Case Review: Maryland Appeals Court Upholds MERS-related Foreclosure

This is a guest post from Elisa Kerr, one of the six attorneys we have on staff here at Mid-Atlantic Settlement Services. In light of some recent successful challenges to foreclosures in other states, it's important to obtain an understanding of how Maryland courts will respond to the various foreclosure issues that are surfacing today, such as MERS, imperfect assigning documentation, and the inability of a foreclosing entity to provide an original note. This case should give us our first glance at how a Maryland appeals court sees things:

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In a recent decision rendered by the Maryland Court of Special Appeals (Anderson v. Burson, et al., No. 00434, Sept. Term, 2009, full case here), the Court upheld the rights of the foreclosing bank to foreclose on a property in Howard County, Maryland, finding that the Bank was a proper successor to the holder of the mortgage note and had the same rights as the original holder to enforce collection. The borrowers under the mortgage being foreclosed had challenged the foreclosure, claiming that the Bank did not have the right to foreclosure because it was not the current holder of the note. They were able to stall the foreclosure first by filing for bankruptcy protection, and then later by filing a request with the Circuit Court for a temporary restraining order to stop the foreclosure auction. The motions that were filed may have delayed the foreclosure but ultimately did not prevent the foreclosure from occurring.

What does this mean?

This case is noteworthy because it is one of the first cases to be decided since Maryland foreclosure proceedings have been put under microscopic scrutiny by our courts. In this case, the Court had been asked to review the chain of title to the promissory note under which the foreclosure lawsuit was filed. Despite the fact that the promissory note had been transferred or “assigned” a number of times, and also that the original note had been misplaced, the Court still found that the Substitute Trustees and Bank had produced ample evidence that the Bank foreclosing was, indeed, the holder of the note and had the right to foreclose.

Why is this important?

It is an indication that the Court was not interested in upsetting the status quo – that is to say, that the way in which assignments of mortgages and deeds of trust have been handled in Maryland in the past remains acceptable to the Court. Further, it is an indication that the Court has no plans to “upset the apple cart” by imposing additional recording requirements on banks that might slow or stop the sale of properties that are or have been recently in foreclosure. We have seen hiccups on foreclosure sales in other states so this decision is refreshing in that the courts are presenting a favorable opinion on how foreclosures are and have been completed in MD.

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To read the case in its entirety, click here. We'll continue to keep you apprised of what's new with respect to foreclosures in this region.

BREAKING NEWS: DC passes "Saving D.C. Homes from Foreclosure Emergency Act of 2010"

On Wednesday, the District of Columbia enacted the "Saving D.C. Homes from Foreclosure Emergency Act of 2010." The key provision of which all of us dealing with DC real estate purchases must be aware is that for all foreclosure sales occurring November 17th or after, a "Mediation Certificate" must be recoded among the DC Land Records PRIOR TO the issuance and recordation of the Notice of Foreclosure.

Foreclosure attorneys, title agents and title insurance companies are all working diligently to see exactly what this means for DC foreclosures, but as this "Mediation Certificate" has yet to be created (to our knowledge), there seems to be a gap between what the law requires and what can practically be done to effectively foreclose on a DC property.

Again, as with any of these DC Foreclosure developments, the situation is very dynamic and fluid. As we receive more clarification and direction, we will pass that information along. To see all of our updates on Foreclosures, click here.

DC Foreclosures Just Got a Little Tougher

On October 27th, District of Colombia Attorney General Peter Nickels issued this Statement of Enforcement Intent Regarding Deceptive Foreclosure Sale Notices. The Washington Post reported on this development here. In this statement, the Attorney General now requires:

Prior to initiating a foreclosure involving a District of Columbia homeowner, a trustee or noteholder is obligated to confirm that the District’s land records demonstrate that the noteholder has the security interest that will be listed in the foreclosure sale notice. Each assignment of interest (or other document) by which the security interest was transferred to the noteholder, or to one of the noteholder’s predecessors in the chain of conveyances from the maker of the note, must be recorded with the Recorder of Deeds.

This means that before a foreclosure sale can occur, there must be a clear chain of ownership of the indebtedness such that the public records match the name of the entity who is doing the foreclosing. Because of MERS and the securitization of loans today, this clear chain doesn't always exist.

How does this affect how we issue title insurance in DC?

We have received two underwriter bulletins on this subject. In the first, we are asked to comply with the statement and ensure there are "recorded assignments of the Deed of Trust each time the owner of the note sells the indebtedness so that a clear chain of ownership of the indebtedness leads to the lender who is directing the trustee to initiate the foreclosure action."

In the other bulletin (from another underwriter), we are asked for the following for DC sales transactions:

Proof that the foreclosed Deed of Trust was not secured by owner-occupied residential property at the date of initiation of foreclosure proceedings, in the form of an affidavit from the foreclosing lender or its agent stating that the defaulting borrower(s) did not occupy the property as his/her/their personal residence at the date foreclosure proceedings were commenced.

This obviously adds some some additional complexity to our title reviewing process, and may in some cases render a title uninsurable. Many speculate there may be some emergency legislative or judicial action to more clearly reconcile this opinion and that of MERS with respect to the latter's ability to foreclose on properties.

Stay tuned as more develops...

Foreclosure Update for MD, VA and DC

As we discussed in this post, the "Robo-signing" foreclosure issue is a very dynamic and fluid one. There is new information by the hour. Here are some updates to that original post:

Maryland and "Corrective Affidavits"

The Baltimore Sun reported here that several Maryland foreclosure attorneys had others sign their names on court documents rather than sign them personally. In an attempt to correct this, the attorneys filed "Corrective Affidavits" later. From a title insurance perspective, this adds another layer of review for us. Should we find such a document in a foreclosure file, our underwriter needs to review the entire file before allowing us to insure. Fortunately, this can often be done in a matter of hours.

Bank of America re-opening the REO pipeline

Bank of America has partially unfrozen its foreclosure halt by allowing foreclosures to resume in 23 states after having reviewed their processes and finding no errors. Foreclosures should resume by October 25th.

Use of a "Lender Indemnity"

The Fidelity National Financial (FNF) family of title insurance companies is requiring the use of an indemnity signed by the lender/servicer for each transaction settling November 1st or later. Such an indemnity is not required, however, for deals involving Bank of America REO property as a master indemnity agreement has been signed between the two entities.

Stay tuned, as more news is sure to follow!

How is the "Robo-Signer" Issue Affecting Title Insurance in MD, DC and VA?

Even those not in real estate are now familiar with the term "Robo-Signer" - a term describing a mortgage company employee who allegedly signed thousands of documents authorizing foreclosures across the country, without actually having personally reviewed the loan documents. If you're not familiar with the story, this is one of the earlier pieces which brought the matter to light.

What impact has this had on the market nationally?

The investigation has caused lenders such as JP Morgan Chase, Bank of America and GMAC to cease their foreclosure practices in a number of jurisdictions while these entities take inventory and review procedures relating to the processing of these types of transactions. In addition, Bank of America announced today that it is halting foreclosures in all 50 states due to concerns that this practice affects all foreclosures, not just judicial ones.

What is the status in MD, VA, and the District of Columbia?

As of the writing of this post, only Bank of America has an outright freeze on foreclosures in MD, VA and DC. These jurisdictions are not considered pure "judicial foreclosure" states, and therefore are not included in the list of 23 states that Ally/GMAC (among others) is halting foreclosures in.

How does this affect how we evidence or insure title?

At this time, whenever there is a foreclosure in the chain of title or we are passing title from a lender to a new buyer as a result of foreclosure, we carefully examine the title and if we see irregularities we consult with our underwriter before insuring. At least one of our underwriters has instructed us to consult with them before insuring a foreclosure from Ally/GMAC.

Please be advised that this is a very fluid and dynamic situation. As we receive more updates from either lenders/servicers, or our underwriters, we will keep you updated.

Any questions? Please call your Title Service Representative or email us at info[at]MASettlement[dot]com today!

Listing Agents: 2 Steps to Avoid Surprises

I recently heard a story of an agent who lost a short sale listing to foreclosure of a lien. He knew it was a short sale, but didn't realize there was another lien which was eventually foreclosed upon. While you can't *make* the seller tell you everything, there are a couple of steps you can take which could prevent surprises - and loss of a listing - before settlement:

1. A net sheet
2. A title search

Net Sheet

Before taking a listing, I would do a “net sheet” for the seller. The simple formula is this:

Approximate sales prices - (commission) - (mortgage payoff) - (other lien payoffs) - (back taxes) - (seller settlement costs) = seller net proceeds.


Obviously you are relying on good faith, cooperation and estimates, but in many cases you can get a sense before you take the listing as to what a sale will net (if anything) and if your "foreclosure radar" needs to be up.


Title Search

Let’s say that you are in a short sale situation – or anywhere close to it (remember, the seller may not realize they are upside down), I would order a title search from your friendly neighborhood title guy.

Why?

While it is the buyer’s job to evidence title (at least in buyer-controlled markets like ours), as listing agent you don’t want to put work into marketing a property the seller will lose rights to own/sell. A title search may cost you/the seller something ($150 maybe?), although it is possible that the buyer will select that title company or buy the search in which case it would cost you nothing.

In the case I heard about, a Home Owner Association (HOA) lien was foreclosed upon, thereby wiping out the mortgage. Had a title search been done in advance, it may have revealed the existence of the lien. If you were aware of it, you could have done some legwork on your own to determine that the HOA was about to foreclose on their interests. You or the seller could have asked them to hold off until settlement, at which case they'd get paid.

Again, these are not fail-proof methods to avoid all pitfalls that come with listing in this environment, but they just could save yours.

REO - Marketable or Insurable Title

So you want to buy a bank-owned (REO) property? Well they can be a great deal for buyers and the buying experience does not have to be comparable to getting dental work done without Novocain.

You put in an offer on an REO property and eventually the lender comes back with an addendum that includes the “requirement” that the buyer must use their own title company. Many agents at this point do not challenge that “requirement” for fear that the lender will simply not ratify the contract. A legitimate concern of course but here are a few things to keep in mind.

Is your buyer getting “Insurable Title or “marketable Title” to the property? Is there really a difference and if so why should we care? Let’s start by defining those terms:

Insurable Title – Title to the property may have issues such as unreleased liens, this can include deeds of trust and other money related matters. Even if those liens have been paid off, the public records may not reflect that since a Certificate of Satisfaction or a Release has never been recorded. Other matters may encumber title as well, and those are what I call “Title Baggage”. The lender will find a Title Insurance company at that point who is willing to assume the risk and insure the transaction without cleaning up the baggage. Buyer is then acquiring “Insurable Title”.

Marketable Title – Title to the property may have baggage but the settlement agent handling the transaction insists on clearing up those messes. For example, we may track down a prior lender on a loan that has been paid off but no one bothered to record the release in public records, we will obtain that release and record it. Of course there are times when tracking down a lender is not possible. For example, a loan made by a private individual who has since “disappeared”, retired on an island somewhere and cannot be found or has long departed our planet.

So why should a buyer care? Why should a Realtor care? Let’s start with the buyer. Once the buyer acquires “Insurable Title” and say he wants to refinance a year or two later, guess what is still on title? You got it, the “baggage” we talked about earlier. This can cause delays and in some cases we’ve had clients’ interest rate lock expire since cleaning up the mess, known as “Title Curative Action” can take a while. Of course the borrower can always go back to the same company that insured it to begin with but that can also be challenging on many different levels.

Or worse, we’ve had situations where the buyer goes to sell at some point in the future only to find out that the “baggage” is still there, delayed settlements can be frustrating and in some cases costly.

So should a Realtor care? Well now that we know what we know about the difference between “Marketable” and “Insurable”, who wants their name associated with a transaction where the client may have issues down the line, not good for referrals. Perhaps a previous buyer now comes back to you as a seller only to discover the baggage, once again it can be costly.
In short, if and when possible, it is usually a good idea to have your own settlement agent review the title, address curative matters, and settle the transaction. So what about the “free” owner’s policy the REO lender entices the buyer with? Experience has shown us that in a lot of cases when you compare a preliminary HUD1 from the REO lender’s preferred settlement company vs. a settlement company that’s going to make every attempt to clean-up the “baggage”, the cost is nearly the same and not to mention that the buyer will acquire “Marketable Title” to the property. Happy closing!!

Foreclosure and Short Sale Class in Fairfax, Virginia

Are you a NoVa agent who can't get enough of foreclosures and short sales?

Harry Yazbek will be teaching an informational (non-credit) class at the Fairfax Coldwell Banker Residential Brokerage office this Thursday, January 15th at 10:00 AM. More specifically, the class will aim to educate agents on the REO and short sale markets, and tips on entering them.

Please email Harry at Harry[dot]Yazbek[at]MASettlement[dot]com if you are interested, or feel free to leave a comment below telling us you are coming.

REO Transaction Red Flags

So you want to buy an REO (bank-owned) property? Most homebuyers I talk to, be it first-time buyers or seasoned investors have their eye on REO properties. Several questions arise as they consider these purchases: 1. Are they a good deal? 2. Is the buying process easier or harder than a “regular” non-REO property?

Well, I will leave the first question to the seasoned real estate professionals and Realtors to answer but with respect to the second question, is the process easier or harder depends upon many variables. One thing for sure, as a buyer, brush up on your coping skills!! Here are some points to ponder:

1. Does the buyer know that REO lenders can take a while in coming back with an answer to the offer? This will likely mean that if the buyer needs to close and move into a house in 3 weeks, REO is probably not the answer. Often times the REO lender is so busy and acceptance or a counter to the offer requires additional investor approval, which could take anywhere from several days to several weeks.

2. Does the buyer know they are buying the property “as-is” in most cases? This means that if the property is in need of basic repairs just to make it habitable and the buyer does not have money for those repairs and REO lender is not willing to repair nor credit for repairs, once again REO may not be the answer.

3. Does the buyer know that they may experience delays in the closing that may not be their fault? After the lender accepts the offer (contract ratified), things can come up prior to closing that may delay the settlement by days and sometimes weeks, will talk more about that in a minute.

4. Does the Listing Agent have a good relationship with the REO lender? Specifically, the Asset Manager, so when issues arise throughout the transaction they are resolved promptly. This is always a plus but sometimes the best relationship out there may not be enough to make the process move any faster, so just be prepared.

5. Does the buyer understand that closing usually comes down to the wire and may or may not happen as expected? Don’t load up that moving truck yet!! This is when an REO transaction can get really complicated and if you are not using a competent and seasoned settlement agent who truly understands REO processing, you are asking for trouble.

These are just some examples of what we have seen frustrate some buyers, but let’s talk about some potential “deal-breakers,” meaning issues that are very difficult to address in a short amount of time. Those are the ones that must be resolved prior to settlement and if not, you have no deal. So here are a few:

1. Was the foreclosure done correctly or is it defective? You wouldn’t think this would be a big issue but from what we’re seeing lately, it can be. It is not uncommon to examine the foreclosure documents and realize that the lender only foreclosed on the husband but not the wife. The lender foreclosed on the wrong property because the legal description on the deed of trust was wrong. The lender forgot to send out the required notices to one of the junior lien holders to notify them that a foreclosure was taking place. Once again, this is where an experienced settlement agent can catch these problems early on in the process and fix them as quickly as possible.

2. Do we have a deed signed by the seller, and I mean the real seller? Wow…how simple it sounds now that I am typing this! Often times the REAL seller is an entity far removed from the servicing company with whom we have been dealing. This is when we look at who signed the deed to the buyers and determine if they had proper legal authority along with proper documentation to sign on the real seller’s behalf. This often comes down to the last minute and if not handled correctly, the buyer may end up buying a property and acquiring title by virtue of a defective deed.

3. Is the HUD1 approved and signed by seller? Once again it sounds basic but this can also cause issues and is often a last-minute situation. REO lender (seller) usually requires 24-48 hours to review and approve the HUD1 settlement statement (balance sheet to the transaction). Once again, it is not uncommon to find ourselves in a situation where everybody is ready to close but we do not have a final HUD1 approval from the REO lender. This is when the good relationship with the asset managers I talked about earlier comes in handy.

4. Are we there yet? Getting a “clear to close” status from title legal review can make or break a deal. Title review will look for things other than just defective foreclosures. Often times there are unreleased liens of record that need addressing prior to closing. This is where some companies will offer the buyer “insurable title” rather than “marketable title”. I will address that in detail in another post, but in short, when a buyer gets “insurable title” to the property, they are getting a property with unresolved issues, what I call baggage on title but a title insurance company agreed to insure the transaction anyway. Don’t panic, buyer is still insured and owns the house but there is a technical difference here.

So what’s the bottom line on all this? I am of the opinion that buyers need to be prepared and expectations need to be set early on in the process by the buyer’s REALTOR so they know what they are in for. Additionally, it is imperative that you hire a competent settlement agent who processes and closes REO transactions, lots of them, on a regular basis. This will help cut down on the frustration and increase the chances of closing on time. Happy REO hunting.