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Freehold Licensing, NKA Freehold Capital Partners, At It Again

Robert Franco — Sat, 27 Feb 2010 22:02:09 +0000

For more than two years, I have been blogging about private transfer fee covenants and the group that is promoting them, Freehold Licensing. Freehold has actually attempted to patent their business strategy of creating private transfer fee covenants (a separate act that I find offensive). The group now has a new name and a new strategy, all evolving while several states and trade organizations are trying to put a stop to private transfer fee covenants.

To summarize, a private transfer fee covenant is a covenant that purports to run with the land and bind subsequent owners of property to pay a 1% fee to the original covenantor. Freehold, of course, gets to share in the fee for their assistance in setting up the covenant. To briefly recap my previous blogs, In Patently Stupid, I explained the covenant and my opinion of their attempt to patent the practice as a "business strategy." In Freehold Licensing Defends Covenants, I addressed comments posted by a representative of Freehold and the Texas legislation aimed at banning private transfer fee covenants. And in a third blog, To Touch and Concern, I hypothesized that such covenants are unenforceable under common law.

After I suggested in my blog that states should pass legislation, as they had in Texas, to ban private transfer fee covenants, four states did just that - Florida, Missouri, Kansas and Oregon. I followed up with a blog about Ohio's pending legislation, Banning Transfer Fee Covenants in Ohio.

After the blog about Ohio's legislation, I started to get calls from people across the country with an interest in these covenants. I was contacted by an attorney in South Carolina who was referred to me by a national underwriter that issued a bulletin stating that they would no longer insure property subject to a private transfer fee covenant. He was representing an organization of homeowners' associations concerned about transfer fee covenants commonly used to fund their members' associations. I responded with a blog about the importance of legitimate uses of transfer fee covenants to fund homeowners associations and not-for-profit groups that actually provide a benefit to the property and their communities, Underwriters Refuse to Insure Transfer Fee Covenants.

I was later contacted by the American Land Title Association (ALTA) which is working with the National Association of Realtors (NAR) on model legislation to assist states with banning the Freehold-type covenants. (See The American Land Title Association Opposes Private Transfer Fee Covenants).

Just last week, I was interviewed by a journalist with the Washington Post who is working on an article for consumers about private transfer fee covenants.

With all the activity centered around prohibiting private transfer fee covenants, I thought I'd see what Freehold was up to these days. I was surprised to find out that they are still quite active and even more aggressive in their marketing of private transfer fee covenants.

Freehold Licensing issued a press release a couple of weeks ago to announce the move of its corporate offices from Austin, Texas to Midtown Manhattan.

Bringing the Freehold team to the heart of the financial markets is important for the Company's continued growth. The move will provide close proximity to major investment banks, will allow the Company to attract top talent, and further illustrates Freehold's focus on strengthening its growing portfolio of financial instruments.

It has also apparently changed its name to Freehold Capital Partners. Maybe because of the extensive bad press associated with "Freehold Licensing." If you Google Freehold Licensing, the search results include such listings as "Closing the Door on Freehold Licensing" and "Is this a scam..." In fact, when you enter the search term "Freehold Licensing" in Google, they suggest the search term "Freehold Licensing Scam."

But, the name isn't all that has changed. What Freehold used to refer to as "Transfer Fee Instruments" on its old Web site is now called "Reconveyance Fee Instruments" on its new Web site. Again, could this possibly be because of the negative press associated with the former?

If this isn't enough to make you cringe, Freehold is now touting the benefits of pooling and securitizing the covenants into securities that can be sold to provide a lump sum payment to the covenantor, usually a developer, of the present value of the covenants. We are now familiar with Mortgage Backed Securities (MBS) that contributed to the financial crisis. It was once thought that there was no risk associated with MBS. Freehold makes the bold statement that "Reconveyance Fee Instruments represent a fully-collateralized financial instrument with no meaningful risk of default... Investors acquiring shares of the pool would own a long-term income-producing asset secured by a real property interest, and which carried no meaningful risk of default."

Of course, it states in the small print that "this is not an offer to sell, buy, market, offer, broker or securitize Reconveyance Fee Instruments. There is no assurance that any particular Instrument will be suitable for sale or securitization or that public market for Reconveyance Fee Instruments will develop, mature or persist." Even so, I think the Securities and Exchange Commission should keep a close eye on Freehold's marketing material.

And what of their claim that there is "no meaningful risk of default" on such instruments? Could that be true? I don't think so. In fact, in my opinion there is a very real and substantial risk of default. A handful of states have already banned private transfer fee covenants. Though they only apply to attempts to create such covenants after the passage of the legislation, there seems to be a general sense that private transfer fee covenants violate public policy and there is a concern that they may be held unenforceable under common law. Should that happen, investors would likely stand to lose their entire investment.

Freehold realizes the controversy surrounding private transfer fee covenants and has provided a page in its brochure dedicated to "Reconveyance Fees Rights & The Law: A Primer for Lawyers."

Filing the Freehold Reconveyance Fee Instrument in the public records obligates future sellers to pay a 1% fee at the time of sale. The process is analogous to deed restrictions and common subdivision restrictions, though the Freehold instrument has been crafted with particularity to Reconveyance Fees.

In order to constitute an UNREASONABLE RESTRAINT ON ALIENATION, the restraint must (a) be unreasonable and (b) actually restrain alienation. The mere obligation to pay money will generally not suffice to unreasonably restrain alienation because the sales price will adjust to account for the restraint. This is particularly true when the restraint is limited to a de minimus fee (e.g. 1%).

The Freehold Reconveyance Fee Instrument does not violate the RULE AGAINST PERPETUITIES because the term is limited of 99 years and because the rights VEST immediately upon recording.

If a state passes laws to ban Reconveyance Fees, not only must they ban them for charitable purposes (or run afoul of the constitution) but they must "GRANDFATHER" existing Reconveyance Fee Instruments or it would be an impermissible "TAKING."

Freehold also provides several "representative cases" and claims that "the Freehold system is based upon sound legal principals." Poppy-cock! Freehold cites cases and picks precise quotes that appear to support its position. However, the cases are not "representative" of the Freehold system. All of the cases clearly involve covenants that "touch and concern" the land in some way. Some involve restrictive covenants prohibiting certain types of buildings (e.g. multi-family), fences or tree lines. Others deal with affirmative covenants requiring the payments of fees for recreational purposes (e.g. to support a recreational facility), upkeep of dams, roads and other improvements, or homeowner's association dues. All of these clearly touch and concern the land and benefit the property owners in some fashion.

By contrast, the Freehold covenant does not provide any benefit to the property owners or their community. It is, as Freehold says, "a mere obligation to pay money." The only party that benefits from the fee is the original covenantor/developer, who is likely to be out of the picture before the payments are due. The funds collected do not go toward supporting common areas, recreational facilities, or homeowner's associations; it merely creates "a long-term income stream" for the covenantor or investors.

The Supreme Court of Florida explained this distinction in Palm Beach County v. Cove Club Invs., 734 So. 2d 379 (Fla. 1999).

A covenant running with the land differs from a merely personal covenant in that the former concerns the property conveyed and the occupation and enjoyment thereof, whereas the latter covenant is collateral or is not immediately concerned with the property granted. If the performance of the covenant must touch and involve the land or some right or easement annexed and appurtenant thereto, and tends necessarily to enhance the value of the property or renders it more convenient and beneficial to the owner, it is a covenant running with the land.

. . .

A personal covenant creates a personal obligation or right enforceable at law only between the original covenanting parties whereas a real covenant creates a servitude upon the reality for the benefit of another parcel of land. A real covenant binds the heirs and assigns of the original covenantor, while a personal covenant does not.

See also, Regency Homes Ass'n v. Egermayer, 243 Neb. 286, 295 (Neb. 1993).

Generally, in the United States the three essential requirements for a covenant of any type to run with land are (1) the grantor and the grantee intend that the covenant run with the land, as determined from the instruments of record; (2) the covenant must "touch and concern" the land with which it runs; and (3) the party claiming the benefit of the covenant and the party who bears the burden of the covenant must be in privity of estate.

. . .

If the covenant at issue is personal, it is not binding on [subsequent owners]; if the covenant is real, it runs with the land, and the [subsequent owners] are bound by the terms of the Declaration.

And, to put it even more simply, see Beeter v. Sawyer Disposal LLC, 2009 ND 153, P9 (N.D. 2009).

If a covenant or deed restriction benefits the grantor personally, and serves no real benefit to the land, then the covenant is personal in nature and does not 'run with the land' upon a subsequent sale of the property.

Of course, none of these case, including those cited by Freehold, are exactly on-point. I have not been able to find a published case that has addressed the type of covenant being promoted by Freehold. That will not likely happen for some time. It will take a property encumbered by a Freehold covenant transferred to a subsequent purchaser who desires to challenge it in court. These covenants are still fairly new and there haven't likely been many re-sold yet.

It will be interesting to see what legislation develops and the effect that has on transfer fee covenants. With the new efforts of ALTA and NAR to raise awareness among state legislators, it is likely that the bans will spread to more states soon. Of course, most of the laws on this issue, including those proposed by ALTA and NAR, contain exceptions for non-profit organizations. Freehold contends that this "runs afoul of the constitution." We could see some litigation in the near future, but I suspect that such laws would be upheld.

Whether Freehold calls them "transfer fee instruments" or "reconveyance fee instruments," they just don't pass the smell-test. Clearly, many organizations and state legislatures do not favor them. One state senator called them "sophisticated pyramid schemes which steal equity from the owner." Public sentiment is against Freehold on this one.

Imagine what would happen if everyone were to sell their property with such a covenant? If this type of covenant were allowed, theoretically, any seller who is not satisfied with the sales price he is able to get could just include a covenant in the deed to the buyer that required him to be paid 1% every time the property sells for the next 99 years. And, what would happen when the property had been sold two or three times with each subsequent owner reserving such payment rights by covenant? That would create a terrible mess and would, of course, be absurd. But, what would prevent it from happening (other than common sense)?

But, I digress. Freehold has continued to get my dander up... first by coming up with this ridiculous concept, then by attempting to patent it, and now... trying to securitize the covenants in to an investment. Where will it all end?

Robert A. Franco
SOURCE OF [...]

Coming Soon: The Ohio Association of Independent Title Agents Convention

Robert Franco — Thu, 18 Feb 2010 21:00:47 +0000

Ohio independent title agents and abstractors should give serious consideration to attending the Ohio Association of Independent Title Agents' (OAITA) convention on April 19, 2010. There is finally an association dedicated to addressing the unique concerns of the independent agents and it is worthy of your support. I'll be there this year and I hope to see a strong turn out from Ohioans!

Why is the OAITA so important? Well, I certainly do not speak for the association, but from my perspective many of the changes our industry has seen over the past decade have created an environment that threatens the existence of small, independent title agents. Traditional land title associations are made up of broader members, which includes underwriters and large agents with many affiliated business arrangements. This is not to say that the Ohio Land Title Association is bad - quite to the contrary, they do a fine job in most respects. However, when it comes to issues like AfBAs, they have a conflict of interest; some of their largest members support AfBAs. There are other issues, too; such as the requirement for closing protection coverage and the annual CPA audit.

And... in the words of the OAITA:

OAITA promotes fair standards regarding title insurance in Ohio and advocates for the advancement of issues relevant to the independent settlement service provider. We are participating in private policy change by pursuing litigation to help reinforce existing Ohio law regarding title insurance and real estate settlement services. We also support favorable initiatives relative to the independent title insurance and independent real estate settlement service provider movements in Ohio.

Personally, I think it's great that independent agents have an association that will represent their concerns.

Here are the details for the convention:

OAITA Convention
Monday, April 19, 2010
Crowne Plaza Hotel
Columbus, Ohio

For more information or to register visit www.oaita.org.

8:30am - 9:00am
Opening Remarks
Robert B. Holman, Esq.
OAITA Founder & Organizational Counsel
Cleveland, Ohio

"State of the OAITA: Making the Case for Independence in Ohio"

9:00am - 9:30am
Keynote Address
Charles Proctor, Esq.
President, National Association of Independent Land Title Agents (NAILTA)
Philadelphia, Pennsylvania

9:30am - 9:45am
BREAK

9:45am - 10:45am
Independent Title Agent Panel

Moderator: Kim Himmel - Netwide Title Agency, Inc.

Scott Goldberg, Esq. - Golden Title Agency, Inc.
Susan Happ - American Home & Commercial Title
Jim Lindsay, Esq. - Louisville Title
Amy DeGennaro - Diamond Title
Rachel Torchia - Gateway Title

10:45am - 11:00am
BREAK

11:00am - 12:00am
Paula Knodel, Agency Auditor
General Title Insurance Company
1.0 Hour of CE (pending approval)

"Understanding Escrow"

12:00pm - 1:00pm
LUNCH
Sponsored by Ohio Title Corporation

1:00pm - 2:00pm
Christopher Flowers, Esq.
Ohio Title Corporation
1.0 Hour of CE and CLE (pending approval)

"2010 Industry Caselaw Update"

2:00pm - 2:15pm
BREAK

2:15pm - 3:15pm
Independent Title Closer & Abstractor Panel

Moderator: Rob Holman, Esq.

Robert A. Franco, Esq. - Attorney at Law
Doug Gallant - Independent Examiner
Mary Lou McMahan, Senior Examiner for Ohio Title Corp.

3:15pm - 3:30pm
BREAK

3:30pm - 4:00pm
Richard S. Gordon, Esq.
Quinn, Gordon & Wolf, Chtd.
Baltimore, MD

"Title Industry Class Actions from the Plaintiff's Perspective"

4:00pm - 5:00pm
Kim Himmel, President
Netwide Title Agency, Inc.
Massillon, Ohio

"Understanding the Short Sale Process"

5:00pm
Closing Remarks
Douglas A. King, Esq., President OAITA

Special Guests:
Robert H. Myers, Jr., Esq., OAITA At-Large Trustee
Scott Goldberg, Esq., OAITA Survey Coordinator

The 2010-2011 Board of Trustees

OAITA Honorary Life Membership Award Winner

As you can see, I'll be there and they have asked me to participate as a panelist on the Independent Title Closer & Abstractor Panel. If you make it, hopefully you will get to hear my opinion on the issues facing the independent abstractors and why those issues are important for the industry.

Much like issues that are unique to independent title agents, independent abstractors also have interests which diverge from those of the underwriters and large agents with AfBAs. I don't know exactly what the panel will be asked to discuss, but there are several issues that I think deserve attention.

Abstractor Qualifications - why aren't there any?
Search Standards - why are the underwriters' requirements so different from the Ohio Bar Title Standards?
Vendor Management Companies - faster and cheaper doesn't mean better.
Compensation/Liability - why are abstractors always asked to reduce their fees when their liability and E&O premiums continue to rise?

I'm excited to hear what issues will be discussed at the convention. Anytime agents gather, they ultimately end up discussing problems they face - usually on breaks in the back of the room. Finally, there is a conference devoted to those issues and providing an opportunity for agents and abstractors to vent their concerns to an organization that is actually interested in what they have to say.

I hope to see many of you there!

Robert A. Franco
SOURCE OF [...]

Targeted National Marketing: It beats the Yellow Pages

Robert Franco — Thu, 04 Feb 2010 14:38:37 +0000

It has been a while since my last blog about our enhanced listing services. I still get a lot of questions about how it works and what the benefits are, so I thought it would be a good idea to explain it again. Over the course of the past year, our directory was searched an average of more than 14,000 times each month, proving that Source of Title is still the premier source for finding independent title professionals. But, without an enhanced listing, many of them may not be finding your company.

First, let me point out a few of the reasons to be listed in our directory. Then I'll explain why the enhanced listing is such a great opportunity to promote your business.

POPULARITY OF THE SOURCE OF TITLE DIRECTORY:
The directory was searched more than 14,000 times each month, on average, over the course of the past 12 months. With more than 6,900 companies listed and more than 16,900 registered users with access to the directory, it has become the most popular resource for locating independent title professionals.
NATIONAL EXPOSURE:
A listing on Source of Title provides national exposure for your business. Compare that to a listing in your local Yellow Pages, which only circulates in your local counties. Potential clients from around the country can find your listing on Source of Title.
AVAILABLE 24/7, 365 DAYS A YEAR:
Once listed, your company remains in the directory to be seen by potential clients for as long as it remains active. Compare that to direct mail. Although it can be effective, direct mail is a one-time hit. If a potential client isn't looking for you when they receive your mailing, it most likely gets trashed. With a listing in our directory, your potential clients can find you anytime they are in need of your services.
BASIC LISTINGS ARE FREE!
There is no cost to add your business to our national directory. Of course, enhanced listings provide extra benefit (discussed below) for an annual fee starting at only $99 per year.

Now, I'll explain why you could be getting much more business with an enhanced listing and why upgrading your listing is such a great value.

MORE POTENTIAL CLIENTS HAVE ACCESS TO YOUR LISTING:
With a free listing, only registered users who have purchased a subscription (for $199/year) have access to all of the free listings in our directory. Of our more than 16,000 registered users, only slightly more than 250 have a subscription. If you upgrade to an enhanced listing, all of our registered users can instantly view your contact information at no cost to them. Because there are enhanced listings in every county in the country, many have realized that they can always find someone (one of your competitors, perhaps) for free. If you don't have an enhanced listing, they won't be calling you.
PREFERRED PLACEMENT:
The enhanced listings appear in bold, above the free listings. Being at the top of list means that even companies with subscriptions may be finding competitors before they scroll down far enough to find your listing.
LOW COST OF AN ENHANCED LISTING:
Enhanced listings are based on the number of counties you cover and start at only $99/year. Even a one-time direct mail campaign can cost several hundred dollars with the cost of printing and postage. And, last time I checked a bold, single line listing in the local Yellow Pages was approximately $50/month ($600/year).

So, an enhanced listing could be less than alternative advertising costs and it has the added benefits of being perpetual and targeted to potential clients who are actively looking for independent title professionals, even those located several states away from you.
ONE NEW CLIENT COULD MORE THAN PAY FOR YOUR ENHANCED LISTING:
How much is your average client bill each month? Once you get an order from a new client, you are set up in their vendor list and they are more likely to come back to you again, rather than start the search process over for a new vendor. If you add just one new client from one of those 14,000 searches in a given month, it would quickly pay for the cost of the enhanced listing and potentially provide returns for years to come.
300% MORE LIKELY TO GET NOTICED
Enhanced listings are viewed 300% more often than the average listing for all companies. Your odds of landing a new client are 300% better than average if you have an enhanced listing.

It isn't hard to see why an enhanced listing gives an edge to companies that have taken the step to upgrade. With enhanced listings available in every county in the country, if you don't have one you could be losing business to your competitors.

Those 168,000+ directory searches every year represent a lot of potential clients looking for a title professional to provide services. You can maximize your chances of having them locate your business with an enhanced listing. Odds are that most of those searching the directory don't have a subscription and you have to ask yourself this: Will they be willing to pay $199/year to get your phone number when they can get your competitor's number for free? If you think that is unlikely, you can make your contact information available to all of our users by upgrading to an enhanced listing. In essence, level the playing field between you and your competitors with and enhanced listing.

Hopefully, the worst of the recession is behind us and work will be picking up throughout this year. As your potential clients get more work, it makes sense to do everything you can to grow your business and pick up new work. Many abstractors have gone out of business and new ones are starting new businesses. This means that clients will be looking to update their vendor lists and it is a good time for you to add them as a new client.

For more detailed information on enhanced listings or to upgrade your listing, see http://www.sourceoftitle.com/enhanced.aspx.

Robert A. Franco
SOURCE OF [...]

Who Should Pay For The Owner’s Policy?

Robert Franco — Mon, 18 Jan 2010 16:55:10 +0000

There are certainly variations in custom from state to state, and even county to county. In some locations, the seller is required to furnish an owner's policy to the buyer, in others the buyer pays for it if owner's coverage is desired. I have always wondered about this difference and I thought it would be worth taking a closer look to see which makes more sense. Add a comment and let us know what the custom is in your area and what you think about it.

The best way to determine local custom is to examine the standard real estate purchase agreements used by the local boards of Realtors. For this blog, I'll quote from the sales contract commonly used in my home county, Richland county, and the one used 60 miles south of here in Franklin county.

The first thing to consider is the requirement in both contracts that the seller convey to the buyer marketable title. Both require a Warranty Deed.

Richland county:

Seller shall... convey marketable title by a transferable and recordable General/Fiduciary Warranty Deed to Real Estate in fee simple absolute with release of dower.

Franklin county:

The Seller shall convey to Buyer marketable title in fee simple by transferable and recordable general warranty deed, with release of dower, if any, or fiduciary deed, as appropriate, free and clear of all liens and encumbrances not excepted by this contract...

In this regard, both contracts are remarkably similar. Just to be clear, let's examine what it means to convey marketable title and what warranties are included in a general warranty deed.

According to the Ohio Revised Code, marketable record title means a title of record, being an unbroken chain of title for forty years or more, which operates to extinguish such interests and claims existing prior to the effective date of the root of title, subject to certain exceptions defined in Ohio's Marketable Title Act (MTA). The MTA allows for certain interests to be preserved by the filing of a notice and certain other interests are not extinguished by the Act, such as easements for railroad or public utility purposes; easements which are clearly observable; any right, title, or interest in coal; certain mortgages; and any right, title, or interest of the government.

Ohio courts have held that the "title need not be free of any possible claim of defect in order to be marketable, but it must be in a condition as would satisfy a buyer of ordinary prudence." However, "it should appear reasonably certain that the title will not be called in question in the future, so as to subject the purchaser to the hazard of litigation."

Some believe that because title insurance insures marketable title that the availability of title insurance, without exception to any objectionable matter, is evidence of marketable title. After all, the title company would not be willing to write such a policy if the title were not marketable. However, Ohio courts have said that "a purchaser cannot be compelled to accept insurance as a substitute for good and marketable title provided for by contract."

By statute in Ohio, the words “general warranty covenants” have the full force, meaning, and effect of the following words: “The grantor covenants with the grantee, his heirs, assigns, and successors, that he is lawfully seized in fee simple of the granted premises; that they are free from all encumbrances; that he has good right to sell and convey the same, and that he does warrant and will defend the same to the grantee and his heirs, assigns, and successors, forever, against the lawful claims and demands of all persons.” If it later turns out that there is a defect in the title conveyed, the purchaser can hold the seller liable for breach of the warranties of title.

Now that we know what it means to convey marketable title by general warranty deed, let's examine the role of title insurance and try to determine who it protects and who should pay for it. But first let's take a look at the purchase agreements for Richland and Franklin counties.

Richland county:

If a title search or title insurance is required, Purchaser shall procure same at Purchaser's expense.

Franklin county:

The Seller shall furnish and pay for an owner's title insurance commitment and policy in the amount of the purchase price.

The theory in Richland county seems to be that title insurance protects the owner and it is up to the purchaser to pay for his policy if he wants the coverage. Of course, title insurance is often viewed as an unnecessary expense, and sometimes as a "rip-off." Much more often than not, in Richland county buyers do not opt for title insurance. As a practical matter, buyers buy as much home, or sometimes more, than they can afford. They need every dime they can muster to complete their purchase. Thus, owner's policies are rare in Richland county.

I have even heard Realtors say "you don't need title insurance because the bank is getting a policy." Clearly, not all Realtors understand title insurance, marketable title, or warranties of title.

The view in Franklin county seems to recognize that both buyers and sellers are better off when everyone is covered by title insurance. Is this the better approach?

An owner's policy of title insurance insures, among other things, that the title is marketable. It covers the owner for as long as he holds an interest in the real estate or so long as the seller may have liability by reason of warranties in any transfer or conveyance of the title. And, it not only covers the claim, but also the costs, attorney's fees, and expenses incurred in the defense of any covered claim.

Thus, in Franklin county, if a defect in the title is discovered after conveyance, the buyer has an owner's policy which should protect his interest. It would most likely be unnecessary to sue the seller under the warranties of title. By providing a title policy to the buyer, the seller has protected himself from a potential lawsuit. In the event that the claim is not covered under the buyer's policy, the seller has a policy that will defend him in the event of a claim for breach of the warranties of title.

By contrast, in Richland county the buyer who did not get a policy is left with the sole remedy of suing the seller. Most likely the seller did not have an owner's policy either, leaving him liable for his own defense costs and any eventual judgment which may be rendered.

Regardless of who pays for the policy, the Richland county contract is seriously flawed. Seller's agents are doing a disservice to sellers in this county with such a contract. Why? Because it requires sellers to convey title by general warranty deed, leaving them liable for potential breach of warranty claims, and by not requiring any title insurance on the transaction. It is completely up to the purchaser to decide whether or not to purchase a policy, which most often means no policy will be issued.

As an attorney, I could never advise a seller to sign the Richland county contract. I recently drafted a sales contract for a seller and I did not use the standard board of Realtors contract as a guide. Instead, I required the buyer to purchase an owner's policy or, at the very least, an attorney's opinion of title. If the seller does not want to pay for an owner's policy, I would have to advise my client to convey title by quit-claim deed and offer no warranties of title on the transfer.

I believe that the reason buyers are not required to pay for their own title insurance policy, under either contract, is because it drives up the buyer's costs of closing and makes it more difficult to sell homes. That is understandable, but forgoing title insurance is not in the best interest of the buyer or the seller. Thus, the Franklin county custom seems to be much more favorable.

In Franklin county, where the seller must pay for the buyer's policy, it is acceptable to bother buyer and seller because it costs the buyer nothing for the coverage, and the seller was furnished with a policy when he purchased the property so it seems fair that he do the same for his buyer.

Of course, changing the Richland county contract at this stage would be problematic. Sellers would most likely object because nobody paid for their policy when they purchased the home. But, in the long run, making the change would better protect homeowners in the county.

As always, I'm interested in your thoughts. What is the custom where you are? What do you think the most beneficial approach is when it comes to protecting the parties, and who should pay for the policy?

Robert A. Franco
SOURCE OF [...]

Oversight: No Power of Attorney Filed

Robert Franco — Sat, 16 Jan 2010 19:58:22 +0000

I was recently given a copy of an affidavit that raised an interesting topic for discussion. Where a deed is signed by an attorney-in-fact, but no power of attorney was ever recorded, can the matter be cleared up by an affidavit? This post will focus on Ohio law, but other states most likely have similar laws in this regard. I'd be interested in hearing thoughts from anyone on what they think and how your state laws may deal with the situation.

The affiant states:

I am an attorney licensed to practice law in the State of Ohio.

On May 26, 2004, I prepared a Deed for execution by John Doe and Jane Doe, husband and wife, Grantors to John Doe, Grantee. John Doe signed said Deed as Attorney-in-Fact for Jane Doe.

That due to an oversight, no Power of Attorney was recorded with the Deed.

That on the 18th day of April, 2005, John Doe executed a Transfer of Death Deed naming his children Able Doe, Betty Doe, and Chad Doe as Transfer on Death Beneficiaries.

That upon John Doe's passing, an Affidavit of Transfer was filed on the 12th day of August, 2009.

Due to the oversight with regard to the filing of a Power of Attorney, the purpose of this Affidavit is to state that Jane Doe's interest in the real estate located at 123 Main Street, Anytown, Ohio would have transferred to John Doe, her husband upon her death. In addition to the foregoing, upon John Doe's passing, his children, the Transfer on Death beneficiaries were the vested beneficiaries pursuant to his Will, and therefore are the sole heirs of John Doe and Jane Doe.

FURTHER AFFIANT SAITH NAUGHT

Since this is for the sake of mere intellectual debate, we will assume that no probate case was ever opened for either John or Jane Doe. The question presented is: Does this affidavit clear up the cloud on title created by the failure to record the power of attorney, or should an estate be opened to probate the interest of the Doe's?

Ohio Revised Code § 1337.04 states: "A power of attorney for the conveyance, mortgage, or lease of an interest in real property must be recorded in the office of the county recorder of the county in which such property is situated, previous to the recording of a deed, mortgage, or lease by virtue of such power of attorney."

Clearly, the mandatory language of this statute was not followed - this is the "oversight" mentioned in the affidavit. But, this is not the only problem. Ohio case law also establishes that a "power of attorney does not authorize an attorney-in-fact to transfer the principal's property to the attorney-in-fact ..., unless the power of attorney explicitly confers this power." Because there was never a power of attorney of record, no title examiner could possibly know if this power was "explicitly conferred" on the attorney-in-fact.

In fact, looking at the affidavit, one cannot even be sure that a power of attorney was ever even executed. Without such knowledge, it cannot not even be ascertained if John Doe actually had any authority to act as Jane Doe's attorney-in-fact.

This would lead to a conclusion that the deed from Jane Doe to John Doe was void and of no effect whatsoever. Despite this fact, the county entered all of the appropriate conveyances as if they were valid and title is shown in the names of the children of John and Jane Doe.

Paragraph 6 of the affidavit purports to clear this mess up by letting us know what would have happened to Jane Doe's interest in the property, assuming it did not transfer through the deeds that were recorded. Assuming that the deed from John to Jane was void, Jane retained a half interest in the property. At some point, Jane passed away. The affidavit doesn't tell us when this happened, but it does state that her interest would have passed to her husband, John. It is unclear whether this would have been a result of intestacy or by her will.

The next question is - did she pass away before or after the Transfer on Death Deed was executed. If it was after, only John's half interest would have passed to their children as transfer on death beneficiaries. But, the affidavit further tells us that their children were also the beneficiaries of his will, so we eventually get to the same place anyway.

Seeing as how the children were the only heirs of John and Jane and they are both now deceased, it does appear that the children are the lawful owners. But don't we still need a probate case to be sure of that? What about potential creditors of the estates? What about potential estate tax liabilities? What about potential Medicare liens? These are questions that the affidavit does not answer.

[This isn't a file we are working on, so we didn't check to see if there were any estate cases filed. There may have been, which may answer some of these questions. But, even if there were estates filed, this property was not conveyed through the probate process. Should any estates be reopened to address this issue?]

There are methods for conveying property outside of the probate estate: transfer on death designations, survivorship, trusts, etc. When these methods aren't used (or not used properly) probate is necessary, isn't it?

If this affidavit is sufficient to conclusively vest the full interest in the property in the children, one has wonder... why bother with probate at all? Couldn't we just wait until the owner passes away and file an affidavit in lieu of probate and save the family a lot of time and expense?

Ohio Revised Code § 5301.252 allows for an Affidavit of Facts relating to title which provides that "when... recorded, such affidavit... shall be evidence of the facts stated, insofar as such facts affect title to real estate." The affidavit may relate to, among other things, heirship. However, the statute also provides that "every affidavit provided for under this section shall include a description of the land, title to which may be affected by facts stated in such affidavit, and a reference to an instrument of record containing such description, and shall state the name of the person appearing by the record to be the owner of such land at the time of the recording of the affidavit.

This affidavit has no description, only vague references to other instruments which do not include any specific instrument numbers or volumes and pages, and it does not state the record owner of the land, though it may be presumed that the children are shown as the record owners.

It is clear that this conveyance was not handled correctly, thus the need to file the affidavit. But, it could be argued whether or not the affidavit is effective in correcting the problem. Is the title to this property marketable?

On one hand, the affidavit does purport to tell us that whether or not the conveyances were effective, we arrive at the same place - title vested in the Doe's children. But it does this by telling us what would have happened upon the deaths of John and Jane Doe. The fact remains that it did not happen in the probate court and there is no official record, other than this affidavit, that conveys Jane's half interest.

Let me know what you think... I don't believe that there is a correct answer (or at least, I do not know what it is), only opinions.

Robert A. Franco
SOURCE OF [...]

A Big Red Flag for Bankruptcy Trustees

Robert Franco — Wed, 06 Jan 2010 20:30:33 +0000

Sometimes, mistakes in the execution and acknowledgment of mortgages happen during closing. When they do, they need to be corrected. However, sometimes correcting the problem can raise a big red flag for bankruptcy trustees that screams "Here I am... avoid me!" This is exactly what happened in a recent case in the Bankruptcy Court for the Southern District of Ohio.

First, I must give kudos to the Ohio Land Title Association for covering this case in their most recent edition of Title Topics. Attorney Maria Mariano Guthrie, with Sikora Law LLC, wrote an excellent article explaining this case. I must say, if you are in Ohio and not a member of the Ohio Land Title Association, you really are missing out on a valuable resource.

On September 10, 2004 an attorney closed a loan for Mikki Sue Gray with WMC Mortgage (WMC). At the closing, Mrs. Gray provided the attorney with her identification so he could ensure that she was the person signing the note and mortgage. The attorney took Mrs. Gray's acknowledgment and subscribed his name to the mortgage. However, he omitted her name and date of her signature from the acknowledgment. The mortgage was recorded on September 15, 2004.

This was clearly an oversight... and one that title examiners have seen before. Improper acknowledgments are probably more common than they should be. But, when they happen and are discovered, they are usually corrected. In this case, approximately eight months later WMC advised the attorney of the defect and he took steps to fix the problem. The attorney typed the missing information on the original recorded mortgage, and hand-wrote the following notation on the first page: "Re-recorded to add date and name of mortgagor, p. 13." The mortgage was then re-recorded on May 6, 2005.

Long after the "correction," on March 21, 2008, Mrs. Gray filed a voluntary Chapter 7 bankruptcy petition and the trustee sought to avoid the mortgage due to an improper acknowledgment. WMC argued that the trustee could not avoid the mortgage because it met each of the requirements for a properly executed mortgage, the correction having been made before the petition was filed.

There is no doubt that the omitted information left the original mortgage defective, and therefore avoidable. "An acknowledgment clause containing nothing relative to the mortgagor's identity is insufficient; rather an acknowledgment clause must either identify the mortgagor by name or contain information that permits the mortgagor to be identified by reference to the mortgage." But wasn't the re-recorded mortgage sufficient to cure the defect?

It would seem that the oversight was relatively minor and no one denied that Mrs. Gray did actually sign the mortgage. The correction made when the document was re-recorded sufficiently explained the reason for the re-record and afterward the acknowledgment adequately described what transpired during the closing.

However, the Court said "no," the mortgage was still avoidable by the bankruptcy trustee because the attorney had no authority to amend the certificate of acknowledgment after the document on which it appears was recorded. The Court applied the doctrine of functus officio, which means "having performed his or her office." Or, a public officer is "without further authority or legal competence because the duties and functions of the original commission have been fully accomplished."

This leads to a conclusion that an improper acknowledgment cannot be corrected unilaterally by the notary - it requires the participation of mortgagor and the document must be re-acknowledged. What does this mean for the common practice of using an affidavit to correct defective acknowledgments? It is common to see the notary sign an affidavit that states that the omitted information was a "scrivener's error" and that the mortgagor did appear before the notary on the day of closing and "acknowledged that he or she did sign the instrument and that the same was his or her free and voluntary act and deed." Again this contains all of the required information for a valid acknowledgment, except, of course, it is a unilateral act by the notary and the mortgagor is not actually re-acknowledging the document. Thus, it would still be avoidable under the holding of this recent case.

What this really means is that the attempted correction is a huge red flag alerting a bankruptcy trustee that there is a mortgage of record that can be avoided for the benefit of unsecured creditors. With the number of bankruptcies on the rise, and the plethora of defective acknowledgments of record, this will likely be a big problem for title insurers in the future. Even those acknowledgments that have been "corrected" have most likely not been done so with a formal re-acknowledgment.

Bankruptcy judges hold parties to much higher standard than state court judges in this regard. It seem here to be a case of elevating form over substance. There is no debate over whether Mrs. Gray actually signed the mortgage and it was recorded, which afforded adequate notice to third-parties. This omission would seem to amount to harmless error, especially since it was re-recorded with the proper information. But, when it comes to bankruptcy, you better have all of your "I's" dotted and your "T's" crossed because they will hold you to the letter of the law.

It would seem that if you come across a defective acknowledgment, the only course of action that will ensure the validity of the document is to have the mortgagor come back in an re-acknowledge it before you re-record it. In fact, I'd be surprised if we don't see underwriting bulletins very soon alerting us all to this issue and requiring exactly that.

It might be a good idea to get in the habit of checking the acknowledgments thoroughly before recording. If you use a checklist of some sort in your process, make sure that this is included.

Of course, this was an Ohio case and the laws of other states may result in a different ruling by the bankruptcy courts. But, it is always good to be aware of the kinds of things that bankruptcy trustees scrutinize for potential challenges. It is best not to take chances with these sorts of things.

Robert A. Franco
SOURCE OF [...]

Confidential Information Presents Challenges for Searching Titles

Robert Franco — Tue, 29 Dec 2009 18:06:38 +0000

Recently, I have had numerous problems searching titles because relevant information has been removed from probate files pursuant to Ohio law which makes it "confidential." While I can certainly understand the need to protect individuals privacy, this creates a real problem for title professionals, and potentially homeowners. If omitted confidential information could result in a lien on someone's home, there is a real hazard waiting for a title searcher.

I search titles in Ohio, so this may only be an issue here. However, with the push for greater protection of confidential information, those in other states may be experiencing this problem... or may be soon.

One of the things we look for in estate cases is confirmation that any estate taxes due have been paid. In Ohio, ORC § 5731.37 creates a lien on all property subject to estate taxes in the amount of estate tax levied, subject to certain exceptions. This can create a problem for title searchers if we are not allowed to examine the estate tax return.

ORC § 5731.90 makes tax returns, including estate tax returns, confidential and they are not subject to inspection or copying as public records. The only way to get a look at an estate tax return is to obtain a court order based on good cause shown. While a title examiner could probably make a case for "good cause" to inspect an estate tax return, it would not be practical to seek a court order, and it could not be done in a timely fashion.

Although the estate tax return is no longer in the file, Ohio Department of Taxation form ET-22 is still public information. This form indicates, in Part I, whether an Ohio estate tax return is required to be filed. If it is not required, there is no problem. However, if one is required to be filed, a title searcher must rely on Part II of the form to determine if estate taxes are a lien on the real estate.

Fortunately, ORC § 5731.21 states that all persons may rely on form ET-22 if it is stamped by the county auditor's office. If the auditor's office has stamped Part II of the ET-22, certifying that the "estate taxes shown due on the estate tax return... have been paid in full," the property shown on the form shall be free of any lien for estate taxes.

But, here is the catch... the ET-22 does not include a section for a list of property. The form states:

The real property attached to this certificate shall be free of any lien for estate taxes under Ohio Revised Code section 5731.02 and 5731.19(A). This certificate does not take effect until verification of payment of tax is received from the county auditor's office.

As you might suspect, the attorneys do not always attach a list of property. In fact, I have yet to see a for ET-22 with an attached description of property. This may not be particularly important, however, because if the taxes are paid there should not be any cause for lien to arise, unless perhaps there was an error in calculating the amount due. "This certificate does not reflect the tax commissioner's final determination of estate tax under R.C. section 5731.26."

For example, if the tax return is filed, the taxes shown due are paid, and the auditor's office stamps Part II of the ET-22, taxes will not be a lien on the real property attached to the certificate. However, if no property is attached to the form and the commissioner later determines the amount of tax to be insufficient, there could be a lien on the property for any amount remaining due.

Aside from this, on three recent searches I found a form ET-22 that indicated an estate tax return was required to be filed, but it was not stamped by the auditor's office verifying that the taxes were paid. It is possible that the gross estate was large enough to require the filing of a return, but after permitted deductions there was no estate tax due. The problem is that without examining the return, a title searcher has no way to know if any taxes were, in fact, due.

After bringing this up with the clerk in the probate court, I was advised to talk to the auditor's office. Unfortunately, the auditor's office had no further records on these estate cases. They could not verify if a return had ever been filed or if any taxes had been paid, or even if any taxes were due. I was told that if they had returns for those cases, they had been forwarded to the department of taxation and there was no record remaining in their office.

Estate taxes are due nine months from the decedent's date of death under ORC § 5731.23. All of these recent discoveries involved decedent's who had passed away more than a year ago. The clerk in the auditor's office seemed perplexed by my request in light of the time that had passed since the due date. She told me that "the attorney and/or executor would have been notified by the state if they still owed estate taxes because they would have assessed penalties and interest by now." This didn't help me and I tried to explain to her that even if they had been notified, I had no way of knowing about it and any unpaid taxes could be a lien on the real estate I was searching.

As a title searcher, all I could do was report the potential for estate tax liens on these properties and provide the phone number for the attorney who handled the estates. It will be up to my clients to follow up and determine whether there are any outstanding taxes. But, this does show the problem created by making the estate tax return "confidential." If there were no estate taxes due, I could verify this by examining the return and providing a copy to my client.

There seems to be something missing from the "plan" to exempt estate tax returns from the public record. The situation that is not addressed is where a return is required, but no estate taxes are actually due. There is nothing on form ET-22 to indicate the amount due (or that nothing is due) and if there is no tax due the auditor's office does not stamp the form "paid in full."

This problem is compounded by the lack of understanding the county offices have for what we do. This is understandable, since title searching isn't really relevant to the administration of estates or the collection of estate taxes. However, it would be nice if they realized that we need some way to verify if unpaid taxes exist that could be a lien on real property, even long after the estate is closed and the due date for estate taxes has passed.

If anyone has any experience with how this is handled in your state, or county, please share it. I would appreciate a good discussion on this aspect of title searching and what I perceive as a big potential E&O claim for unsuspecting searchers.

Robert A. Franco
SOURCE OF [...]

Judge Wipes Out Mortgage Debt, Denies Foreclosure Relief to Lender

Robert Franco — Tue, 15 Dec 2009 19:02:45 +0000

According to an article on Law.com, a state judge canceled a lender's mortgage for what he described as "unconscionable, vexatious and opprobrious" conduct in attempting to foreclose on a Long Island, New York home. There is no doubt that courts are becoming fed up with the backlog of foreclosures, but one really has to wonder... can they really do this? Well, Suffolk County Supreme Court Justice Jeffrey A. Spinner did.

Diana Yano-Horoski, representing herself, was the defendant in the foreclosure by IndyMac Mortgage Services. Her mortgage on the property was in the amount of $295,000 - an adjustable rate loan with an initial interest rate of 10.375%, taken out in 2004. In the foreclosure IndyMac asserted that it was owed more than $525,000, but the property was only worth only about $275,000.

The court ordered a settlement conference, which was continued five times as the court attempted to obtain "meaningful cooperation" from the bank. The representative sent by the bank "made it abundantly clear that no form of mediation, resolution or settlement would be acceptable" to IndyMac. IndyMac claimed that they offered a forbearance agreement to Yano-Horoski, but she quickly defaulted. However, after prodding, its representative admitted that the agreement hadn't been sent to her until after its stated first payment due date. Therefore, it would have been impossible for Yano-Horoski to have consummated the agreement under any circumstances.

IndyMac also rejected a short-sale offer by Yano-Horoski's daughter to purchase the property with third-party financing for its fair market value, presumably more than would have been realized at a sheriff's sale. It also refused modification that included assistance from the incomes of Yano-Horoski's husband and daughter, even though the modification did not seek to forgive any of the principal.

The judge found IndyMac's positions deeply troubling and that it was apparent from its representatives "opprobrious demeanor and condescending attitude" that nothing short of consent to foreclosure and the ejectment of Yano-Horoski and her family would be acceptable to the bank.

The amount of money IndyMac claimed was due also seemed to bother the judge. A letter from IndyMac stated the principal balance was $285,381.70 as of February 9, 2009 and another stated a balance of $283,992.48 as of August 10, 2009. The bank stated that there must have been payments made, but it eventually conceded that no payments had been posted to the account. Then... there are the additional fees and charges:

That having been said, the Court is greatly disturbed by Plaintiff's assertions of the amount claimed to be due from Defendant. The Referee's Report dated June 30, 2008, which has its genesis in a sworn affidavit by a representative of Plaintiff (presumably one with knowledge of the account), reflects a total amount due and owing of $392,983.42. The principal balance is reported to be $290,687.85 with interest computed at the rates of 10.375% from November 1, 2005 through August 31, 2006 ($25,118.62), 12.50% from September 1, 2006 to February 28, 2007 ($18,018.66), 12.375% from March 1, 2007 to March 31, 2008 ($39,126.39) and 11.375% from April 1, 2008 to June 24, 2008 ($7,700.24) totaling $89,963.91. Plaintiff also claims $20.00 in non-sufficient funds charges, $295.00 in property inspection fees and $12,016.66 for tax and insurance advances. The Judgment of Foreclosure & Sale dated January 12, 2009 was granted in the amount of $392,983.42 with interest at the contract rate from June 24, 2008 through January 12, 2009 and at the statutory rate thereafter plus attorney's fees of $2,300.00 and a bill of costs in the amount of $1,705.00. Even computing the accrual of pre-judgment interest of $18,299.18 (using Plaintiff's per diem rate in the Referee's Report) together with post-judgment interest at a statutory 9% through November 19, 2009 (an additional $31,740.90), the application of simple addition yields a total amount due of $447,028.50. This figure is $80,409.23 less than the $527,437.73 asserted by Plaintiff to be due and owing from Defendant. The Court is astounded that Plaintiff now claims to be owed an escrow advance amount of $46,627.88 when, under oath, its officer swore that as of June 24, 2008 that amount was actually $ 34,611.22 less. Moreover, it now appears that the elusive principal balance is either $290,687.85, $285,381.70 or $283,992.48.

The court then noted that Yano-Horoski and her husband have serious medical issues, yet they managed to attend and "assiduously attempt to resolve this controversy in an amicable fashion, only to be callously and arbitrarily turned away" by IndyMac. But, this was only one case in what the court described as a "much greater social problem."

It is certainly no secret that Suffolk County is in the yawning abyss of a deep mortgage and housing crisis with foreclosure filings at a record high rate and a corresponding paucity of emergency housing. While foreclosure and its attendant eviction are clearly the inevitable (and in some cases, proper) result in a number of these situations, the Court is persuaded that this need not be the case here.

...

In short, a loan modification would result in a proverbial "win-win" for all parties involved. To do otherwise would result in virtually certain undomiciled status for two physically unhealthy persons and their daughter, leading to an additional level of problems, both for them and for society.

As repugnant as the court found IndyMac's behavior in this foreclosure case to be, what could be done about it? The homeowner was clearly in default (by whatever amount it may be) and the mortgage certainly provides IndyMac with its remedy of foreclosure. The judge, however, wasn't about to rule in favor of IndyMac.

The Court cannot be assured that Plaintiff will not repeat this course of conduct if this action is merely dismissed and hence, dismissal standing alone is not a reasonable option. Likewise, the imposition of monetary sanctions... is not likely to have a salubrious or remedial effect on these proceedings and certainly would not inure to Defendant's benefit. This Court is of the opinion that cancellation of the indebtedness and discharge of the mortgage, when taken together, constitute the appropriate equitable disposition under the unique facts and circumstances presented herein.

Yes! The judge ordered that the note in favor IndyMac be "cancelled, voided, avoided, nullified, set aside and of no further force and effect." It further ordered the mortgage to be "vacated, cancelled, released and discharged of record." And, just in case that was not enough, IndyMac, "its successors and assigns are hereby barred, prohibited and foreclosed from attempting, in any manner, directly or indirectly, to enforce any provision of the aforesaid Adjustable Rate Note and Mortgage or any portion thereof."

What legal authority could the judge possibly have for such a ruling? Judge Spinner came up with something to hang his hat on. Citing a string of cases from the late 1800's to the early 1900's, he found that foreclosure was an equitable remedy and that canceling the mortgage in this case was equitable.

Since an action claiming foreclosure of a mortgage is one sounding in equity, the very commencement of the action by Plaintiff invokes the Court's equity jurisdiction. While it must be noted that the formal distinctions between an action at law and a suit in equity have long since been abolished in New York, the Supreme Court nevertheless has equity jurisdiction and distinct rules regarding equity are still extant. Speaking generally and broadly, it is settled law that "Stability of contract obligations must not be undermined by judicial sympathy." However, it is true with equal force and effect that equity must not and cannot slavishly and blindly follow the law. Moreover, as succinctly decreed by our Court of Appeals, "a party having a legal right shall not be permitted to avail himself of it for the purposes of injustice or oppression…"

In attempting to arrive at a determination as to whether or not equity should properly intervene in this matter so as to permit foreclosure of the mortgage, the Court is required to look at the situation in toto, giving due and careful consideration as to whether the remedy sought by Plaintiff would be repugnant to the public interest when seen from the point of view of public morality. Equitable relief will not lie in favor of one who acts in a manner which is shocking to the conscience, neither will equity be available to one who acts in a manner that is oppressive or unjust or whose conduct is sufficiently egregious so as to prohibit the party from asserting its legal rights against a defaulting adversary. Thus, where a party acts in a manner that is offensive to good conscience and justice, he will be completely without recourse in a court of equity, regardless of what his legal rights may be.

Still, this seems like an extreme concoction of jurisprudence. The interesting recitation of legal precedent is surely an accurate depiction of the laws of equity, but to me it only means that the court can rightfully dismiss this case - upon finding that IndyMac's bad faith in the mediation leaves the equitable remedy of foreclosure unavailable. Permanently denying IndyMac of its rights under the mortgage would seem to go to far. Of course, as Judge Spinner pointed out, merely dismissing the action would leave IndyMac free to bring another foreclosure action. That alone, in my opinion, would not be sufficient basis to cancel the indebtedness.

Let's consider, for a moment, the Contracts Clause of the U.S. Constitution: "No state shall pass any law impairing the obligation of contracts." The purpose of this clause, although it does not apply to judicial decisions, is instructive.

The Framers of the Constitution added this clause due to fear that states would continue a practice that had been widespread under the Articles of Confederation—that of granting "private relief." Legislatures would pass bills relieving particular persons (predictably, influential persons) of their obligation to pay their debts. It was this phenomenon that also prompted the framers to make bankruptcy law the province of the federal government.

Does it make sense that a judge in a simple, albeit unusual, foreclosure case could grant relief that the legislature could not constitutionally provide? Not even a bankruptcy judge has the authority to set aside a residential mortgage - and debt relief is the primary purpose of bankruptcy.

Take for example an Ohio House bill that purported to give state judges the authority to modify mortgages in foreclosure. Although it provided restrictions on this power, committee testimony revealed that it was most likely unconstitutional. The provision was later removed. Judge Spinner's decision would seem to indicate that although such power cannot be given to the judges by the legislature, with a wink and a nod the same result can be obtained under the guise of the courts' powers of equity.

I would expect IndyMac to file a successful appeal. If this decision stands, judges across the country could decide to clear their dockets by discharging debts of mortgagors who are looking more and more sympathetic in the midst of the financial crisis. Clearly, there is a shift in sentiment towards the homeowner and not many people for sorry for the banks.

Although I do believe that Judge Spinner exceeded his judicial authority in this case, I can't help but smile when I read the opinion. Legally, I don't believe that there is support for the holding. But, morally I applaud the judge for his bold step toward doing what many would term "the right thing." If nothing else, he sent shivers down the spine of every banker who will now think twice before blowing off court ordered mediation.

Robert A. Franco
SOURCE OF [...]

New Technology Rumors Get Me Excited!

Robert Franco — Mon, 07 Dec 2009 19:38:56 +0000

I love technology, but it has been a while since I have gotten excited about anything new. Finally, I have something new to look forward to. A new phone is rumored to be headed to Verizon soon... no, it's not the Motorola Droid, which was recently released with a million dollar ad campaign. It has been dubbed the HTC Dragon, aka HTC Passion, and it is exactly what I have been waiting for!

I have never been a fan of Blackberries (it's a personal preference), and I can't get an iPhone because AT&T coverage is terrible where I live. That has left me with a Windows Mobile phone - I currently have the VX6900 (the HTC Touch). I like it, but Windows is eons behind the rest of the smartphone world!

I am currently due for an upgrade on my Verizon phone and I almost rushed out to get the Motorola Droid. I was impressed with the nifty "iDon't" ad campaign (below).

But... the Droid had some spotty reviews. Despite the fact that Motorola phone supports multi-touch (think pinch-to-zoom), and so does the Android 2.0 operating system, the Verizon Droid phone doesn't use it. I have also heard that people are not very happy with the slide-out QUERTY keyboard. Apparently, it is so slim that the keys don't have much travel and it doesn't really give you a good tactile experience. Personally, my HTC Touch doesn't have a slide-out keyboard and I don't miss it. I'd rather just have a good virtual keyboard (ala the iPhone).

Although the Droid got all the press, Verizon released another Android phone recently - the HTC Droid Eris. It uses HTC Sense user interface, which many seem to prefer over the Droid's UI. Unfortunately, it is based on Android 1.5, rather than the newest 2.0 operating system. It is rumored that an upgrade will soon be available, but it's still not quite what I want.

So... I began searching for my dream phone. Because I generally like HTC products, I started there. What I found got me pretty excited - the HTC HD2! But, it runs Windows Mobile 6.5 (bummer). Windows Mobile still hasn't fully adopted a finger-friendly operating system - they love that sylus... I don't. Windows Mobile 7 will most likely take care of that issue, but when that will actually get released is anyone's guess.

Can you believe the size of that screen? It is 4.3", but thanks to its razor thin bezel, it is still a good size for a phone. If you are wondering how that screen size compares, the iPhone's screen is 3.5" and the Droid's is 3.7".

I find that I now use my phone more for e-mail and browsing than I do for making phone calls. The larger screen means that I can see more and the virtual keyboard is large enough to be finger-friendly. Not to mention, opening attachments would be very nice on a screen that large. I have to zoom in so far on my HTC Touch, that it is hardly worth the bother to open .pdf attachments.

Another great feature... the HTC HD2 can also serve as a wireless access point! That means that if its in your pocket, you can use the phone to provide wireless access for your laptop. How cool is that?

I'm not aware of any U.S. carriers that yet offer the HTC HD2, and because it runs Windows Mobile 6.5, I wouldn't really be rushing out to buy it anyway. But, I thought to myself... If they put Android 2.0 on this thing - I'd be signing a new contract to get one! This is where the rumors come in - supposedly, Verizon will be getting this one!

Of course this is only a rumor at this point, but the HTC Passion website gives one hope! It sports a Verizon "check mark" and the tag-line "coming holidays 2009." Some speculate that the site is a spoof, and it could be. You would have to wonder why Verizon would launch a new Android phone so soon after the Droid. With their 30-day return policy, they would be inundated with people returning the Droid to upgrade to the new, best Android phone. This could be why the latest news (rumors) indicate that the release will be pushed into early 2010.

Every since the iPhone came out, rumors have been flying about the "iPhone killer," but so far nothing has come close. As I mentioned, AT&T service around here is so bad, that I don't even consider the iPhone an option. Many who have iPhones dread the AT&T service, but they put up with it to have such an awesome phone. Until Android, I don't think anyone could hope to displace the iPhone. But, from what I hear, the Google Apps for Android pose a real threat, especially if they can get it on the Verizon network. The HTC Dragon/Passion (whatever they call it) could be the one.

If this is just a big hoax, the execs at Verizon should be scrambling to make it a reality. I haven't seen anything generate so much excitement in the smartphone world since the iPhone. Verizon is often crucified on forums for their pitiful phones. They have the best network, which is why so many (including myself) put up with the limited phones they offer. If it isn't bad enough that they let the iPhone go to AT&T, they even strip phones of some of their capabilities leaving many of us wondering why. For example, they have been known to disable the GPS chips, so you have to buy their "turn-by-turn" navigation service. Why they would not opt to take advantage of the Droid's multi-touch capabilities is anyone's guess.

But, if these rumors are true... maybe Verizon is learning. Imagine what they could do if they married a state-of-the-art phone, like the HTC HD2, with Android and the best coverage area in the industry!

I'm not making any new phone purchase until I see where this phone ends up. If Verizon doesn't get it, I might have to check out other carriers.

Robert A. Franco
SOURCE OF [...]

Attorney Sued Over Inadequate Title Search

Robert Franco — Sat, 05 Dec 2009 19:51:20 +0000

In an industry dominated by short searches it seems rather odd to see an underwriter sue an agent for professional negligence for only searching 40 years, rather than 60. But that is exactly what is happening in Putnam County, West Virginia. When an attorney, acting as an agent for First American, missed a corrective deed filed in 1958, First American paid the claim and filed suit against him.

According to an article on The West Virginia Record, attorney Alexander Ross issued a $495,000 policy on a small strip mall. The policy insured a 0.69 acre parcel, but Ross's search failed to discover a corrective deed file in 1958 which reduced the acreage by 0.2 acres.

Unfortunately for Ross, his agreement with First American only authorized him to issue policies up to $250,000 without prior approval. In addition, First American alleges that Ross failed to conduct the customary 60-year search.

Because the outconveyance was not discovered in Ross' title search, and he insured the $495,000 without their authorization, First American says they had to pay a claim [the insured] made against them.

The claim, records show, was settled in April.

Because Ross did not first obtain their consent to insure a purchase exceeding $250,000 or conduct a 60-year title search, First American alleges he committed both breach of agency agreement, and professional negligence. As a result, First American is asking it be awarded unspecified damages, attorney fees, court costs and interest.

Granted, this was commercial property, which generally means a more thorough search is warranted. However, it is getting harder to determine what is customary in the title industry. At one time, in my part of Ohio it was customary to do at least 42-year searches on everything that was to be insured. For acreage parcels and commercial searches it was customary to extend that search back 60-years or more, determined by local knowledge of utility easements and oil & gas leases.

Today, custom has been thrown out the window and most insured transactions are based on short searches. Sometimes that means a a current owner, two owner, or three owner search. More common now, it may only entail updating from a prior loan policy. Short searches used to be limited to the equity market for uninsured products, but they have made their way in to the residential title insurance market, and even foreclosures.

From my perspective, it was the underwriters that led the charge to do less thorough title searches. As I recall from my title abstracting experience, First American was among the first of the underwriters to adopt short-search standards. It came during the refi-boom when there simply wasn't time to do full searches on everything and appease the busy loan originators and Realtors. Up against demanding pressure and expiring rate-locks on loan approvals, the industry abandoned "customary" search standards and took the risk that a short search was "adequate."

Though most underwriting agreements still leave the agent on the hook for claims relating to "searching errors," it seems rather disingenuous for First American to sue an agent over a 40-year search, calling it "inadequate."

After more than a decade of eroding search standards, how is anyone to know what the "customary" search standards are anymore? First American may be sending mixed signals to their agents with this type of lawsuit. On one hand, they have been indicating for years that a short search is acceptable. On the other, they seem to saying that if you conduct short searches, you do so at your own risk.

Even though this was commercial property, the same thing could happen on a residential policy. The coverage amount wasn't even beyond the realm of what we see on residential property these days.

I wonder what would have happened if Ross had sought approval from First American before insuring the transaction, as he should have. From my experience, an excess risk approval generally entails answering some basic questions about the transaction and forwarding a copy of the search to the underwriter for review. Had Ross complied, would First American have declined to approve the issuance of the policy and required a 60-year search?

The 40-year search probably looked fine. Just like most of the current owners look okay on the many policies that are issued today. Are agents opening themselves up to liability on claims if the fail to conduct a more thorough search? Or was this situation unique because it was commercial property?

Underwriters should set more clear search standards for their agents. Relying on what is customary just doesn't work today. The title industry voluntarily abandoned customary practices long ago.

Robert A. Franco
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