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.