwise, I would surely try to explain to her that the refusal to sign the Owner/Seller Affidavit is outside of the norm.  Section 16 of the PAR sales contract says "The Property will be conveyed with good and marketable title that is insurable by a reputable title insurance company at regular rates,......" Though Atty redacted argues otherwise, it is a fact that the affidavit is mandatory and any title insurance company who is aware that their authorized agent [attorney or not] is issuing a policy without having such an affidavit in hand, that title insurance company would refuse to issue such a policy."

Upon receipt of this explanation, the listing agent spoke with the seller and she agreed to sign the affidavit despite the recommendation from her attorney.

Wednesday, August 07, 2013

Do your closers carefully review the owner/seller affidavit when it is being signed?

This case, see attached link, which I found through the wonderful tool of Lexology - thank you Christopher Smarts, made me think about the importance of this affidavit review.

I wondered as I read the case whether Speisman read the affidavit and intentionally withheld the construction status from the title agent or did he do what many may do and that is to simply sign where indicated thus committing fraud without knowing he had done so.

I realize that from the title insurance company point of view, it doesn't really matter because he signed the affidavit and has a responsibility to read before signing. I do wonder, though, if the closer had looked him in the eyes and read the mechanics lien language, if the borrower would have told the closer about the construction. I think there is a good chance that he may have. It is hard to lie when someone is looking into your eyes and challenging you on a specific point.

We train our closers to look directly into the eyes of a consumer during certain points in the affidavit with the hope that doing so will make them reveal a problem if one exists.

In the case of Speisman, had he spilled the beans, the closing would have been cancelled and perhaps the loan officer might have been angry, but the title insurer would have been protected and in the long haul the borrower would have been protected from himself.

What do YOU think?

Saturday, August 03, 2013

important case in Washington on title company responsibility for agents

The Washington Supreme Court sided with the state insurance regulators Thursday in a case involving a Kitsap County insurance agency, Land Title Co., that was a contracted agent for Chicago Title. The court said in a 6-to-2 decision that Chicago Title was liable for the illegal actions by its agent, which had given out inducements including Seattle Seahawks playoff tickets in its efforts to secure business referrals.
Insurance commissioner Mike Kreidler’s office says the illegal wining and dining of real estate agencies, builders and mortgage lenders was meant to steer title-insurance business to the firm.
The court’s ruling, authored by Justice Charles Wiggins, is here 
Kreidler put out a news release on the ruling, calling it was a “big win for consumers."
“Chicago Title’s arguments were contrary to a century of insurance law,” Kreidler said in his news release. “In order to effectively regulate insurers and protect consumers, it’s important to hold insurers responsible for the actions of their agents.”

Read more here: http://www.theolympian.com/2013/08/01/2652198/supreme-court-agrees-with-state.html#storylink=cpy

Saturday, July 27, 2013

title insurance "commission" - Is it a gravy train?

I am always disturbed when I read an article discussing title insurance premiums that make it sound like the premium paid by a consumer is mostly commission. While that statement is true, the articles make the commission sound like a ripoff or a big vat of extra gravy that we don't deserve.

We operate in Pennsylvania which is a filed rate state. We write our title insurance under the TIRBOP structure which means the premium charge to a consumer is an "all-inclusive" rate.

This all-inclusive premium includes:

an expert title examination [one 60 year chain]
owner policy
loan policy, if applicable
preparation of HUD-1 Settlement Statement & disbursement of funds
preparation of legal description, affidavits & processing correspondence
settlement/closing services

A portion of the premium is sent to the title insurance company for the insurance coverage.  The remainder is retained by the title insurance agency to cover the cost of performing these services, creating the policies, and operating the agency.  It's not gravy. It's the meat and potatoes. This is HOW we get paid. In fact, premium commissions for small transactions don't cover the cost processing of the transaction, however they are offset by the larger transactions that add a bit more to the general operating pot.

In Pennsylvania we are permitted to charge for extra services which are considered optional.  These extras are what consumers should focus on when they are performing a price check between providers.  Many title agencies charge extra for signing services/notary because they do not have their own closing staff.  Also, many charge for after hours or out of office closings.  In our office, we only use staff closers and we perform closings off site and after hours without an extra charge.

Wednesday, July 24, 2013

CFPB throwing the book at Castle & Cooke for violating originator compensation rules

“We are taking action against the type of practices that precipitated the financial crisis,” said CFPB Director Richard Cordray. “Consumers should be able to get a mortgage without worrying about how the financial incentives of their loan officers may cause them to pay higher rates than they actually qualify for.”

The CFPB also said Castle & Cooke failed to adhere to certain recordkeeping requirements set forth under Regulation Z (Truth in Lending Act) and Title X of the Dodd-Frank Act. Specifically, the bureau said Castle & Cooke violated laws that require companies to retain their compliance records for a certain period of time. Creditors are required to retain evidence of compliance with the rule. The complaint alleges that Castle & Cooke did not record what portion of each loan officer’s quarterly bonus was attributable to a particular loan and did not reference its quarterly bonus program in each loan originator’s compensation agreement, in violation of federal consumer financial law.

Sunday, July 21, 2013

recognizing mortgage fraud and the role of a title insurance agent

We are working on a transaction that demonstrates just how easily a consumer can be guided into a mortgage fraud scenario by real estate agents and lending personnel who haven't been trained to understand just what this kind of fraud is and does to a lender.

I'm talking about the kind of mortgage fraud that pushes a transaction to close by circumventing mortgage underwriting guidelines.  This is the kind of mortgage fraud on which the mortgage credit crisis was built and why when the boom cycle went bust we had a more serious collapse than we would have had if lending guidelines had been enforced.

In this case, the guideline is a USDA rule that says you cannot use the program to purchase an income producing/investment property.

The property in question has a single family home and a mobile home on the land.  The mobile home has a tenant and the prospective purchaser, USDA applicant, wants the income from the rental to help pay the mortgage. He qualifies without it but says it would be hard to manage his budget without the extra income.

The existence of the mobile home was discovered when the appraiser went to the property and reported it.  The lender then asked the real estate agents and the buyer to move forward with the idea that the mobile home would be removed from the site.  The buyer doesn't want to lose the income and so the real estate agents concocted a scenario in which the property would be subdivided so that the buyer would purchase the house on one lot using USDA funds and then post closing, the seller would convey the mobile home and its lot for $1.00.

They discussed this plan with the loan officer who took the approach that is was "outside of the transaction" and so she didn't consider it a problem.

As the title agent in the transaction, when I found out about the plan, I spoke with the real estate agents, the buyer, the loan officer, and the seller and advised all that since the negotiated price included the mobile home and 2nd lot, that it was NOT outside of the transaction and that what they intended was to engage in mortgage fraud.  I said it in a nice way to as not to offend but I wanted to make absolutely sure that they understood.

We discussed alternatives including removing the mobile home, going for a different loan program that would allow the property as is, subdividing and the buyer only buying the house with its lot but for a reduced price and perhaps then buying the mobile home and its lot separately and without using USDA money.

The buyer and I had several detailed conversations and he said he did not want to commit a crime or engage in mortgage fraud but since his loan officer and the real estate agents and some fellow he called at the courthouse all thought this could be done, he wanted another opinion.  He wanted to talk with the USDA but he couldn't get them on the phone.

We also discussed how mortgage fraud is discovered through random audits and also targeted audits in the event of default.  I explained that he was at risk as was the mortgage lender who could be denied a claim if the loan went into foreclosure. He called his loan officer and asked if she could discuss it with the USDA.

The loan officer called a "contact" at the USDA who told her it was okay which she conveyed to me and to the other parties.

Since the mortgage lender gives their authority for decision making to their underwriter, I said that if the specific underwriter on this transaction was given the full set of facts, that the seller would be conveying the newly subdivided off mobile home and lot for $1.00 post closing and that this was part of the agreement, then I would close the transaction and insure title.  If not, I would not insure and they were welcome to find another title agency.

Did I overreact?  I don't think so. I have no desire to collude to defraud a mortgage lender by helping to withhold information from the underwriter.  So long as the mortgage underwriter has the full picture, then the lender makes their decision with open eyes and it's their decision to make.

The fraud is in the withholding of information to circumvent an underwriting guideline.  If the USDA does not allow their money to be used to purchase income producing property and the mortgage underwriter who has the authority to interpret these guidelines and bind the mortgage lender decides that a post closing transfer for $1.00 does not equate to using USDA funds, then so be it.  I haven't committed a fraud.  I have provided full disclosure.

It might be that the underwriter will be found at fault for a poor decision at some later date, but the parties in the transaction did not commit fraud if they provided full disclosure.

If, on the other hand, they hide the tandem "outside of the transaction" acquisition of income producing property and the underwriter approves the USDA loan without this knowledge, then you most definitely have a mortgage fraud case and all of those who colluded are at risk.

In this case, I see the role of the title insurance agent as a fiduciary for the lender and an educator to help others not to take the wrong path.  When the transaction cannot be saved and made legal, the title insurance agent must be strong enough to walk away.  This is how we protect ourselves and our industry.

Thursday, July 18, 2013

best practices in focus

I cannot say often enough how wonderful it is to see title insurance publications and trade associations focusing their attention and efforts to promote best practices rather than joint ventures. 

Thank you ALTA for taking the lead on this.

Wednesday, July 10, 2013

Attn: independent title agents...Doug Miller of CAARE wants to publish a list of independents.

We've started a project at CAARE to identify and publish a list of as many independent title firms in the country as we can. Currently there is no way to find independent firms. 

Can an old title insurance policy help with a new adverse possession claim?

I found your name on your website and I was wondering if you could help me with the case below:
1. My wife inherited a lake cabin on 2 lots from her parents who are both deceased.  They bought the lots 30 years ago.
2. We don't know for sure, but knowing her parents it is very likely that they purchased title insurance even though they paid cash for the 2 lots.
3. The lots were recently replatted (for reasons beyond our control) and as a result the lot lines shifted 50 ft to the north.
4. The neighbour to our north is claiming adverse possession of one of the lots and filed a law suit.
5. I need the title insurance to pay for legal fees to defend against this law suit.
6. We can't find the title insurance.
7. We called the title company and they say they don't have any way of finding it.
1. Does title insurance pass on to heirs?
2. Does title insurance defend against adverse possession claims?
3. How else can I find the title insurance since there was no loan involved?
I appreciate any help you can provide.


Hi, David:

Without evidence that you have title insurance, you don't have any way of seeking their assistance even if they will work with the estate.

Title insurance only insures against things that occurred in the past, anyway, so it would be no help with a new claim of adverse possession.

Your best bet is to hire an attorney.  An attorney would be able to look at your state law to see if the possible claim of adverse possession ended with the death of the owner.  In some states the required period of time restarts each time the property changes ownership. It doesn't accumulate through owners. The attorney could also take a look at how the property lines changed and see if that was reasonable.

Best wishes.  Hope it works out for you.


Thursday, July 04, 2013

Ligonier YMCA expansion plan leads to concern over property rights

The plan shown below is the original development plan for what is now Ligonier Borough in Pennsylvania.  Ramsey owned the land and he designed the plan.  Following the design of this plan we have many wonderful little alleys that help maintain the charming residential village atmosphere.

One little alley is at risk because the YMCA, considered a good cause by many, wants to expand.  The YMCA purchased two residences across the alley from its current location and they have plans to raze the structures and create a parking lot and daycare drop off in this space, including the location of the alley easement.

If you read the language on the plan you will see that Ramsey granted that the easement for the alleys be forever open.  How could the YMCA take the rights of the public and destroy Ramsey's easement?

There is also the question of zoning.  The two residences set for demolition sit in a residential zone in which no parking lots are permitted.  This is not an old ordinance. Ligonier Borough updated its zoning ordinance in 2010. Now under public pressure and against the wishes of some neighbors living next to or near the proposed parking lot, officials are considering amending the ordinance to accommodate the YMCA.

I am hopeful that local officials will respect the easement and rights of property owners in the residential zone.

Though I understand the enthusiasm of the YMCA and its members, I am distressed that there is such a disregard for the rights of Ramsey to create his easement and the public and landowners in the plan to enjoy it.  I am also distressed by the lack of empathy for property owners in the residential zone who did not bargain to risk the use and enjoyment of their homes by commercial encroachment and the noise and congestion of a busy parking lot.

I am not arguing against the YMCA and its desire to expand. I am arguing that they have selected the wrong way to expand.  The YMCA is situate in a village and the inhabitants of the village have rights and the village was designed with purpose.

Carving up and destroying a portion of the village is the unintended consequence of the planned expansion.  Ligonier Borough is a small residential village deserving of protection.  Let the YMCA find a way to expand within the law and within the design and structure of the village.

If you think I have based my argument on misinformation, please enlighten me.   Thank you.

Friday, June 28, 2013

ahem...WAH? That's not the way they do it in their office? Seriously?

Jiminy crickets.  We just had a closing and found out at the closing table that the seller wanted to reserve oil, gas, and coalbed methane rights.

We had carefully reviewed the sales agreement and found it silent on the issue.  We sent the deed to the seller and agents prior to closing for a review. Nobody raised the issue.  The only reply was that the sale price had changed and no one had given us that information. We made that correction and moved forward to closing.

It wasn't until the deed was presented at the closing table that the seller, thank heavens, asked if he was reserving these rights. He was told that no reservation language had been added to the deed and so that any rights he had were being transferred to the buyer.

The seller said that was not his intention and interestingly, the agents said that's not how it works in their office.  They told our closer that in their office the sales contract and deed do not convey these rights. WAH?

They are using the standard PAR agreement of sale.  They failed to use the Oil, Gas, Mineral addendum which was created for this purpose.  They also failed to add any language in lieu of the addendum speaking to the desire of the seller to reserve these rights.

BTW At the closing table, this appeared to be the first time that the buyers were hearing of the reservation.  What were these real estate agents thinking?  How many other transactions have passed through their office without clarity on oil, gas and mineral rights?

Bottom line, folks, silence doesn't do it.  If you intend to reserve something - anything - you have to add language expressing the reservation.

Saturday, June 08, 2013

mistake in refinance not discovered until after rescission period

Hello Diane,

I noticed your blog online back in 2007 regarding Title/Escrow questions.  

My husband and I refinanced our home a couple of months ago.  We told the lender that we did not want the loan balance to increase.  When all of the documents were prepared and we were shown the HUD-1 for approval, our loan balance went up by $5000.  We were not happy with this and decided that we didn't want the loan.  But our lender assured us that we were going to get $3000 back to borrower that we could then apply to principle.  We felt better about this because then our new loan would only be increasing by $2000.  So we decided to go forward with the loan.  The next day we signed all of the documents and the HUD-1 stating that our new loan was $398,000 (up from $393,000) and we were going to receive a check for $3000.  

About 10 days later we received a check in the mail for $1500 instead of $3000.  There was no explanation as to why the check was short by $1500.  When we talked to the lender about this, she asked the title company to explain why the check was short.  At first there was no response from the title company.  Finally, after several attempts to get their response, the title company said there was an error and that $1500 was credited twice and should have only been credited once. 

My question is this:  

I understand that mistakes can be made in preparing documents, but we based the whole purchase of our loan on the fact that we were getting $3000 back.  We would not have purchased this loan had we known that we were only getting $1500 back.  Also, if there was an error, shouldn't the title company have notified us within the 3 day rescission period so that we could have the opportunity to back out of the loan based on accurate calculations?  If the title company didn't know of the mistake until after the 3 day rescission period, shouldn't they have then given us another 3 days to rescind based on the accurate information?  Was it right for them to go ahead and fund the loan without notifying us of the error?  Did they just assume that we wouldn't care and would buy the loan anyway?  Basically, we were sold a loan and signed documents based on false pretenses.  They had a price tag on their loan and we bought it at that price.  If they put the wrong price tag on their loan shouldn't they be held responsible for what the price tag stated?  They are telling us now that they put the wrong price tag on the loan but are now forcing us to buy it at the higher price.  We never would have bought this loan based on their new calculations and they never gave us a chance to rescind based on accurate calculations. 

Any clarification on this would be much appreciated!



Hi, Amy:  I would make a giant stink out of this.  I would immediately send a certified letter to the lender - Attn:  Compliance Officer. Copy the letter to the title company, the loan officer, the Consumer Finance Protection Bureau, the state insurance department, the state banking department.  Insist that you want to be made whole. If you have copies of email conversations  with the lender and the title company send them with the letter.

The HUD-1 Settlement Statement is to have a comparison of the Good Faith Estimate versus the HUD-1.  I find it very hard to believe that the error did not come to the attention of the mortgage lender when they did their pre-closing approval of the HUD-1.  They are supposed to check this comparison which is on page 3 of the HUD-1.

The other mistake is that the title company did not check to make certain the transaction balanced before they did the closing.  If an amount was credited twice this would have been revealed in the balancing stage.

Good luck and let me know how it works out for you.


municipal charges survive foreclosure

We closed a purchase transaction yesterday involving REO property being sold by a lender to a cash buyer.

There was a last minute snafu when the seller paused for several hours to decide if they wanted to pay outstanding water and sewer charges.  These totaled roughly $3000 on a small transaction. They did eventually close, however, we had to adjust the schedule and wait while they faced reality.

We had to wonder how it was that they hadn't understood that municipal charges do survive foreclosure and if they didn't pay them, who would?

Friday, May 17, 2013

RIGHT FREAKING ON. You GO Rep. Kelly. Well said.

GOP Congressman Mike Kelly Receives Standing Ovation After He Rips IRS Commissioner

REP. MIKE KELLY (R-PA): This has nothing to do with political parties. This has to do with highly targeted groups. This reconfirms everything the American public believes. This is a huge blow to the faith and trust that the American people have in their government. Is there any limit to the scope where you folks can go? Is there anything at all? Is there any way that we could ask you is there any question that you should have asked?

My goodness. How much money do you have in your wallet? Who do you get emails from? Whose sign do you put up in your front yard? This is a tax question? And you don't think that's intimidating? It's sure as hell intimidating. And I don't know that I got any answers from you today. And I don't know that -- what Mr. George said is great work -- but you know what? There's a heck of a lot more that has to come out in this. Any anybody that sat here today and listened to what you had to say, I am more concerned today than I was before, and the fact that you all can do just about anything you want to anybody? 

You know, you can put anybody out of business that you want. Any time you want. I gotta tell you. You could talk about how you're a horribly run organization, if you're on the other side of the fence, you're not giving that excuse. And the IRS comes in, you're not allowed to be shoddy, you're not allowed to be run horribly, you're not allowed to make mistakes, you're not allowed to do one damn thing that doesn't come in compliance, and if you do, you're held responsible right then. I just think the American people have seen what's going on right now in their government. This is absolutely an overreach and this is an outrage for all Americans

Wednesday, May 15, 2013

consumers - PLEASE - do not invest money into a house before you get the title insurance commitment

We had a title order come in.  The transaction had been moving forward to closing and suddenly they remembered to order title insurance.  The order came in with the request to set up closing as soon as we could.

When the abstract arrived I hoped for a nice clean title so these folks could have a fast closing.  What I saw when I opened the report was a foreclosure in process and numerous state and federal liens and judgments related to a business failure.

What were these folks thinking?  This isn't a title that can be rushed to close.

Wait - I tallied up the liens and even without payoff figures in hand the total was far more than the agreed sale price.

I called the listing agent and found that the seller had no idea that personal judgments and liens would attach. They thought all they had to worry about was the mortgage.

I called the buyer and got a very disappointing report.  The buyer has been living in a mobile home on a rented lot.  They have already sold the mobile home and given notice to vacate the lot by the end of this month.  In addition, they have invested $2000 in this property by making numerous repairs.  They say the sellers wanted a fast closing and the real estate agents had pushed them to make the repairs as quickly as possible to clear municipal hurdles prior to closing.

Neither the real estate agent or the mortgage loan officer suggested to the consumer that they wait for the title insurance commitment.

Why would everyone ASSUME that the title to the property is clear if no one checked?

I had to tell a tearful and angry buyer to make arrangements for another place to live at the end of the month.  It will take time but we'll see how the payoffs come in and whether this transaction can be saved.  In the meantime, the foreclosure process is moving forward quickly.

Our consumers, the buyers, are in a quandary.  Should they just move on and find a different house?  Will they ever recoup the $2000 they sunk into this house? Maybe they should wait for the liens to be divested by foreclosure and buy the house later, eh?  Do they want to live with their parents for all that time?

All of this could have been avoided if the consumers were thinking for themselves and told the real estate agents to back off and wait for the title insurance commitment.

FOLKS.  Please be a savvy consumer.  Don't sell the house you live in before you are sure you have another place to go.  Don't put money into a house you don't own unless ALL contingencies have been eliminated and you have a full disclosure on the situation.

Monday, May 06, 2013

satisfying privately held mortgages....gotta watch it!

Hi Diane,

I was reading your blog and wondered if you could answer a question.  I purchased a townhouse in 2005 (in Maryland), and the owner held the mortgage.  In 2006 I refinanced, using the same title company I used in 2005.  In 2009 I again refinanced, using a 2nd title company.  I am in the process of refinancing and it has come to light that neither title companies cleared the lien when I refinanced in 2006 - it still shows that the owner has a lien although that was paid in 2006.  I purchased an owners title policy as well as a lender's policy when I bought the home in 2005.  Will this help me to clear the lien, and am I entitled to anything for the anxiety this is causing me (seems I should be able to recoup what I paid 2 title companies to do but which they didn’t do)?  My current refinance company suggested just getting the last owner to sign off, but she retired and moved out of Maryland 7 years ago – I have no idea where she is now.

Thank you for any information you can give me.


Hi, N:  Wow, crappy title agents in the two previous refinances!  You are in a pickle as the owner policy won't cover it.  I can only think of four courses of action.

1.  Hire an attorney to try to find the mortgagee - prior owner - and get her to sign a satisfaction.  With the internet, it is usually pretty easy to find people.  I like to use Super Pages "find people"  - it works pretty well is they have a land line.  Anyway, if the attorney can't find her, he can file a quiet title action to remove the mortgage.

2.  Discuss with your attorney options to sue the two title agents who missed the lien.  Even though title insurance doesn't cover it, their professional liability coverage may.

3.  Report both title agencies to the state insurance department and attorney general and CFPB.  They serve consumers and these entities will want to know that they aren't doing such a great job.  They may even compel them to help you.

4. Notify your current lender that they are NOT in first position.  They may put pressure on the last title insurance company to fix the problem.

I'm afraid your plans to refinance are on hold for now.  Good luck!