Mamouth US Supreme Court Case for Title Insurers
From The Supreme Court Blog comes an interesting and important title case. The case began in Cleveland and is scheduled to be argued before the U.S. Supreme Court this fall. The outcome could determine whether lawyers can file a new sort of consumer lawsuit against title companies on behalf of those who haven’t actually suffered any actual title damages or even a financial loss .
The lawsuit, First American Financial Corp. v. Edwards involves a homeowner named Edwards, who bought a house in September 2006 and paid for a title insurance policy from First American Title. A few years before that, First American had paid the firm that closed the transaction $2 million for a minority stake in the company and they made an agreement to exclusively sell First American title policies according to reports at Forbes.com. First American claimed there were no financial damages to Edwards.
However, the case appeared to violate RESPA laws, which prohibit title insurers from paying kickbacks or anything of value for referrals. The Supreme Court will review the case and its decision could mean that any violation of the RESPA law, regardless of injury or financial damages, could subject title underwriters who have practiced co-ownership with agents to enormous class action lawsuits.
Here Comes the Big Dog
The Consumer Financial Protection Bureau, the Big Dog of oversight for the Real Estate Industries including mortgage bankers, appraisers, real estate agents and title companies, will soon be put into practice. Under the new law, Tim Geithner will set a “transfer date” when key legal and regulatory authorities shift from such agencies as the FTC, HUD and the Fed to the new consumer protection bureau. In effect, that date sets the beginning of the bureau oversight (with initial funding projected at $500 million a year,) a staff and full set of teeth. By law it must be no later than Jan. 21, 2011. The new agency will assume control of a RESPA, the GFE, HUD-1 and appraisal management among other things. All daunting tasks.With the complications between state laws, federal laws and multiple multiple state and local bureaus, let’s hope this aligns the process, making it more transparent and less complicated. Well we can hope anyway… I would settle for a Dog that can simply define where his yard ends and our yard starts…
Read More at Lexology.
Read more from Ken Harney at the Chicago Daily Herald.
Another Case Reinforces the Need for an Insured Closing Letter
I had a call yesterday from a Real Estate Agent client who wanted me to look at some peculiar fees on a GFE. One of the fees was for an Insured Closing Letter from the Title Insurance Agent’s Underwriter. I have to admit, I had not seen a separate charge for that item before, and I was a bit befuddled as to how it fit in under the new RESPA HUD1 rules. But when asked “What is an insured closing letter, and does my client need it? I explained the purpose and replied yes, getting an insured closing letter would be a good idea for all concerned. But the GFE was unclear as to whom the ICL was written- lender and/or purchaser? It would be best if both lender AND purchaser were insured.
With all the bruhaha about title agents absconding with funds, and with never having heard of the title agent, I suggested it was a small price to pay for the extra protection.
A new court hearing in Indiana against Fidelity National Title just confirmed that the Underwriter IS NOT responsible for the Closing Acts of its agent. The court said Fidelity’s authority to audit ITC’s escrow accounts does not convert ITC’s limited agency to issue title insurance commitments and policies into a broader general agency in which Fidelity has vicarious liability as the principal. An audit occurs after the fact to verify that the transaction occurred as contemplated and to verify the risk assumed under the policy issued. Fidelity’s right to conduct audits does not mean that Fidelity controlled or directed how ITC conducted its closing and escrow services. And there is no suggestion that ITC did not retain “discretion on a day-to-day basis in the provision of [those] services[.]“
Read more on this at Leagle. And then spend some time thinking about your liability in handling closing funds. Do you have good enough insurance coverage? Also, any thoughts on the separate charge on the GFE?
Linking the Chain of Title in Mortgage Foreclosures
A new industry has emerged. There has been much discussion about whether or not clearing title problems is a marketable idea. Well, apparently, the rash of bad titles over the last few years has shown it is. A new company, Nationwide Title Clearing is advertising
Our experience has proven that, perhaps due to the volume of foreclosures in progress, a large number of attorney requests do not match what is required when reviewing the actual recorded chain of title and unrecorded assignments in the collateral file.
Yes, with the huge volume of foreclosures, attorneys are often asking “Who holds the Note?” I recently read a good blog question asking: “Can a consumer determine who holds their note when the mortgage or DOT is registered in the MERS system?”
The returned answer was: Maybe. The response said Investors participating in MERS have options to disclose their information on the MERS System or not.
However, under TILA, the servicer must provide information regarding the holder of the mortgage loan when requested by the debtor. It states “Upon written request by the obligor, the servicer shall provide the obligor, to the best knowledge of the servicer, the name, address, and telephone number of the owner of the obligation…” 15 U.S.C. section 1641(f)(2). Servicers are also still required to notify homeowners in writing when loan servicing is transferred under RESPA, 12. U.S.C. §2601 et seq
Can A Title Insurance Underwriter Legally Purchase Business?
A recent lawsuit, Edwards v. First American, claims exclusive contracts between title insurance agents and underwriters are illegal under RESPA Section 8.
Point in case: In 1998 First American purchased a small equity stake in Tower City Title Agency in exchange for a contract requiring exclusive use of First American. According to the plaintiff, Denise P. Edwards, the $2 million spent in the transaction was illegal under RESPA. (Before First American purchased the stake in Tower City Title, the company did business with at least three other title underwriters besides First American.) Ms. Edwards lawsuit seeks damages for all of First American’s business conducted through similar exclusive agreements obtained in exchange for what she considers advance “kickbacks” disguised as purchases of equity stakes in title insurance agencies, claiming amounted to an illegal referral of business under the anti-kickback provisions of RESPA Section 8.
More to follow as the lawsuit moves forward.
Fannie Returns to Good Old Fashioned Quality Review
National Mortgage News Reports that FNMA has launched a new directive “that has the look and feel of a bygone era. They want lenders to know who they are doing business with, know where borrowers intend to live and have a clear picture of the borrower’s ability to repay the obligation. Sounds like somebody’s been traveling back in time, doesn’t it?” Read more at National Mortgage News
Title Insurer Held Liable for Title Agent’s Actions
Insurance Journal (05/03/10)
Thurston County (Wash.) Superior Court Judge Paula Casey has ruled that the state insurance commissioner may hold an insurance company liable for the actions of the company’s appointed agent. “If you allow someone to do business on your behalf, it only stands to reason that you can be held responsible for what they do,” said Washington state Insurance Commissioner Mike Kreidler. In an April 23 order, Superior Court Judge Paula Casey ruled that Chicago Title Insurance Co. could be held responsible for illegal inducements offered to solicit title insurance business by one of its appointed agents, Land Title Co. of Kitsap County Inc. Read full article at Insurance Journal
Are You Ready for the New RESPA HUD-1
Title Companies – All those line items for: Settlement or closing fee, Abstract or title search, Title examination, Title insurance binder, Document preparation, Notary fees, Title Insurance premiums, courier fees, Admin fees, fax fees, email fees, processing fees, are going away… Fees will be either elimninated, or at the very least, reduced to cost under the new RESPA. No longer will the common mark-ups be acceptable, nor can they be hidden from the customer in a myriad of confusing fees.
Under the new RESPA law, courier fees, admin fees, closing fees and dozens of other charges cannot be hidden in those miscellaneous line items 1102-1199 on the HUD-1. Title companies will now have to PRINT new all-inclusive rates. These will be filled in as a single item on ONE LINE – line1101. And title companies will have to hold to that number for the lender, because the lender is responsible for overages if settlement charges do not match the HUD-1. Title Companies will also have to legitimately back-up the numbers with specific reports as to their validity, and maintain those reports, so that HUD can audit their authenticity.
While this will make comparison shopping much easier for the consumer, and will force title companies to sharpen their pencils, it will be difficult for an industry that for a long time has used marked up fees for additional revenue. It would seem that no one is anxious to go to the new HUD-1 before he has to – it will cost title companies some serious revenue!
Are you ready for the change? This is NOT simply a matter of updating your software, it means a lot of planning and preparing detailed numbers for all those items on the closing statement. Actual out of pocket costs must be averaged and lumped into a single number for line 1101. (Other lines are intended for third party providers, for example, Line 1102 is only to be used when using a non-title company third party vendor for closing.) When the new numbers are available, schedules must be printed and distributed for your lenders to use on the new GFE, and for savvy consumers to see as well.
Watch for the complete gory details in my soon to be released online course: The new GFE Based HUD-1
RESPA – On Again, Off Again… Another Lawsuit Filed
According to Builder Online, HUD has delayed the implementation of RESPA that was to go into effect on Jan. 16th by 90 days. HUD agreed to the delay to assemble info it needs to defend against another lawsuit , this one brought on by he National Association of Home Builders (NAHB) and other plaintiffs, including 13 large builders and their affiliated lenders and title companies.
HUD’s published final rule eliminates builders from offering home buyers incentives if the buyers are linked into using an affiliated title company, mortgage company, or other affiliated service provider. The NAHB suggests that dismantling these affiliations will not help the consumer and will additionally lead to job losses.
HUD is also dealing with a lawsuit filed by the Mortgage Brokers Association (MBA) in December that is trying to block a rule requiring lenders and mortgage brokers to provide buyers with a “good faith estimate” that discloses loan terms and yield-spread premiums on the HUD-1 settlement statement.
Surprisingly, at this time, there seems to be no interest by the American Land Title Association (ALTA) to commence a lawsuit against the very unpopular required disclosure on the HUD-1 of the premium split between title agencies (that receive the vast majority of the premium) and title underwriters (who receive very little.) HUD has required the disclosure based on recommendations from the Government Accountability Office that has been critical of the industry practice.
REO Lender May Not Require Purchase of Title Insurance from Any Particular Provider
Sale of foreclosed properties, often referred to as “Real Estate Owned” or REO transactions, are NOT exempt from RESPA requirements. The lender that has foreclosed, acting as the seller, is still subject to the law stating:“No seller can require that the buyer purchase title insurance from any particular title insurance company. This rule pertains to transactions involving a federally-related mortgage loan for one-to-four residential units” as defined under the Real Estate Settlement Procedures Act (12 U.S.C. section 2608). Although this is a well-established rule, it is worth a reminder, given the upsurge in foreclosure sales.
An REO lender that violates this requirement can be held liable to the buyer in the amount equal to three times all charges made for title insurance. Anyone who believes that RESPA has been violated may file a complaint with HUD. For more in depth information about RESPA complaints, go to this HUD Link
Home Closing 101: An Educational Initiative of the American Land Title Association
