Loan

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

Who is Responsible for Who Gets Paid?

Whos on FirstWho to pay?  It starts to feel a little like “Who’s on first, What’s on second and I-don’t-know is on third” when we start to look at complicated mortgage transactions these days. We have mortgages, deeds of trust, lenders, assignees, beneficiaries, lender’s servicing agents, trustees, securities, exchange securities, and more.  

Here, as happens, title companies are charged with collusion in a complicated Ponzi scheme. I question how we legitimately know who should be paid in some of these complicated transactions.  Should the check for a payoff go to the Lender holding the Mortgage or to the Servicing Agent, in hopes it will be properly credited? Did the title company know the scheme?

From Lexology Title Insurance Article by Carlton Fields, an interesting read:

Escrow Agent: Where payments are disbursed to lender’s servicer and escrow agent has not knowledge of servicer’s scheme to defraud lender, lender fails to state a cause of action against escrow agent — Fazeli v. Williamson, No. H036951 (Cal. App. March 27, 2014) (affirming escrow agents’ objections)

FHA Loans Continue to Play Important Role for Consumers

RIS Media has some good information on those very common  FHA loans that many don’t understand. They point out a number of  facts that make the FHA Loan product so appealing and popular, including:

  • Those with imperfect credit can still qualify for an FHA Loan
  • Sellers, builders and lenders can legally pay some of the closing costs to induce the buyers to purchase
  • Extra cash is available under the 203B program  for those homes needing repairs
  • Although FHA  requires a 2.25% fee upfront towards mortgage insurance along with ongoing FHA premiums,  the low down payment makes an FHA loan very attractive for those without a large down payment

Read the whole article here 

FNMA Says Most Consumers Now Believe they can Qualify for a Mortgage

WASHINGTON – Feb. 12, 2014 – More Americans now believe it would be easy for them to get a mortgage, according to Fannie Mae’s January 2014 National Housing Survey results.  A FNMA  National Housing Survey polled 1,000 Americans via live telephone interview. Homeowners and renters are asked more than 100 questions used to track attitudinal shifts.

Positive consumer attitudes regarding the ease of a mortgage application climbed 2 percentage points to an all-time survey high of 52 percent, while those who think it would be difficult dropped 3 points to 45 percent – an indication that consumers view mortgage credit as more accessible.

While Freddie Mac still predicts more moderate home price gains over the next 12 months, consumers’ view that mortgage credit is more available may allow for continued but measured improvement in the housing recovery.

Consumer attitudes about the economy also improved in January despite downbeat jobs data for the past two months. The share of consumers who believe the economy is on the right track climbed 8 percentage points to 39 percent, while the share who believe it’s on the wrong track declined to 54 percent. Additionally, the share who expect their personal financial situation to improve in the next year increased to 44 percent, continuing an upward trend since November 2013.

“For the first time in the National Housing Survey’s three-and-a-half-year history, the share of respondents who said it is easy to get a mortgage surpassed the 50-percent mark, exceeding those who said it would be difficult by 7 percentage points,” says Doug Duncan, senior vice president and chief economist at Fannie Mae.

“The gradual upward trend in this indicator during the last few months bodes well for the housing recovery and may be contributing to this month’s increase in consumers’ intention to buy rather than rent their next home,” he adds. “The dip in overall home price expectations, though notable, is consistent with our view of moderating home price gains this year from a robust pace last year, while positive trends in perceptions about the economy and personal finances over the next year support our view of stronger growth in the broader economy.”

Survey highlights

Homeownership and renting

  • The average 12-month home price change expectation decreased from last month to 2.0 percent.
  • The share of people who say home prices will stay the same in the next 12 months increased 7 percentage points to 45 percent, while the share who say home prices will go up in the next 12 months fell by 6 percentage points to 43 percent.
  • The share of respondents who say mortgage rates will go up in the next 12 months decreased by 2 percentage points to 55 percent.
  • Those who say it is a good time to buy a house decreased from last month, down 2 percentage points to 65 percent.
  • Those who say it is a good time to sell a house increased 5 percentage points from last month to 38 percent.
  • The average 12-month rental price change expectation decreased from last month to 2.8 percent, tying the all-time survey low.
  • Forty-eight percent of those surveyed said home rental prices will go up in the next 12 months, a decrease of 5 percentage points from last month.
  • The share of respondents who said they would buy if they were going to move hit an all-time survey high of 70 percent, and those who say they would rent is at an all-time low of 26 percent.

MN Dept Commerce Takes Action against Embezzeling Closer

Used with Permission of Robert Franco, Source of Title
The Minnesota Department of Commerce has summarily suspended the real estate closing license, resident insurance producer license and Notary Public commission of Kuntee Singramdoo and charged her with embezzling over $230,000 in real estate closing proceeds and using the money to pay off her own creditors or her family members’ creditors.

Singramdoo, a resident of Lakeville, was an independent closer hired by Walsh Title & Real Estate Services, where she provided real estate closing services, sold title insurance policies and notarized real estate documents. The Commerce Department complaint alleges that Singramdoo engaged in a pattern of misappropriating, converting and/or embezzling settlement proceeds by issuing Walsh Title checks for her own benefit or for the benefit of her family members.

The alleged embezzlement includes at least 184 checks issued between February 2004 and June 2007 to 24 different creditors including $68,109 to U.S. Bank, $48,863 to Wells Fargo, $800 to JC Penney, $4,764 to Macy’s, $6,286 to Goodman Jewelers, $800 to Bloomingdale’s, $6,866 to Honda, $2,734 to American Express and $2,323 to Discover.

Singramdoo admitted under questioning from Commerce Department investigators that she embezzled the funds but at this time has only paid back $10,000 to Walsh Title.

Singramdoo accomplished the embezzlement by entering her own creditors on the HUD-1 mortgage loan form as if the debts belonged to the buyer or seller and subsequently issued checks directly to the creditors in her name. She also changed HUD-1 mortgage loan documents after closings to reflect the fraudulent payments.

“This brazen embezzlement scheme is a warning to everyone to pay close attention to the loan documents you are signing during the closing of a mortgage,” said Glenn Wilson, the commissioner of Minnesota’s Department of Commerce.

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.

Ohio Decides Case Against Race Notice Rule

 Printed with Permission from Robert Franco, Source of Title
“It is every title agent’s worst nightmare – a valid second mortgage is missed and the first mortgage is refinanced without paying it off. Then, the new mortgagee forecloses and discovers that its lien may be in second place.  The lender has a claim on their title policy, but all may not be lost… the doctrine of equitable subrogation can put the lender in the shoes of the original first mortgagee that they paid off, saving their priority.  But, should the court apply such a remedy to rectify the negligence of the title agent?  This was the focus of a recently decided case in the Court of Appeals of Ohio, Eighth District in Cuyahoga County – ABN AMRO v. Kangah.
On July 5, 2000 Kangah obtained a first mortgage from First Ohio Mortgage in the amount of $68,916, and a second from the Cuyahoga County Department of Development (“CCDOD”) in the amount of $7,500.  Both mortgages were properly recorded on July 12 with the CCDOD mortgage specifically referred to as the subordinate security instrument.

In May 2001, Kangah refinanced with ABN AMRO (“ABN”) and received proceeds totalling $77,000.  The ABN mortgage was filed on June 19, 2001.  First Class Title Agency failed to discover the CCDOD mortgage and paid off First Ohio, the outstanding taxes, and the fees and costs associated with the transaction.  On November 7, 2001 the First Ohio mortgage was released of record.

On November 8, 2006 ABN filed a foreclosure complaint and, not surprisingly, CCDOD filed an answer and cross-claim asserting that it had the first and best lien on the property.  ABN argued that the doctrine of equitable subrogation applies because it paid off the first mortgage and intended to hold the first and best lien on the property.  And, it was always the intent of CCDOD to hold a subordinate lien.

The general rule in Ohio is that the first mortgage that is recorded has preference over a subsequently recorded mortgage.  “The priority of a mortgage is determined by reviewing the recording chronology.”  However, the court went on to explain the exception to the rule.

In some circumstances, the doctrine of equitable subrogation can overcome the general statutory rule.  Equitable subrogation arises by operation of law when one having a liability or right or a fiduciary relation in the premises pays a debt by another under such circumstances that he is in equity entitled to the security or obligation held by the creditor whom he has paid.  In order to be entitled to equitable subrogation, the equity must be strong and the case clear.

In other words, a third party who, with its own funds, satisfies and discharges a prior first mortgage on real estate, is subrogated to all rights of the first mortgagee in that real estate.  Therefore, if the parties intended, a mortgagee who satisfies the first mortgage steps into the shoes of the first mortgagee.

The court went on to note that the doctrine of equitable subrogation has not been uniformly applied across Ohio.  Some courts have refused to apply it when the party asserting its applicability is negligent in its business practices (i.e., failing to record the mortgage in a timely manner), and the party is in the best position to protect its interests.  A couple of courts have declined to apply it when a title company failed to discover a preexisting and validly recorded mortgage, “in essence, eliminating the doctrine altogether.”  Other courts have allowed the equitable remedy where the title company “mistakenly failed to discover a preexisting and validly recorded mortgage.”

There are two competing policy concerns at issue with equitable subrogation in such a case.  First, the title agency was negligent in failing to discover the CCDOD mortgage.  It searched the title and issued coverage to protect ABM from a loss due to its mortgage not having the first and best lien on the property.  Should the doctrine reward the party who was negligent in performing its duties?

Second, CCDOD had bargained for a second mortgage position.  If Kangah had not refinanced, CCDOD would have still been in second place.  Is it fair to reward it by allowing its mortgage to assume the first priority because of a mistake made by the title agent?

In this case, the court found in favor of ABN and applied the doctrine of equitable subrogation. 

In the case at hand, we find that the doctrine of equitable subrogation applies because ABN intended to hold the first and best lien on the property, CCDOD agreed to its subordinate security interest, ABN’s title company’s failure to discover CCDOD’s mortgage lien was a mere mistake, and CCDOD was not prejudiced by its inferior position.”

There are two relevant issues conspicuously missing from the court’s analysis, however.  First, there is no mention of the amount of the First Ohio payoff.  At best, if the doctrine does apply, it would only protect ABN up to the amount that was owed on that mortgage – ABN could receive no better rights than First Ohio had at that time.  Of course, depending on the amount the property sold for at the sheriff’s sale, this might be a moot point.  However, the court should have indicated that ABN’s priority lien was limited by this amount.

Second, the court really didn’t discuss the issue of whether CCDOD was prejudiced by the application of the doctrine.  It merely assumed that since it bargained for a second position, it was not prejudiced by the subrogation.  This may not be entirely correct.  If the CCDOD mortgage had been found, the refinance could not have taken place unless CCDOD was paid off or it agreed to voluntarily subordinate its lien.  This would have given CCDOD the opportunity to evaluate its position and insist that it be paid off in 2001. 

Furthermore, Kangah borrowed about $8,000 more with ABN than it had with First Ohio.  Depending on the terms of the loans, this could have created more of a hardship for Kangah than he had under the First Ohio mortgage, making it less likely that CCDOD would be paid.  For example, if the terms of the ABN mortgage were such that the rate and payment increased more than it would have under the First Ohio mortgage, it could have been a contributing factor to Kangah’s default and eventual foreclosure.  (Was the ABN loan a variable rate sub-prime loan?)

Equitable subrogation is, as the name implies, an equitable remedy.  Its application should be determined on a case by case basis and applied with caution.  It is difficult to say in this case whether the court got it right – it very well may have.  However, courts should be cautious to make specific holdings in such cases and thoroughly evaluate the equities at issue. 

Robert A. Franco
SOURCE OF TITLE 

What does Mortgage Modification mean to the Title Industry?

The Title Insurance industry has slowed to a crawl. Most of the business at the closing table is either a foreclosure or a short sales. And with Congress’ plan to modify existing mortgages, even that pittance will be drying up. 

Congress plans to modify existing mortgages to lower rates so borrowers can afford their monthly payments.  How does this affect the title industry you ask? In the past, when mortgages were modified, title policies were still in the picture, because intervening liens were a concern. For example, let’s say Sam Smith wanted to modify the terms of his loan by increasing the loan amount. You were the first mortgage lender. If you modified the loan, you had to worry about what that would do to your 1st lien position. If there was a second mortgage or a tax lien on the property, changing the terms of your loan might bump you into second place or third place. The title industry therefore stepped forward with updates to the policies. we checked for intervening liens, we got subordination agreements from the secondary lien holders, we recorded lots of documentation, and endorsed the policy with matching fees for our work.

So, how is this different? Think about it. Titles on all of these troubled loans have already been insured. But this time, they likely won’t need to be insured again. The new loan modification law will generally decrease the interest rate and that will be an advantage to any secondary lien holders, putting them in a stronger position. Therefore, the modification should stand on its face, and no endorsements should be needed. So, there won’t be any need for that title review, or an endorsement to the policy, or new title insurance premium fees. Their might be a pittance for sitting down with the consumer to sign the modification agreement and record it (and with the new RESPA law, title companies won’t even be able to mark up the recording fee.)

Loan modifications are good for the consumer, and good for the economy. They help neighborhoods. They keep banks out of the painful REO business. But they provide little role for title companies. Ouch – another big ding for an already hurting industry.

The Homeowner Affordability and Stability Plan

Moody’s Economy.com estimates nearly 13.8 million of the 52 million U.S. homeowners, almost 27 percent, owe more than their homes are worth after many months of declining prices. So what does the Obama plan say and how will that affect title insurers?

The Homeowner Affordability and Stability Plan anticipates slowing 7-9 million foreclosures. One part of the plan would be to refinance mortgages on primary residences insured by Freddie and Fannie whose values have sunk below the mortgage balance. The plan would make the lender responsible to lower interest rates so that a borrower’s monthly mortgage payment is no more than 38 percent of his income. The government would then pay to lower that even further, down to 31 percent of the borrower’s income for a period of five years. The rate would then progressively increase to the original respective loan rate. The program would not be available to real estate speculators, for second homes, investment properties or “flipped” houses.

 

Benefits For the Borrowers:

This would significantly reduce monthly payments. Under the plan, not only will the borrowers amortize their loans quicker, but they will also receive an incentive for making timely payments, receiving principal balance reductions up to $1,000 each year for 5 years for good credit habits.

 

Benefits For the Lenders/Servicers

·         Servicers could receive up-front fees of $1,000 for each eligible modification meeting guidelines

·         They would also receive “pay for success” fees — awarded so long as the borrower stays current on the loan — up to $1,000 each year for three years.

·         Another incentive offers mortgage holders $500 paid to servicers, and $1,500 to mortgage holders, if they modify at-risk loans before the borrower falls behind in  payments.

·         A $10 billion quasi-insurance plan will insure lenders against falling values on modified loans, linked with declines in the home price index, as an incentive for lenders not to jump the gun on foreclosures due to fear of the continuing drop in home values.

·         Clear guidelines and rules for loan modifications for all loans owned or guaranteed by the Feds, including Ginnie, Fannie, Freddie, FHA, VA, etc. would be established

 

Congress is also considering allowing bankruptcy judges to rewrite terms of mortgages so long as the homeowners commit to make payments and stay in their homes.

So what does that mean for a title insurer? My bet is the regulations will provide that mortgage modifications will not require any type of endorsement to existing loan policies, leaving title companies with either no role in the process, or simply that of a loan modification signing agent.

 

Source: White House Press Office

 

Mezzanine Financing – Leave it to Professionals

An excellent Blog Article for the uninitiated about Mezzanine Financing. It reminds us WHY we need to leave it to the professionals!

Unlike a mortgage, a mezzanine loan is not a lien against a piece of commercial real estate. It is a loan secured by the assets of a business entity. A title search will not turn up mezzanine loans because they are not attached to a properties ownership documents. In this way they do not violate any provisions of a 1st mortgage that precludes a 2nd.

Info On Home Closing

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