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!

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!

New Maryland Power of Attorney Changes Effective October 1st, 2010

On May 20, 2010, Governor O’Malley signed into law Chapter 689, HB 659 which repeals Estates and Trusts Sections 13–601 through 13–603 (Powers of Attorney) and adds Estates and Trusts Sections 17–101 through 17–204 under the new title “Maryland General and Limited Power of Attorney Act.” The Act takes effect on October 1, 2010.

Among the many changes are two distinct provisions which Maryland real estate practitioners should be aware of: (1) New execution requirements and (2) new statutory forms.

New Execution Requirements

In addition to the pre-existing requirements for properly executing a power of attorney (POA), a POA executed after September 30th must be attested and signed by two or more adult witnesses who sign in the presence of the principal and in the presence of each other (one of the witnesses can be the notary). Signature blocks for these new requirements are a part of the new statutory form.

New Statutory Forms

The Act creates, among others, two forms which real estate professionals should be aware of. The first is the Maryland Statutory Form Limited Power of Attorney. While the statutory doesn't have to be used, if it is it cannot be refused on the basis of the content of the form alone.

A Maryland real estate professional will also see a Certification as to the Validity of Power of Attorney and Agent’s Authority used in conjunction with a POA. This form must be executed before a notary and recorded along with the POA in every transaction. In the absence of fraud, such certification is “conclusive proof of the nonrevocation . . . of the power at that time.”

As a reminder, a POA should only be used when principal(s) absolutely cannot sign or be present at a closing. They have been tools for fraud and real estate related scams. As a title company, we will always inquire as to why one is being used, so if your buyer or seller is using one, please be prepared for questions!

Maryland's Tax Withholding Requirements

As you probably know, the state of Maryland imposes upon a nonresident seller a 7.5% income tax withholding at the time of settlement. This 7.5% is applied to:

the total sales price paid to the transferor less: (1) debts of the transferor secured by a mortgage or other lien on the property being transferred that are being paid upon the sale or exchange of the property; and (2) other expenses of the transferor arising out of the sale or exchange of the property and disclosed on a settlement statement prepared in connection with the sale or exchange.

In order for a seller to claim exemption from Maryland withholding, the seller must either be a resident of Maryland or the property sold must be the “principal residence” of the seller. For a property to qualify as the seller’s principal residence, it must meet both the IRS definition (IRC 121) and it must be indicated on the SDAT records as being the assessed owner’s “principal residence.” Sellers have typically signed a "Certificate of Exemption" which accompanied the deed to be recorded at the County, or language was built into the deed containing this certifying language.

I know all of this information. So what has changed?

An earlier version of the “Certificate of Exemption” form did not include the requirement that the property be indicated as the principal residence on SDAT records. The Assistant Attorney General for the Courts and Judicial Affairs Unit, Stuart Cordish, has requested title insurance companies and agents make sure we use the correct “Certificate of Exemption from Withholding” form at closings. Because they are seeing a greater number of sales by nonresident sellers involving properties that are claimed as principal residences but are not listed as owner-occupied by SDAT, they are also considering asking the Clerks to reject deeds whose affidavits do not contain the current language.

Each title company must make sure the correct form is filed (see here, page 28), and that they have checked to ensure the property is owner-occupied on SDAT to ensure the recordings are not rejected.

A Day at the Beach

Unfortunately, summer is coming to end here in the Mid-Atlantic region. Every year many of us like to spend a little time away from the the hustle and bustle of our towns and cities to enjoy some cool ocean breezes at the beach. Unfortunately, the beach is not necessarily the best place to clear the the respective minds of title people. To the contrary, we are reminded that waterfront properties have special title issues, some of which are discussed below.

Oceans

Picture yourself hauling your ice chest and beach chair as you walk from your car toward the ocean. You are on what is known as the “upland”. Depending upon how far away you had to park, at some point you will arrive at a point at which there is no more grass, shrubbery or major improvements. All that is between you and the water is sand. You have just passed what is known as the “vegetation line.” As you continue toward the water, the dry, hot sand becomes wet. You have just passed the “mean high tide line”. Your next imaginary line is the “mean low tide line”. It will probably be under water, unless you are there right at low tide. Beyond this line is the ocean itself.

The casual visitor to the beach may assume that everything seaward of the vegetation line is public property, entitled to be used by all. However, the trained title professional knows that this is not necessarily the case. Different states have different laws regarding the rights of private oceanfront property owners (“littoral” owners) verses the rights of the public to use the beach.

In most states boarding the Atlantic Ocean, the Pacific Ocean or the Gulf of Mexico, any lands that are “washed by the tide” are owned by the state. It is the mean high tide line, not the vegetation line, which forms the seaward boundary of oceanfront property. Ownership of the upland includes the dry sand, but not the wet sand, seaward of the vegetation line.

In Maine, New Hampshire and Massachusetts, however, because of a 17th Century law still recognized today, the littoral owner will be able to claim fee title all the way down to the mean low tide line, or 100 rods (1650 feet) from the mean high tide line, whichever is shorter.

All of that said, there have been lawsuits brought against private property owners in several states (including Florida and New Jersey), seeking to establish a public right to use the dry sand area for recreation area and for access to the water. Various theories, such as claims of prescriptive easements and the doctrine of customary usage, have been used to allow public use of portions of beachfront property. Whenever insuring title to beachfront property, consult with your underwriting counsel regarding the need for an exception for any rights of the public to use the property.

Texas law provides for an easement in favor of the public from the vegetation line seaward to the mean low tide line. This easement is created by statute, not by a written document. So, while the owners of a Texas beachfront home may have fee title to the dry sand, they do not have the exclusive right to use it. Moreover, the vegetation line along the Gulf Coast is greatly influenced by hurricanes. In 1983 and again in 2008, Galveston Island and nearby areas were hit by major hurricanes. One of the effects of the hurricanes was to move the vegetation line further west. Ground that was once part of the upland is now subject to the public’s easement to use the beach. Property owners are typically not permitted to build or maintain structures located seaward of the new vegetation line.

Tidal Rivers and Bays

If you enjoy sailing or crabbing, you are probably familiar with tidal rivers and bays. They are waterways located in coastal areas that are affected by the ebb and flow of the tide. Although less noticeable than those of the ocean, these waterways also have mean high and low tide lines. As with oceanfront property, the boundary of property that boarders a tidal river or bay extends to the mean high tide mark, in most states. However, in some states, the littoral owner has fee title to the low water mark of the tidal waterway. The state will hold title to the submerged land, for the benefit of the public.

In New Jersey, the general rule is that the state holds title to all lands now or formerly flowed by tidewater. This doctrine has led to an elaborate mapping system, which identifies dry land that was formerly affected by the tides. In many cases, a developer of property on or near the water will have obtained a “Tidelands Grant” from the State, in which the State (at a price, of course) relinquishes its interest to land formerly affected by the tides. This doctrine affects property along much of the Hudson and Delaware Rivers and their tributaries, as well as property near the Atlantic Ocean and near the numerous rivers and bays along the Jersey Shore.

Other states, such as Florida and Maryland, also have specific laws affecting title to tidal property. Again, consult with your underwriting counsel regarding the need for a specific exception applicable to tidal property in your state.

Regardless of the fee ownership, all property covered by navigable water is subject to the rights of the United States and the public to use the water for transportation and commerce. A body of water is generally considered “navigable” if it can be used in its ordinary condition for commerce or transportation. An exception for this “navigable servitude” of the United States should be included in all policies insuring land located on any navigable waterway.

Sometimes, there is a bulkhead between the land and the waterway. In such cases, the policy should include an exception to the effect that title to property beyond the bulkhead is not insured under the policy. When dealing with riverfront property, also be aware that the owners of land upstream and downstream have certain rights known as “riparian rights”. These include rights to take and use the waters. An exception for riparian rights should be included on all policies insuring riverfront property.

If a portion of a body of water has been artificially filled in, additional issues arise. If the water was navigable, a permit would have had to have been obtained from the United States and/or the applicable state. Title to the filled in land would be subject to the terms of such permit, and an exception to such terms should be taken on all policies. Many cities contain property built on landfill. If you visit Boston’s Back Bay, Battery Park City in New York, or the San Francisco Embarcadero, ask your tour guide what exceptions were included in the title policies covering these properties by reason of their being built on landfill. Let me know what type of reaction you get.

Conclusion

The foregoing is meant to briefly point out some of the special issues relating to coastal property. There are many others as well. As always, you are encouraged to contact your underwriting attorney for assistance when handling transactions involving waterfront property. And, of course, enjoy your vacation!

The original article was written by Wade Thunhorst from Title Resources Guaranty Company, our affiliated title underwriter headquartered in Dallas, TX.

Ocean Flickr photo by ahisgett and bay photo by photofarmer

Owner's Title Insurance: Why Your Buyer Needs It

Real estate agents are often asked "Do I need an owner's title insurance policy?" by their buyers. With all of the costs associated with purchasing a home, an agent may be tempted to either answer "No" or even more innocently not have a clear answer as to why title insurance is needed. Title companies and underwriters have material (disclosure: TRGC is an affiliated title insurance company) to help with this - and you should always ask - but here is a story I recently heard which should be enough to convey the importance of owner's title insurance to your buyer. This took place in a different region, and the names are hypothetical, but the story is real.

Tiger Title Company settles a purchase from Sam Seller to Bob Buyer earlier this year. As part of the transaction, Tiger Title endeavors to pay off the loan that Sam Seller had with Lion Lender. Except, they didn't. Tiger Title was owed money from other lenders on other transactions, and did not have enough in the account to cover the payoff amount.

Scared yet?

Lion Lender never got their money. They are now looking to Sam Seller to pay off the loan. Bob Buyer (who now technically owns a property with 2 mortgages on it) is going to be asked to move out. Bob's lender, who thought they were in first position, is now in second.

What's title insurance got to do with it?

It seems clear here that Tiger Title is at fault. They had a duty to pay off the mortgage, and they didn't. They're likely a small shop, don't reconcile their escrow account monthly, and just don't have the money to pay off the mortgage. Bob and Sam could sue them, and maybe they are covered by a surety bond, but that requires lawyering up and waiting months or years before things are settled.

Fortunately, Bob Buyer purchased an owner's title insurance policy. With a phone call, Bob can file a claim and the title insurance company will step into his shoes. In all likelihood, the title insurance company will pay off the mortgage. After all, Bob has a policy for clear title that doesn't take exception to the mortgage. The title insurance company will likely be visiting Tiger Title's home office in short order, but that's their business. Paying off the mortgage immediately means that (A) Bob Buyer stays in his home with only one lien on the property and (B) Sam Seller owes nothing.

Most title companies do not operate like Tiger Title. Most reconcile their file accounts to the penny and reconcile master escrow accounts monthly. Most would step up if there was a shortage and pay it from operating funds.

But do you want to be the agent who either advises against an owner's policy or is unable to explain the importance?

Flickr photo by borman818

Listing Agents: Ask for Seller's Title Policy at Listing

As a listing agent, you likely have a checklist of items to gather or pull from various sources, including basic information from the seller. Here's a thought which could save time and money later down the road: Ask the seller to produce her owner's title policy (if she has one) at time of listing.

Here are just a few reasons why this simple step could prove so valuable:

- If a prior-owner unreleased lien surfaces during the title search, you'll know exactly which title insurance company to contact, and they should expedite the clearing of the issue.

- The policy should disclose any matters that a prior survey or location drawing has revealed.

- The policy should disclose if the property is subject to ground rent.

- The buyers may be eligible for a "reissue rate" of title insurance premium. While benefitting the buyer, this cost savings can be an inducement thereby aiding the seller.

- Asking at time of listing rather than several days before settlement could be the difference between the seller having it available and it being packed away in a moving truck.

Some sellers won't be able to find it. In that case, a copy of the HUD-1 from their purchase can also be very helpful as it tells which title insurance company the policy was written on so a copy can be obtained directly from them.

Make sense?

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.

Issues with Short Sale Approval Letters

(This post is an update to our earlier entry located here regarding problematic short sale approval letters. Obviously, it's a dynamic and oft changing topic!)

So you get your short sale approval letter and you get that euphoric feeling as if it’s your last day of school or the boy or girl you have a crush on just asked you out!! Then, you may see it or you may not, but there in black and white, provisions inserted in that approval letter that essentially just killed! the same deal the lender just approved. What happened?

Well let’s start by looking at a couple of these strange problematic provisions, they can look like this:

“There are to be no transfers of property within 30 days of the closing of this transaction. Escrow instructions must contain a clause that if such a transaction takes place then the title/escrow company must notify __________(lender)

So let’s understand this, the lender just approved the short sale but says that the property cannot be re-sold within 30 days from the date of the short sale transaction. Ok, so far so good, but now the lender wants to hold the settlement agent responsible for notifying them if that takes place!! As you could imagine, not many title insurance companies would be interested in insuring this transaction. So unless your buyer is paying cash and does not want an owner’s policy (yikes) your deal is dead.

Another provision:

“If the property was acquired by any means of fraud, _____________(lender) reserves the right to pursue any and all actions available to it to pursue any and all actions available to it to offset its losses. If it is determined that Sellers and/or Buyers participated in any way to the fraud, this short sale will be void, and the Note and Security Instrument will remain in full force and effect.”

Just so we are clear, what the lender is saying here is that if the seller committed fraud either at the origination, acquisition or selling stage, the lender may come back and undo the sale that just took place. Sorry Mr. and Mrs. Buyers, you’re out of luck!! Once again, not too many underwriters will be interested in that deal.


These are just two examples, there are many more. So what are we to do? Simply read the letter very carefully, if you see any language in there where the lender says they can come back and “undo” the transaction for any reason, that is a problem.

Fortunately this issue is isolated to just two or three lenders and it is my understanding that discussions are taking place between title insurance companies and lenders to address the issue. So just when you thought short sales could not get any more complicated, here we are. The saga continues….more to come soon!

If you have any questions, please feel free to contact me on Facebook, Twitter or harry.yazbek@masettlement.com

Harry Yazbek

Powers of Attorney in 6 Minutes (VIDEO)

In this, our second video post, Attorney Lee Snyder discusses Powers of Attorney (POAs). While it may seem convenient to tell the parties they need not attend settlement, it is important that you understand the dangers inherent in POAs. Here Lee will discuss the problems that can occur and how to avoid them.

Disclaimer: This video post deals exclusively with specific POAs for the purpose of transferring an interest in real estate. We could not fully cover all Power of Attorney matters in a 6-minute presentation. Furthermore, we are not providing legal advice or counsel. We always suggest you seek the advice of your own attorney when dealing with legal matters.

The Problem with Payoffs

Paying off a seller’s existing mortgage (or deed of trust, depending where you are) is of course a very important part of what a title company does during the closing process. This is because it is extremely important to not only extinguish the indebtedness between the seller and lender, but even more importantly to release the property from the lien placed upon it.

So what’s the big deal? All we’re looking for is a piece of paper saying the note is paid or will be paid upon the receipt of X dollars, right?

If only it were that easy.

Only a payoff from an institutional lender involving a current (non-delinquent) loan can be labeled “vanilla” these days, and even those can cause problems. Here is a list of potential payoff issues:

1. Private Lender: If the mortgage is to Mom, Dad, or Uncle Jake, we are going to insist upon having the original release in our hands the day of settlement. Otherwise, we run the risk of never getting it.
2. Deed of Trust Released Between Transactions: Most of the time, a first mortgage is paid off at time the property is sold or refinanced. You’ll see on a title search the release following shortly after the deed or new deed of trust (even within 6 months would be considered “shortly after”). But what if the seller bought the home in June of 2008 with mortgage money, and then there was a release of that same mortgage in November 2008 without a evidence of a refinance around that date? It is possible that they found the money to pay it off, but is it likely? We would take extra precautions to ensure the release was not a forgery.
3. Institutional Loan, but

• Payoff is marked “In Foreclosure,” “In Default” or something along those lines;
• There are several months of unpaid interest on the payoff statement;
• There are attorney’s fees or a retainer on the payoff statement; and/or
• It’s a short sale.

The reason we are challenged by any of the circumstances in section 3 above may or may not be obvious. In short, we are concerned that even if we abide by the terms of the payoff statement we have, the lender will not provide a release upon payment citing an insufficient payoff check. In many circumstances we have found the situation to “change” between the time the original payoff was issued, and the closing. More interest accrues (which we typically account for anyway), more attorneys' fees are added, or (gasp) the property is foreclosed upon! What we need to do to ensure insurability is call to verify the terms of the payoff statement verbally, or order a new, updated one.

As always, please feel free to call me or any of our attorneys, TSRs or leaders should a closing of yours involve a "payoff problem."

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!!

What the HELOC?

Our primary underwriter, Title Resources Guaranty Company, sends out a quarterly newsletter which features a great article called "Stump the Underwriter." In it underwriting attorney Paul McNutt poses scenarios - very real ones - which can affect title if not properly disposed of. I will periodically use this space to present a scenario, then discuss the solution.

Situation: Seller has - in addition to a first mortgage - a Home Equity Line of Credit (HELOC), which the title company pays off at closing. Title company never gets a release. Can this lead to a title issue? Can the borrower make another draw after the sale?




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Answer: Yes and Yes! Payment of HELOC loans without also obtaining an agreement by the lender to cancel the line-of-credit as signed by the borrower on the lender's (or title company's) form can certainly present future problems. Paying off the current balance is not enough...there must be sufficient written evidence that the line is closed and no future checks or debit withdrawals can be made against the account. Distinguish from a term mortgage or deed of trust where there are no draws against the balance - once paid off the lender is obligated to discharge the debt.

Title Insurance Class TODAY in Leesburg, VA

Harry Yazbek is teaching a non-credit class on Title Insurance in the Leesburg, VA office of Coldwell Banker Residential Brokerage (545 A E. Market Street) at 10:00 AM this morning. Sorry it is so last minute, but if you are an agent in the area and would like to attend, please email Harry at Harry[dot]Yazbek[at]MASettlement[dot]com or give him a call at 703-946-4470.

One CE Class this week

Sorry for the inconsistent blog posting lately. And by inconsistent, we mean non-existent. Holidays and vacations have clearly interfered...something we vow to correct in 2009!

In any event, we have one CE class this week:

When: Thursday, December 11th at 10:00 AM
What: Title Insurance
Where: Coldwell Banker Residential Brokerage, 545 A E. Market St., Leesburg, VA
Credit Hours: 3
Instructor: Harry Yazbek

Please contact Harry Yazbek via email or on Twitter.

Mid-Atlantic Settlement Services

11350 McCormick Road Executive Plaza III, Suite 200

Hunt Valley, MD 21031

(800) 530-9372

Fax (800) 710-9918

http://www.masettlement.com/
http://www.masettlement.blogspot.com/

www.Twitter.com/MASettlement

Dirty Deeds

In a market like this, virtually every person and company is looking to save a buck or two. In a real estate transaction, that can mean combing through the lines of a HUD-1 Settlement Statement with a ruler and pen in an attempt to get costs down. One line item where the pen may land is on owner's title insurance. So the theory goes, "They already did a title search, why am I paying for this policy?"

Good move?

Not so much. Below is a list of faulty deeds that could affect ownership of property, many of which would not be disclosed by even the most thorough title search, and all of which would likely be covered by an owner's title insurance policy:

• Forged Deeds, Deeds of Trust, Mortgages, Satisfactions or Releases.
• Deed by person who is insane or mentally incompetent.
• Deed by minor (may be disavowed).
• Deed from corporation, unauthorized under corporate bylaws or given under falsified corporate resolution.
• Deed from partnership, unauthorized under partnership agreement.
• Deed from purported trustee, unauthorized under trust agreement.
• Deed to or from a “corporation” before incorporation, or after loss of corporate charter.
• Deed from a legal nonentity (styled, for example, as church, charity or club).
• Deed by person in a foreign country, vulnerable to challenge as incompetent, unauthorized or defective under foreign laws.
• Claims resulting from use of “alias” or fictitious names by a predecessor in title.
• Deed challenged as being given under fraud, undue influence or duress.
• Deed following nonjudicial foreclosure, where required procedures were not followed.
• Deed affecting land in judicial proceedings (bankruptcy, receivership, probate, conservatorship, dissolution of marriage).
• Deed following judicial proceedings, subject to appeal or further court order.
• Deed following judicial proceedings, where all necessary parties were not joined.
• Lack of jurisdiction over persons or property in judicial proceedings.
• Deed signed by mistake (grantor did not know what was signed).
• Deed executed under falsified power of attorney.
• Deed executed under expired power of attorney (death, disability or insanity of principal).
• Deed apparently valid, but actually delivered after death of grantor or grantee, or without consent of grantor.
• Deed affecting property purported to be separate property of grantor, which is in fact community or jointly owned property.
• Undisclosed divorce of one who conveys as sole heir of a deceased former spouse.

If you are a buyer, do you want to take this risk? If an agent, do you want to allow your buyer to close without an owner's policy? Or, worse, recommend against one? An owner's title insurance policy requires a one-time premium payment which is in most cases a very small percentage of overall closing costs. Little cost, big peace of mind.

[Source: List of faulty deeds provided by First American Title Insurance Company, of which Mid-Atlantic Settlement Services is an issuing agent.]