Banks Pursue Deficiency Judgments

The American Bar Journal has a good article on banks going after borrowers for the shortages between mortgage dollars borrowed and what the homes can be sold for. Under the terms of mortgage notes, the borrower promises to repay the entire debt borrowed. But with so many houses under water, the lenders are losing money, and so they are are looking to the borrowers for the difference. Forty-one states in the US allow this.  So we need to watch name searches for deficiency judgments.  But will this just force more people into bankruptcy – or will they really recoup some money?

FNMA Mae has specific rules pertaining to the right to file deficiency judgments. Will they follow up?

Update on Minesota Foreclosures

Here is a very interesting report by the Minnesota Homeownership Center on Minnesota foreclosures, detailing the history of foreclosures by County over the last two years. It also has a map showing foreclosure rates by County. The goal is to get help to homeowners in foreclosure where it is most needed. See the report for solid information as to the marketplace in Minnesota.

MD Regulator Suspends Title Insurance License

Maryland insurance regulators have suspended the license of Beltway Title and Abstract Inc. of Crofton and related settlement companies due to misappropriation of funds. The company used more than $1 million that was set aside to pay mortgages or closing expenses for clients to cover its business expenses. Acting State Insurance Commissioner Beth Sammis says, “We’re going to work with the industry and all producers to find the best way to ensure that Marylanders can have faith that when they close on a house, it’s done properly.”  Read story from Baltimore Post

Old Republic – Good News and Bad

Morningstar has published updated information on financial considerations for Old Republic International – consisting of Old Republic National Title Insurance Company, as well as General Insurance and Mortgage Insurance.  As part of the article it states.

Title insurance premiums were up an impressive 33% in the quarter as compared with the same period a year ago, reflecting Old Republic’s increased market share from industry consolidation. The increased premiums along with a 98% combined ratio in the title insurance segment drove the large increase in operating income. Increased reserves for rising mortgage insurance claims continued to take their toll on pretax operating income, as reflected in the almost 200% claims ratio in the fourth quarter. Although new reported mortgage delinquencies have fallen in each quarter of 2010, the paid loss ratio was almost triple the earned premiums in the fourth quarter.

Title Insurance and Closing Company $4 Million in Theft

Out of Maryland, another title company default. Some things here, however, are distinctive.  Yes, the owner/ operators of the companies involved and their affiliated businesses used $4 million dollars of other people’s money. But much of the money used  sounds like just plain bad management.  After all, the money was not traced to extravagant homes, cars and the like, but much of it is chalked up to poor management, lots of errors that needed to be covered up, theft by employees, along with likely not cutting expenses fast enough when the market went south.  A common error in the Title Insurance Business.  Another surprise is the longevity of the companies that were started in the 1980’s and 1990’s.  Unusual for most defalcations.  However, there are also the standard themes, such as  money being short in the escrow accounts for a number of years before claims were brought. Read more here from two local papers:Annapolis paper.Baynet Paper

NY Title Company Pleads Guilty to Defalcation

Indicted in a check-kiting scheme, Brian Madden, cofounder of the now defunct Liberty Title Agency, NY NY, pleaded guilty in federal court in Manhattan Tuesday to one count of wire fraud and one count of insurance fraud. Madden stole more than $2 million from clients, according to the office of U.S. Attorney. Madden then used new funds from clients to pay off other clients’ debts, the U.S. attorney’s office said. Because of this, property changes were not recorded on time and taxes on dozens of mortgage and real estate transactions were not paid on time. The wire fraud charge carries up to 20 years in prison and insurance fraud, up to 10 years. Madden has agreed to forfeit four properties and more than $2 million in various business and personal accounts and personal checks seized in searches

S&P Wants Assurance on Foreclosure Procedures

Many mortgage servicers have been under study recently because of reports of “robo-signing.” Some of the largest servicers including BOA, GMAC, and JP Morgan Chase suspended foreclosures across the country to perform internal audits.

Bank of America recently announced it was resuming foreclosures in the 23
judicial states. After maintaining for months that no foreclosure suspension was necessary because its internal processes were sound, Citigroup announced in late November that it had found an estimated 14,000 affidavits that will need to be re-filed. The firm said it will not take ranking actions based solely on an announcement that a servicer is reviewing its foreclosure processes, but expects all residential servicers in its Select Servicer program to provide certain documentation to prove their compliance with proper foreclosure affidavit rules and attestation of their procedures.

Subsequently, Standard & Poor’s said in a press release: “If we determine that, in our view, a servicer’s processes are inconsistent with the aforementioned requirements, we will monitor its efforts to remedy the issues and revise our outlook and/or rankings on the servicer as we deem appropriate.” In other words, S&P says mortgage servicers must provide specific documentation that their foreclosure processes are in compliance with foreclosure laws, or risk receiving a revised rating.

By the end of first quarter of 2011, servicers must provide:

• Written verification from an independent source that the servicer’s
foreclosure affidavit preparation and attestation processes are sound and are
designed to be in compliance with individual state laws governing the relevant processes.

• Written documentation, where applicable, of the servicer’s identification of process, workflow, and/or organizational deficiencies in its existing foreclosure affidavit preparation and attestation process. This documentation should also provide data on the extent of deficient documents identified and outstanding.

• Written verification, where applicable, of all relevant changes to internal policy documents that describe procedural changes, process improvements, workflow and organizational restructuring, etc., that are specifically relevant to and designed to remediate and support ongoing statutory compliance with the preparation of foreclosure affidavits and attestation.

Watch Out for Equitable Mortgages

When I teach title examination, closing, title abstracting, and other real estate classes, you have all heard me talk about “Equitable Mortgages,” i.e. A deed is given that has specific language in it that lessens the full impact of the conveyance.  A typical  example might be  an owner deeding a lot to a builder who is going to build them their dream home.  Such deed might contain the restriction that “this deed is being given as security. ” That language implies that the persons conveying have an expectation to get it back and in fact it becomes equal to a mortgage (equitable mortgage) in terms of closing, laws, etc.   Here is a must read new article from Minnesota that points out such problems. Here is a Press Release by 24/7 that gives a couple examples of the complications with such a deed.   It is a MUST READ for title people.

Title Policy Covers Lender for Fake Buyer

From David Pardue’s Blog Thanks for the case information David.

An insured’s title policy required the title company to insure over forged closing documents according to the Georgia Supreme Court. In Fidelity National Title Ins. Co. v. Keyingham Investments, LLC, Case No. S09G1783, Decided October 18, 2010, a borrower who executed a security deed was an imposter that absconded with the money after closing, leaving a mortgage on the property that nobody was prepared to pay. The lender filed a claim with its title insurer, who denied the claim. The lender then filed suit.

The crux of the case was the language of the title commitment the title insurance company issued at the closing.  Here there was a mortgage securing a loan to the impostor.  The insurance company issued a title “commitment,” also known as a “binder” to issue a full policy after closing if certain conditions are met. Whether those conditions were satisfied so that the policy had to issue is what the court decided in this case. The reason this was an issue is that the insurance company issued a binder at closing but then found out the borrower was a fraud, so it refused to issue the insurance policy.

As an aside, it has always interested me that in the case of title insurance the party paying for the insurance does not know all of the terms of the contract at the time he or she pays for it. The buyer of insurance only receives the binder, not the full policy, at the time of purchase. Nevertheless, the purchaser of insurance is bound by the terms of the policy written after the fact, even though said purchaser has never seen the document before. Therefore, in this instance, a contracting party is held to have agreed to terms it has never heard of before. Of course, the purchaser could cancel the policy, but it would be at risk at that time of not having any coverage at all for a defect in the title. There are forms that are generally used for the boiler plate in these policies that can be found if someone looks for it, but this is never offered to the purchaser. Also, I have seen policies issued by closing attorneys with exclusions in them that were never disclosed at the closing. That is malpractice but it has happened.

The insurance company here relied upon the following condition in the binder: “Documents satisfactory to the Company creating the interest in the land and/or mortgage to be insured must be signed, delivered and recorded.” The insurance company argued that the language “creating the interest in the land and/or mortgage to be insured” meant that a fraud would not be covered because the forged documents would not actually create any interest in the land. In other words, because the documents were fake, no real interest was created.

The court brushed off this argument. The whole purpose of title insurance, it stated, was to protect property interests against fraud and such abuses. Here the documents were all prepared by Fidelity’s agent and signed, delivered and recorded by said agent, thus satisfying the condition of the binder, notwithstanding the forged signatures. The court noted that other commitments have stated that the document must be signed by a particular person, and that those commitments have been held to exclude forged documents from coverage, because in those cases the actual named person did not sign. Here, the commitment did not specify who had to sign, only that they be signed. Once the agent accepted the signed documents and recorded them, the insurance company had to issue the policy.

40 State Attorneys General to Investigate Mortgage Fraud; Bank of America Halts Evictions Nationwide; Senator Reid Calls for More Suspensions

Important Update on Foreclosure Issues for Title Insurers.  See Video of Ohio AG on Foreclosure Issues:

Attorneys general in about 40 states may announce a joint investigation into foreclosures at the largest banks and mortgage firms, according to a person with direct knowledge of the matter.
State attorneys general led by Iowa’s Tom Miller are in talks that may lead to the announcement of a coordinated probe as soon as Oct. 12, said the person, who declined to be identified because a final agreement hasn’t been reached. The number of states may change because several are still deciding whether to join the investigation, the person said. New Mexico Attorney General Gary King said today in a statement that his state will join a multi-state effort.
Lawyers representing the banks are expecting a more widespread investigation…  See more at Bloomberg

Info On Home Closing

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