Land Title Technical Stuff

OCC Adds Information for Third Party Vendors

On June 7th, the OCC added bulletin 29 to third-party relationships to clarify the way lenders should interact with third party vendors, to us, that means how lenders deal title and closing providers.

    Get the entire OCC bulletin here

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As a part of the lengthy bulletin, it stated the lender is responsible for ongoing monitoring.

Ongoing Monitoring
Ongoing monitoring for the duration of the third-party relationship is an essential component of the bank’s risk management process. More comprehensive monitoring is necessary when the third-party relationship involves critical activities. Senior management should periodically assess existing third-party relationships to determine whether the nature of the activity performed now constitutes a critical activity.
After entering into a contract with a third party, bank management should dedicate sufficient staff with the necessary expertise, authority, and accountability to oversee and monitor the third party commensurate with the level of risk and complexity of the relationship. Regular on site visits may be useful to understand fully the third party’s operations and ongoing ability to meet contract requirements. Management should ensure that bank employees that directly manage third-party relationships monitor the third party’s activities and performance. A bank should pay particular attention to the quality and sustainability of the third party’s controls, and its ability to meet service-level agreements, performance metrics and other contractual terms, and to comply with legal and regulatory requirements.
The OCC expects the bank’s ongoing monitoring of third-party relationships to cover the due diligence activities discussed earlier. Because both the level and types of risks may change over the lifetime of third-party relationships, a bank should ensure that its ongoing monitoring adapts accordingly. This monitoring may result in changes to the frequency and types of required reports from the third party, including service-level agreement performance reports, audit reports, and control testing results. In addition to ongoing review of third-party reports, some key areas of consideration for ongoing monitoring may include assessing changes to the third party’s
• business strategy (including acquisitions, divestitures, joint ventures) and reputation (including litigation) that may pose conflicting interests and impact its ability to meet contractual obligations and service-level agreements.
• compliance with legal and regulatory requirements.
• financial condition.
• insurance coverage.
• key personnel and ability to retain essential knowledge in support of the activities.
• ability to effectively manage risk by identifying and addressing issues before they are cited in audit reports.
• process for adjusting policies, procedures, and controls in response to changing threats and new vulnerabilities and material breaches or other serious incidents.
• information technology used or the management of information systems.
• ability to respond to and recover from service disruptions or degradations and meet business resilience expectations.
• reliance on, exposure to, or performance of subcontractors; location of subcontractors; and the ongoing monitoring and control testing of subcontractors.
• agreements with other entities that may pose a conflict of interest or introduce reputation, operational, or other risks to the bank.
• ability to maintain the confidentiality and integrity of the bank’s information and systems.
• volume, nature, and trends of consumer complaints, in particular those that indicate compliance or risk management problems.
• ability to appropriately remediate customer complaints.
Bank employees who directly manage third-party relationships should escalate to senior management significant issues or concerns arising from ongoing monitoring, such as an increase in risk, material weaknesses and repeat audit findings, deterioration in financial condition, security breaches, data loss, service or system interruptions, or compliance lapses. Additionally, management should ensure that the bank’s controls to manage risks from third-party relationships are tested regularly, particularly where critical activities are involved. Based on the results of the ongoing monitoring and internal control testing, management should respond to issues when identified including escalating significant issues to the board.

Minnesota Considers New Ag Tax Credit for Farmers

Author Comment:  In spite of Green Acre taxes, Minnesota Farmers face heavy real estate taxes on farmland, causing them to vote against independent school district referendums. So look for a new tax search to follow along with deferred Green Acre and Open Space  Taxes.   Lt. Gov. Tina Smith is working to help resolve this. 

Daily Globe | January 20, 2017

Smith called the current situation a perfect storm. Farmers are suffering from low commodity prices, high land values and, for many, crushing health care costs. The prospect of their property taxes increasing by hundreds or thousands of dollars sent many to the polls in November to vote down building bond referendums like the one for ISD 518.

“The farm economy has been struggling for the past few years. Rising property tax bills are not what’s needed across the state,” said Minnesota Agriculture Commissioner David Frederickson. Noting that property taxes have increased by 114 percent for Minnesota farmers in the past decade, Frederickson said a majority of levy referendums in rural Minnesota failed in 2016, while the majority of levy referendums posed to city dwellers passed.

Read More on this

Air Right Sales Soar To New Heights

You have never seen it all in real estate, as it is a constantly morphing industry.  I just ran across an article in the New York Times on the sale of Air Rights where a developer paid $40 million to a church for its air rights in order to build a 51 story building in New York.

One real estate broker commented

“They’re building what I call a Viagra building, a tall slender tower with great views at a great location.   … What difference does it make if you pay $100 more per square foot if you’re selling condos for over $4,000 per square foot?  But there aren’t many sites where you can do this.”

Read the full New York Times article

Title Insurance Costs Exceed Estimates by Thirty Percent

RedVision/Accenture have put out a study on the changing costs for Title Insurers due to what it aptly calls “Multiple Disruptive Forces” including such things as regulatory changes, digital operations, industry convergence, and a subdued economic outlook. The benchmark study focuses on the true costs of title insurance origination and finds that the true cost is about 30% higher than their study participants estimated.

From my perspective, it’s a thoughtful analysis. I think the ultimate thought would be to have all the information simply digitally dumped into an automated system that would spit out a title commitment. But, as we all know, as the chain of title is put together, there are many stops involved and many places to collect data, all with different systems:Treasurers, Auditors, Assessors, County Recorders, Cities, plats/surveys, etc.etc. And while I know there are inefficiencies in manually obtaining data, and I recognize that much of the information can be downloaded, I believe we are light-years away from a one-stop automated process.

In order to have a “good” title product, someone has to actually LOOK at the data as it will not simply download into the appropriate category. There are too many variables. A good search needs to verify the physical signatures on that deed, look for recitals in documents, review divorce decrees, etc. Yes, streamlining is very important, but so is the knowledge of those persons who examine the instruments. On the other hand, if the industry wishes to become completely automated, it could choose to do so and become like a casualty underwriter – don’t check past history, just prepare and reserve for much higher claims.

It has been a long time since I have seen information from Commerce on the Licensing requirements for Abstracters, and I was pleased to see their latest bulletin.  While I know there is no education requirement, the content is significant and requires a good working knowledge of the trade. For those who need assistance with the legalese in title searching the online Principles of Abstracting course can help.  In any case, here is the outline from the PSI bulletin.

ABSTRACTER EXAMINATION CANDIDATE INFORMATION BULLETIN

Legal description and elements of real property (10 items)

  1. Definitions and components of real property
  2. Methods of legal description
  3. Estates in real property
  4. Forms of ownership
  5. Transfer / alienation of real property
  6. Deeds
  7. Types
  8. Characteristics / elements

iii. Warranties

  1. Land use controls
  2. Public
  3. Private/Covenants, conditions, and restrictions (CC&Rs)
  1. Condominium Law

Documents (15 items)

  1. Conveyance
  2. Recording
  3. Torrens
  4. Encumbrances
  5. Types and priorities of liens
  6. Easements
  7. Encroachments

Research and Compilation of Abstract (20 items)

  1. Indexes
  2. Search requirements and techniques
  3. Documents and Entries
  4. Legal description in abstract
  5. Searches (including judgments in favor of the U.S.)
  6. Certification

Licensing and Professional Conduct (5 items)

  1. Licensing requirements
  2. Prohibited conduct

 

Mobile Notaries – Do You Have the Required Minnesota Closer License

Minnesota is sending out Enforcement Notices to Mobile Notaries reminding them that under Minnesota Law, those who notarize deeds, mortgages, affidavits and other documents to assist a party in buying or selling real estate in Minnesota are required to have a Closer’s Licence from the Minnesota Department of Commerce.

The primary Closer License Laws are MN Statute 507.45 and MN Statute 82.641

The Commerce Department is authorized to penalize those who are not compliant, so please be sure to obtain the proper license. More information about Closer Licensing can be found here on the Commerce Department Website.

Title Companies should also assure that any closing agents they use are duly licensed under the law.

Judge Rules OK to Saw off Half a Garage if on your Property

beseman_garage-630x471

This article reminds us that  “Actual Knowledge of a Problem requires the buyer to take care of the problem!” It also let’s a title company off the hook for claims.

From Minnesota Public Radio Blog.

A judge in Grand Rapids, Minn., has ruled that if someone else’s garage sits partially on your property, it’s OK to saw it in half.

The ruling comes in the case against Roger Weber of Nashwauk who sawed Mark Besemann’s garage in half in April 2013. Besemann had purchased the house from Weber’s sister, unaware that a family feud was raging over the location of the garage.

Besemann sued Weber but Judge Lois Lang has ruled that Weber had a legal right to remove the portion of the garage that sat on his property, Forum News Service reports.

The house Besemann purchased had been owned and lived in for years by Roger Weber’s father, Robert Weber. But after the elder Weber died in 2012, and the home passed to the sister, Roger Weber claimed that half of what had been his father’s garage was in fact built on property the younger Weber now owns.

Sometime between April 22 and April 27, 2013, Roger Weber sawed the garage in half and removed the portion he claimed was on his property.

Besemann discovered the damage April 27, just days after closing on the property, and eventually filed a civil suit asking for $20,000 in damages for the ruined garage and another $20,000 in punitive damages from Weber.

Besemann also has to pay Weber’s legal costs.

“I’m obviously being railroaded by a small group of ‘public servants’ with their own agendas,” Besemann tells Forum. “(He) has destroyed my garage and rendered the house unlivable by damaging the septic system. What’s next? He now has an open ticket out there to do what he wants so it’s anybody’s guess. I have no choice but to keep fighting what now appears to be a losing battle.”

The dispute arose during Weber’s campaign as the endorsed Republican for the District 06 seat in the Minnesota House of Representatives. He lost.

Statute of Limitations on Title Policies

Good case on the statute of limitations for Title Policies.   The case shows that the owner’s claim for breach of their title insurance policy doesn’t start until the title insurer refuses to adequately compensate the owner for a covered loss – Spalding v. Stewart Title Guar. Co., Case No. SC 94580, 2015 WL 2228547 (Mo. May 12, 2015) (affirming amended judgment after jury trial).

Mortgage Note NOT Assigned to Foreclosing Lender?! OOOPS -It’s all in the Details

Interesting case out of Alabama.  See more detail.

Her mortgage had been foreclosed, but the mortgagor challenged the foreclosure by appeal, saying the lender who foreclosed had no legal interest because the note was not properly assigned. The appeal court agreed and the foreclosure sale has been  reversed and remanded to the trial court.

Moral of the story: Dot your I’s and cross your T’s when it comes to assignment of mortgage notes.

New Construction Homes – Are You Getting the Right Indemnities

Interesting case regarding new construction law. Although out of a Missouri Court, the takeaway still applies. When obtaining a Sworn Statement from a Builder stating that all subcontractors have been paid, do you also obtain a personal indemnity? Do you know the financial condition of your builder?  

In this case, Frank Miceli lied to Commonwealth Land Title when he signed sworn statements at closing  that all contractors, subs and materialmen were paid on three homes. There were no assets in Miceli Homes, the name the homes were built under. The court initially found that consent judgments barred particular claims against defendant Miceli Homes.

After much ado, the courts were convinced that it not bar claims against defendant Frank Miceli, individually, who held assets  in  his individual capacity; trustee of the Frank Miceli Revocable Trust;  Miceli Homes, Inc; Miceli Development Company;  Miceli Holding Company; Masterwork Homes, Inc.; and Miceli Masterwork Homes, Inc., D/B/A Miceli Custom Homes. 

With much effort, and several appeals, Commonwealth was able to convince the court to pierce corporate veils to look at recouping  the $1.5 million dollar losses paid in mechanic’s lien claims.  A good case for all title people to understand. 

After all, we all know builders who go out of business one day, only to start up the next under a similar name. Names DO matter. And signatures on indemnities matter. Is the signature that of an officer of the Building Corporation, or is their also a personal indemnity to back it up.  In the Miceli case, the personal responsibility made all the difference, because none of the assets were in the name of Miceli Homes. 

Read the whole Commonwealth Land Title Vs. Frank Miceli et al here

Info On Home Closing

Home Closing 101: An Educational Initiative of the American Land Title Association