Fraud in Title: An Example

Ever wonder what fraud looks like in a title search?

This is *not* a release

The document above looks like a release of a deed of trust. The recorder indexed it like a release of a deed of trust. The title searcher regarded it as a release of deed of trust, and showed the lien as satisfied.

Fortunately, the title examiner carefully reviewed the document, and noted that the language was neither consistent with a typical release, nor was it executed by the lender or trustee. After questioning the owner, it was discovered that the reconveyance was indeed a fraud.

While the value of title insurance is often measured in claims paid, the above represents a "shadow benefit" that the claims numbers do not reflect: a claim avoided.

Common title issues that delay settlement

As we all know, settlements do not always happen on time. The delay can be for a variety of reasons and with varying degrees of severity. In this post, we'll explore common title issues that may delay settlement - matters that are revealed by a title search or survey that must be addressed before title insurance can be issued. In no particular order:

Unreleased liens: Whether against the prior or current owner, it's not uncommon for the record to reveal a deed of trust which was actually paid off but show as unreleased at the courthouse. Before we can settle, we need to know that all liens we're not paying off are released of record.

Lack of clarity of ownership: Here is a simple formula: [Sellers on Contract = Record Owners = Grantor on new deed]. This means we can't have individuals signing the contract when the property is in a trust. Nor can only one spouse sign a deed when both are currently in title.

Improper legal description: Some deeds have wrong lot or unit descriptions, or just do not reflect the property being conveyed. Sellers can only convey what they have and what the contract states will convey.

Missing heirs / estate issues: Every state's probate laws are a little different, but generally speaking upon death a person's property passes to her heirs per a duly executed will, or in the absence of one through operation of law (intestacy). If an heir cannot be found or does not consent to the sale, there can be problems.

Unrecorded documents: Put plainly, there may be documents missing of record which complete a chain of title (such as a deed) which can delay settlement.

Survey issues: As we discussed here, there are different types of surveys performed in conjunction with many resale transactions. Sometimes, the survey reveals issues, the most common of which are buildings which sit outside of boundary lines or setbacks.

Easements: Typical utility easements are often acceptable for a new buyer and her lender, but sometimes an easement can interfere with the use of a property (think of a powerline easement crossing where the buyers want to add a garage).

Improper execution of documents: Documents need to be property signed, dated and acknowledged before recording. Sometimes they're not. If a title search reveals these errors, we need to address them before settling.

These things happen. How can you mitigate the risk of this affecting your settlement date? Make sure your title company is ordering the title search as soon as you give them the contract!

Photo by Ambro

What should you ask your title company?

Congratulations! You have a ratified contract. Your buyers have signed on the line which is dotted. Your job is done, right?

Wrong.

Not true in any market, much less this one. Now comes the fun part - navigating from contract signing to settlement. An integral part of this process is selecting the title company.

So, how do you pick a title company? Likely you know someone and/or have worked with someone in the past. You have a relationship with them. And like all business, relationships are what drive this business. But let's say you are testing a new company out or want to dig a little deeper to see what is behind that friendly, helpful closing attorney?

Here are some great questions to ask which should help frame your decision:

1. What are your fees? All of them. No one likes hidden fees that do not pop up until the final HUD-1 is presented at the table. Ask your title rep for a fee schedule, or better yet, get the fees for your particular transaction. This can be done manually or via a web-based application, like ours.

2. When do you order the title search? This is the question which prompted this post. Some title companies wait until they hear the appraisal is back before ordering title. Why? It costs money to order title. See here what goes into a title search. However, I would insist that your title company order the search the day you hand over the contract. It's too important to wait. Otherwise, last minute title issues could arise that could have been addressed earlier.

3. How often is your escrow or trust account reconciled? Escrow/trust accounts should be reconciled monthly, no exceptions. If not, a shortage could exist which could come back and haunt your buyer should the title company find itself insolvent.

4. How many title insurance companies do you write for? This is a particularly interesting question today, and here's why it is important: title underwriters, like loan underwriters, are made up of people. People judge things differently. On a number of occasions, Title Insurance Company X will insure something that Title Insurance Company Y will not. It's the nature of the beast. I love my affiliated title insurance company, but I also want to know that I have others to call should I need to get a deal to closing. Is your title company bound by the underwriting staff of just one underwriter?

5. Where will the settlement take place? It all depends on your comfort level and convenience. Do they have a local office? Will they come to you? To the lender? To the buyer's home? Ask in advance, so you know what you're dealing with.

6. Do you have attorneys on staff? Titles can be confusing, and may require someone with a legal background to fully parse through recorded documents, legal proceedings and contract clauses to determine what needs to happen before or at closing. The title company attorney should never purport to fully represent your buyer, but they can provide guidance as to how to get the deal to settlement.

7. How many short sales and REO transactions have you handled this year? Short sales are REOs are different animals, and require much more work than refinance or straight seller-to-buyer deals. Is your title company well-versed in these nuances? How experienced are they?

We hope you find this helpful. As always, please email us at info[at]MASettlement[dot]com if we can ever be of assistance to your or your buyers!

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.

Release Red Flags

We recently received a communication from First American Title adding a few new procedures to our title search and review checklist. These changes center around a new and disturbing trend of forged and suspicious satisfactions.

These procedure changes call us to:

1. More closely scrutinize satisfactions/releases recorded 24-months prior to the search;

2. Red flag any releases not recorded immediately with or shortly after documents evidencing a sale or new mortgage;

3. Verify MERS certificates of satisfaction at www.mers-servicerid.org/sis/;

4. More closely scrutinize assignments prior to a questionable certificate of satisfaction; and

5. Place questionable satisfactions on the Schedule B-2 on the commitment with a corresponding Schedule B-1 requirement for verification of the validity of the satisfaction.

Why am I telling you this, and how does this affect you as the real estate agent, broker or loan officer?

Your title company will likely be taking these extra precautions, and questioning satisfactions/releases more closely. Should there be a delay because of this issue, or should the title company be seeking additional confirmation from a lender, now you will have an explanation as to why.