Claims

Mortgage Fraudsters Continue to Pay

Mortgage fraudsters continue to pay as can be seen in yet another federal trial. The FDIC and CFPB are hard at work with the DOJ and a host of others continuing to clean up the mortgage debacle from the 2008 Crash. I hope that the severe penalties and continuing cleanup will make other fraudsters think twice. It seems you can’t regulate ethics, but perhaps punishment will suffice.

After an 11-day trial, a jury found a husband and wife guilty of conspiracy and bank fraud that totaled $49.6 million.
Domenico “Dom” and Mae Rabuffo were convicted of participating in an elaborate scheme to defraud banks of tens of millions of dollars in connection with a development known as Hampton Springs in Glenville’s Big Ridge community. The crimes are alleged to have occurred between 2003 and 2008.
Dom Rabuffo, 77, of Miami, and Mae Rabuffo, 75, of Fort Lauderdale, Fla., and Williston Park, N.Y., were found guilty of conspiracy to commit bank fraud and wire fraud affecting a financial institution. Dom Rabuffo was charged with multiple counts of bank fraud.
Sentencing by Chief U.S. District Judge Kevin Moore is expected to take place Sept. 25. They each face a maximum of 30 years in prison for each count.
read more at the Sylva Herald

What Happens When Your Title Underwriter is Defunct?

A statement in A.M.Best’s special report posted by the freelibrary reports:

Title insurer failures are more bad news for homeowners trying to sell or refinance property in the current down market; as such transactions can trigger a title search and a potential claim. Recourse for policyholders can be difficult and, at best, slow, as very few states cover title insurance under their guaranty funds.

 

With the recent bankruptcy of LandAmerica, Commonwealth Land Title, etal, I wonder what has become of the liability for their title policies? For those who have legitimate title claims written by those underwriters, including lenders in this messy foreclosure and short sale market, what happens? Clearly, the title commitments that are being closed today show many title issues, with judgments, foreclosures and under-water sales commonplace. It seems some of the title problems were missed because of poor search and examination procedures, and lessened searches during a busy market. Anyone care to speak up? 

 

Read the full report here.

Who Has to Sign the Mortgage Documents?

One of the most common sources of confusion at closing seems to be who must sign the mortgage docs. It seems to befuddle even experienced closers of title companies and title agencies. Does the Deed have to match the Mortgage and does the Mortgage have to match the Note? Many are sure that when there is a husband and wife, the closer should prepare the Warranty Deed in both names in joint tenancy, and then prepare the mortgage to exactly match the names on the Warranty Deed. They are not quite sure about signatures on the Mortgage Note, however, because lenders sometimes require others to sign the Note as well.

Truth is, in Minnesota (not necessarily all states) it takes “one to buy and all to sell,” meaning a person can buy real estate without their spouse going into title. There may be good reason for that. Say one spouse has significant financial exposure due to the business she owns. The husband may want to go into title in his name alone, so that should a bad business climate come along and the wife has judgments filed against her, the judgments will not attach to the property.

Also, far as joint tenancy – that may not be the best solution for all spouses. For example, Harry and Mabel, both elderly, have lost their spouses. A winter romance comes along and they decide to be married. They pool their funds and buy a home together. Both wish for their children to inherit their respective halves upon their death. They want to take title not as joint tenants, but as tenants in common.

However, Minnesota, as many states do, has an automatic interest of the spouse in the homestead. Now how do we know if they are living in the property as their homestead? Answer is: we don’t. Therefore, to be prudent, we ask spouses to subordinate any interest they might have, by signing the mortgage. They don’t have to be in title to sign the mortgage. But by signing the mortgage, we have cleared the potential interest.

Best Practice: ALL parties who show in title must sign all mortgages, and rule of thumb is to get their spouses to sign as well. Yes, I recognize that some real estate is unlikely to be homestead, but to be safe, get your underwriter to sign off on not getting the spouse’s signature. After all, that apartment building could also contain the apartment that your client claims as home.

As far as the Mortgage Note, it is simply a personal pledge to repay the full amount of the debt. So if son and daughter-in law, for example, need a little assistance in buying their first home, Mom and Dad may help it happen by, in effect, guaranteeing the loan. Mom and Dad sign the Mortgage Note but do not have to go into title (unless the lender demands it.)

As a disclaimer, this is NOT intended as legal advice, and those who prepare legal documents should be careful to seek legal advise to fulfill the intentions of the title holders. This is merely information from a seasoned closer and title examiner who has seen problems crop up due to misunderstanding how it the documentation works.

Title Professionals – Are You Sleeping at Night

I was at the Louisiana Land Title Association conference yesterday.  There was a common theme among dozens of title insurance, abstracters and title attorneys I talked to.  The business has changed.  The standard of thorough title searching and fixing title problems before closing so that there are few claims is gone. One abstractor in particular told me he was getting out of the abstracting business.  It was no longer the kind of work he wanted to do.  He told me that over a period of 20 years he was proud to have had only one claim.  Someone in his office had missed a Federal tax Lien.  Yes, it was bound to happen, as he had done a significant volume of business over many years.  When the tax Lien was brought to his attention, he dealt with a like a man, and paid it.  He contacted the Sellers who owed the money.  The Sellers acknowledged that they did in fact owe the money.  He worked out a deal with the Sellers to make monthly payments until it was paid in full.  The abstractor never submitted a claim for that, or for anything else.  He was proud of his thorough search work and the way he did his business.  “But no one wants that kind of search any more” he sadly commented.

 For 100 years, title insurance and abstracting has been a proud business.  Title Insurers and abstracters have been proud of their record.  They thoroughly searched title, fixed problems, and had few claims.  But somewhere, in the recent past, when times were booming, houses were going up in value every day, and credit was easy to get, everybody wanted a piece of the action.  And the title business changed.  The traditional ways of doing business were no longer.  The care and attention given to detail went by the wayside.  Somehow, it became more important to do a large volume of business.  Be the biggest, not the best.  Everybody wanted market share.  Every title underwriter was looking for a title agent who could bring in more business.  And due to the volume of refis and sales, business, everybody flourished.  And suddenly everybody wanted to get into the title business.  Title insurance suddenly was seen as a lucrative sideline for real estate agents, mortgage companies, and even builders.  After all, if you could control the business, why not make an easy buck on the side.  You could pull down 80% or more of the premium, and lots of miscellaneous fees.  And the underwriters saw these new agents as an increase in market share, and thought it was good.

Now the majority of this premium had always gone to the old title agents who did the exacting, grunt, search and exam work- the detail guys, after all, they were the ones who identify the problems, solve the problems, and kept the title clean and the claims low.  They had been with their underwriters for years.  These were the long-term mom and pop shops.  Professionals with a long-term stake in the business.  Often second and third generation.  Professionals who were committed to doing an excellent job for people in their community.  Professionals who believed in the quality of their work, and the product they produced.  Giving a thorough title search helped them sleep at night, after all, these were their families and their neighbors, and they owed them the best they could possibly do.  Nobody was going to lose a house on their watch. If an agent had a claim, he might just pay the claim, he might put in a claim under his E and O, or if a huge authentic claim (being one totally outside their control, like a forged document) they might submit a claim to their underwriter.  Too many claims and they knew they would lose their underwriter.

But the new agents were not familiar with the exacting, grunt, search and exam work.  They did not sign up for this.  They were in the business to build houses, lend money, and sell real estate.  And they wanted a quick turnaround time.  Rationalizing that everyone was putting on a second and third mortgage at the time, that most houses were sold every seven years, and that the titles were examined regularly, it was determined a complete search would not be necessary.  Now who made this determination is unclear.  But along came the short search.  Just looking back a deed or two.  The short search allowed a quicker turnaround time, allowing more business with less staff, making it cheaper to produce.  And the underwriter saw only the increase in premium and increase in market share and thought it was good.

With so many new agents promising to bring in large amounts of business, title underwriters began to compete for that business based on larger premiums splits.  If 80% wasn’t good enough said a big potential agent, premiums went to 85%.  If 85% was a good enough said another, the premium when to 90% for the agent and 10% for the underwriter, and so it went.  And the agents signed with many underwriters.  After all, if one underwriter didn’t work out, switch to another.  Dime a dozen.  And the underwriters greedily ate up any builders, lenders, real estate agents or anyone else who could bring in business. Its a REALLY good deal when you get all that money and don’t even have to do the work!

And the old time title agents saw how fast these new agents were putting out title work.  They saw that they needed to speed up the process to compete.  The short search sounded pretty good.  And the title underwriters, in order to keep everyone happy, agreed.  And so now everyone was doing a short search.  And so the concept of thoroughly searching title, fixing problems and few claims went out the window.  And claims were born.

 

Now, somehow the thought that insurance being written by these new agents as a sideline, when the business was self serving wasn’t acknowledged.  Now you ask, “How could that be?  Does it make sense that builders should be insuring their own titles and guaranteeing over their own mechanics liens?” I don’t have an answer to that.  But, everyone moved the higher risk to the title underwriters.  And the underwriters, in order to compete, allowed it to happen The lenders were happy to control the money and the title.  The builders had a profitable, new sideline and so did the real estate agents.  Title insurance was seen as a profitable sideline, and a convenient one of that, as you could control both the speed of the transaction and handle the massive amounts of money involved in closing the transaction.  Now I’m not saying this is true for every builder, lender or real estate agent, but it happened- a lot.

 However, Title actuaries seemed to be left out of the loop on this, they went on as usual and continued collecting the same title premiums, with the lower title splits, and attempted to shrewdly invest the remaining premium for that rare occasion it might be needed to pay a claim.  Somehow it seems no one was thinking about the ramifications of the new way of doing business – the significant increase in risk because title problems were not being thoroughly researched, let alone fixed, or that more dollars might be needed in reserves to pay more claims.  Title premiums charged to the consumer remained about the same, having had few changes from year to year, or in some cases from decade to decade.  And so here we are today.  High claims and low reserves.  We’re in a fix.  Will the pendulum swing?  In order to be solvent do we need to go back to the traditional ways of doing business –thoroughly searching title, fixing problems, and having few claims?  Or more importantly, in order to sleep at night, do we, as ethical title professionals need to be more thorough in our work, so that none of our friends, family, or clients lose their house on our watch.

 

 

FNF 3rd Qtr Earnings Report gives Picture of Title Insurance Industry

The third quarter transcript of Fidelity National Financial, Inc. (FNF) gave us a clear picture into what is happening with all Title Insurance Underwriters.  To give you an overview of what is happening at FNF, here is a recap.  The entire transcript can be found at http://seekingalpha.com/article/101536-fidelity-national-financial-inc-q3-2008-earnings-call-transcript?page=1

Regarding expense reductions

  • FNF eliminated 1000 positions in the third quarter (800 frontline staff and 200 agency and corporate positions) 
  • It instituted a 10% company-wide pay reduction, most likely to be continued through the first quarter of 2009
  • It is asking board members to take a similar cut in pay
  • Its fourth-quarter dividend was reduced 50% .. from the previous  quarter
  • The company continued to close offices…more than 115 offices

The current situation The largest decline in revenues came in agency premiums as they fell by 24% and 40% versus the third quarter of 2007. Actual title claims paid in the third quarter were $85 million versus $79 million in the third quarter of 2007.

When asked about claims by type and percentage of claims, FNF responded the “primary three, I would say, are search and exam errors… That’s about roughly 30% of our claims experience. Fraud and forgery,.. moved to number two in the last three years or so …running somewhere close to 20% currently. Then in closing-related errors and underwritten risk, are kind of three and four, (and) make up about two-thirds of our total losses.”

Regarding claims, it was noted “…given the pattern we had seen where our actual claims results continued to exceed our forecasted results; we realized that the current model needed to be adjusted. So we really stepped back from the current model and said… We’re going to disregard all prior reported claims experience other than the last three years, those years being 2006 through 2008. (IBNR will now be reserved at an increased 8.5%)

To increase revenue

  • FNF is renegotiating agents splits
  • Is increasing filed rates …generally 15% – 20% or more across the country.

No surprises given the state of affairs in the real estate market, and this bloggers expectation is that the four remaining major title underwriters are or will be doing exactly the same thing. Increases will happen across the board for all costs related to title insurance and closings.

Difficult Abstractor License Exam

 

In Minnesota, title companies and those doing land title searches generally take and pass a state licensing examination. Counties do not need to allow you into the public record without it. No license, the county can make you wait at the counter for assistance. Theory being that the records could be damaged, altered, mis-filed, etc. Well, the exam is not the proverbial “piece of cake.” Here is a typical question from an exam taker. I get these quite often.

Hi Jeanne

I have taken your abstracting and exam classes in the past and tried to pass the abstracting test a few months ago and FAILED twice. I am wondering if you have any suggestions for me???  (Name withheld)

Dear XXX, Good to hear from you.

Do you recall anything from the exam that was especially puzzling for you? 

 

I have heard from others that the questions use a lot of negative and kind of trick questions like “which of the following is the least likely…”, or “which one of the following is not…” For those, you need to be extra careful:  for example if they asked:


Which of the following is most likely to be deleted in a name search against Mary Charlotte Jones

  1.  
    1. Marie C. Jones
    2. Mary Charlotte Jonas
    3. Marie Cathleen Jones
    4. Mary Jones

You need to try to decide what names you would NOT show if you found a judgment. So, the one that is most clearly different is c, because the middle name is clearly not the same, and although Mary and Marie are different, and Jones and Jonas are different, they pretty much sound the same. So best answer, the one that is most different, is c.

Another type of negative Q to look out for:

A quit claim deed is not used

  1.  
    1. to give no claims as to the validity of title
    2. to give up any interest one may have in real estate
    3. to warrant title to property
    4. to convey title to real estate

You have to think through each answer:
a. Does a QCD give no claims as to the validity of title?  Yes
b. does a QCD give up any interestone may have in real estate Yes
c.does a QCD warrant title to property No
d.does a QCD convey title to real estate Yes.

It goes against how we think, but, because the Question says a QCD is NOT used to…, the answer is C.

Other questions may seem to be tricks, as they are hard to follow. For example

Which of the following is least likely to be shown in Joint Tenancy?

  1.  
    1. A and B→ C and D
    2. E→ F and G
    3. G, H and I → J, K
    4. K→L, M→ N

Key to this question is how many people do you have to have for joint tenancy? Answer is at least 2, so only d. fits the bill because others are deeds to only single parties, so they can’t be JT’s. What comes to mind is that someone is always a T in C unless specified otherwise, and none of these say “as JT.”

Other suggestions are study up on the terminology, as they may split hairs, or substitute similar words – encroachment for encumbrance, etc.

If you have specific areas you do not understand, please let me know. Thanks,  Jeanne

P.S. XXX, I am going to post your Q on the blog without your name to see if we get any other responses… keep an eye out.

Title Underwriters Sue Widow to Recoup Money from Fraudulent Mortgages

A Connecticut Judge has thrown out claims that Hayley Kissel assisted her deceased husband, Andrew Kissel, a wealthy real estate developer, in fraudulently obtaining mortgage money according to a new WTHN news and a Hartford Paper article. 

Mr. Kissel was murdered in 2006, leaving an estate that owed more than $20,000,000 to several banks, based on the fraudulent mortgages.  Kissel initially took out legitimate mortgages on properties, but then created and recorded fraudulent releases.  He would then go to another bank to borrow money, and repeat the process.  The lawsuit claims Mrs. Kissel was aware that her husband was forging and recording bogus releases to obtain more funds, but kept quiet to maintain her lifestyle. And, because she did not speak up, Kissel was able to repeat the scam, causing losses to the title companies.

Both Chicago Title and Fidelity National Title Insurance companies, which insured title for the lender’s, are suing Mrs. Kissel. They allege that because she was aware of her husband’s conduct, she was complicit in the activity by not reporting it.  The judge disagreed.  A jury will now have to decide if Mrs. Kissel, who has significant assets, has been unjustly enriched by her husband’s theft and is therefore responsible for some of the losses incurred by the title underwriters.

Author comment:  Granted, I have not seen the documentation, but this appears to have all the red flags signs of  perpetrated fraud.  Honestly, when is the last time the title person legitimately saw a large mortgage paid off  PRIOR to a mortgage closing, as it appears to have been in this case.  

Title Agents give Worthless Title Policies

I was HORRIFIED when a customer contacted me about a title policy from a local title agent for his $1,000,000. Owner’s Title Policy being done in conjunction with a mortgage policy. The title commitment gave virtually no information other than owner, taxes and outstanding mortgage information. Because the buyer wishes to place an additional storage building on the property, the real estate agent inquired about location of any easements and restrictions. The Title Agent said something to the effect that they “no longer attempted to look for such things, they just insured over any problems.”

As an abstractor and educator who has been advocating the new 2008 ALTA Owner’s Policy, I was shocked! Even a most basic search should show easements and restrictions. Not looking for these leaves the underwriter open for all sorts of expensive title claims.

I would like to hear if others are seeing title commitments like this, or if it is just a lazy, rogue title agent who controls a lot of business and has buffaloed its real estate agents into thinking they are doing the consumer a favor by buying an expensive piece of garbage. Someone needs to start SCREAMING about this. I believe these agents are perpetrating fraud on the consumer.

Title Abstractor News Article is Absurd

Here is a post from a Tulsa, OK paper that is typical of the misunderstanding of the Abstracting Industry. It’s claims are ridiculous, absurd, unfounded and downright annoying. Read it to see why we need to educate the world about our jobs as title abstractors.

Info On Home Closing

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