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.

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.

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.

http://www.thetitlereport.com/TTR/Articles/New-mortgage-signing-standards-announced-by-group-59381.aspx

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.

http://www.abajournal.com/news/article/did_title_companies_disguise_kickbacks_law_firm_sued_by_consumer_agency_den/

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.

http://www.housingwire.com/articles/27619-cfpb-hits-kentucky-law-firm-with-respa-suit

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

HI!

  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.

Diane

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.

terrific article explaining some basics of the title insurance process

http://www.nwitimes.com/lifestyles/home-and-garden/transferring-title-from-seller-to-buyer/article_d25fdcdb-c2a6-5156-aa7b-072f248930b3.html

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."

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.

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.

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

Diane,

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.

 

Regards,
Richard

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. ;)

Diane

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.

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?

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.

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?

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.”

http://www.theolympian.com/2013/08/01/2652198/supreme-court-agrees-with-state.html

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

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.

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.

http://www.doddfrankupdate.com/DFU/ArticlesDFU/CFPB-sues-mortgage-company-for-alleged-steering-vi-58561.aspx?utm_source=vwDFget&utm_medium=email&utm_campaign=DFU_Weds_Enews

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.

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.

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. 

Check it out: http://caare.org/independenttitlecompanie

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

Diane,

 

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.

 

Questions:

 

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.

David

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.

Diane

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.

Ramsey Plan in Ligonier by Diane Schnur Cipa