title agent

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)

Definition of Marriage Changed in Dictionary

I caught a Closer Licensing Course last week.  Among the many issues that we discussed in drafting legal documents, was a conversation about marital status.  We talked about the fact that in Minnesota, you are either married or not.  If you are separated, you are still married.  If you are divorced, you are not married.  We also talked about the fact that marriage is recognized anywhere within the United States.  If you are married in Pennsylvania, we accept that marriage in Florida.  But the question came up as to whether or not we recognize marriage between two men or two women?  My response was that I had not run across that issue.  I suggested that they may want to talk to their underwriter.  Rule of thumb however it is that we accept marriages created anywhere within United States.

Interestingly enough, I saw a blog articles today in the Adjunct Law Prof that Marriage is no longer limited to opposite-sex unions, according to Merriam-Webster’s Collegiate Dictionary, which defined marriage as “the state of being united to a person of the same sex in a relationship like that of a traditional marriage,” in a post.

Any thoughts from title insurance underwriters or title agents?  Has anyone come across this issue? What was the response? And how does that affect title searches? We always searched Mrs. John Smith if we knew Mary Smith was married to John Smith. How do we search Jim Jones, married to Tom Brown?

 

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 

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.

 

 

Is news article about Title Company savings misleading?

I read a news article today called home buyers can now purchase title insurance directly.  It’s from the Pittsburgh Post gazette.  You can read the article here.

I felt compelled to respond and here’s my response:

Mr Grant,
 
I am a neutral, land title educator. I teach and write about title insurance. I read your article, and wish to comment. It is a very good thing you tell the consumer that s/he can “shop” title companies for savings. That is true – significant money CAN be saved.  Under Federal Law, however, the Real Estate Settlement Procedures Act (RESPA) this is not new, a homeowner has always legally been able to choose their own title company. However, most  people have been reluctant to do so, as they do not understand the title product, and prefer to “just have the real estate agent” (or attorney) handle that.

The article you post however, is misleading, in that much of the expense involved in using a title company has to do not with the premium charged, but rather with the other fees charged. For example it is common for a title company to charge Closing Fees, Abstracting fees, document preparation fees, Administrative fees, recording fees,  courier fees, tax,assessment and/or name search fees, and much, much more.

 
Your statement saying “Mr. Dwyer said Entitle Direct has filed, as required, premium rates with Pennsylvania’s state insurance department that are 35 percent lower than most other title insurance companies in the state.” leads one to believe that Entitle Direct will be less expensive than its ompetitors. In reality, his statement may be true, or it may just be a marketing ploy to bring in business, as his other fees may more than compensate for the reduced premium. To be fair to the consumer, I think this needs to be mentioned. But I do appreciate your telling people they can shop for the best price, as in this market, more than ever, every dollar counts for the consumer,
 
What do you think?

New Legislation Imposes Stricter Guidelines on California Title Insurance Industry

by Jarrod Clabaugh,  Printed with permission from Source of Title
   
Governor Arnold Schwarzenegger signed Senate Bill 133 into law on September 25, 2008. The legislation implements greater controls over the practice of title insurance in California. Introduced by Senator Sam Aanestad in January 2007, the bill focuses on inducements offered by title marketing representatives to real estate agents and brokers in exchange for the steerage of business to their title insurance companies. The bill was supported by both the California Department of Insurance and the California Land Title Association.
The bill provides the department of insurance with significant new powers to regulate marketing practices in the title insurance industry. In particular, the bill creates the first program in the country to register and regulate title company sales representatives.

According to the bill, a person is prohibited from being employed as a title marketing representative unless he or she holds a valid certificate of registration issued by the commissioner for a three-year period. Should a person market title insurance without a valid certificate, the commissioner can issue a cease and desist order prohibiting that person from further marketing.

Additionally, under the legislation, title companies must notify the commissioner when a title marketing representative is hired or terminated. It also establishes an application process for the certificate of registration and allows the commissioner to set a fee to obtain or renew a certificate in an amount sufficient to defray the actual costs of processing it. The legislation states this cost cannot exceed $200.

The submitted application must contain several facts about the applicant, including the person’s residential address, principal business address, and the applicant’s mailing address. The applicant must also submit a statement, signed by an officer of the business by whom the applicant is or will be employed, certifying that the applicant will be provided training within 60 days of the hiring date or date of application. The applicant must submit another statement as to whether he or she has previously had a certificate of registration revoked, suspended or denied.

Should a marketing representative violate any terms of the state’s title insurance code, the legislation states that the department can revoke, suspend, restrict or decline to issue a certificate of registration if it determines at a hearing that the representative did violate the law. Additionally, any title marketing representative who has his or her certificate revoked by the department is not permitted to reapply for another certificate of registration with the department for five years from the date of revocation.

The legislation also establishes that it is unlawful for any title insurer, underwritten title company or controlled escrow company to pay, directly or indirectly, any commission, compensation, or other consideration to any person as an inducement for the placement or referral of title business. The actual placement or referral of title business is not a precondition to a violation of this section, whether the violation is or is not a per se violation pursuant to subdivision.

While the legislation sets many guidelines as to what is considered an inducement, one particular aspect that alarms title agents is they can no longer pay for anyone’s food, beverage or entertainment but their own.

“So no more free lunches for clients,” said Greg Knowles, an agent with Lawyers Title in Santa Barbara. “That is a huge change in our business. I am having a hard time thinking I can’t take a good customer to lunch. I can’t take one of them to a baseball game or local sporting event.”

“Competing specifically on the quality of the work we do and the price we charge probably isn’t the worst outcome in the world,” he added. “I do have many close friends in this business that my wife and I may invite over for dinner, is that illegal as well?”

The legislation mandates that representatives can continue to provide parties with promotional items with a permanently affixed company logo so long as each individual item’s value does not exceed $10. These gifts, however, cannot be gift certificates, gift cards or any other item that has a specific monetary value.

The legislation states that the provision or payment of any form of consideration as an inducement for the placement or referral of title business not specifically set forth in the bill will be considered unlawful and is, thus, prohibited.

“Restricting the illegal activities by title marketing representatives is a win for businesses and consumers,” said Steve Poizner, the department of insurance’s commissioner. “By curtailing the practice of real estate agents and brokers recommending a specific title insurer to their clients due to incentives provided by title marketing representatives, competition and transparency are fostered in the insurance marketplace.”

The legislation was the culmination of several years of effort by the department of insurance to address the growing problem of inducements. While such practices are illegal, the department had no enforcement authority over the individuals who used them before this legislation was signed. Now, the department is provided with regulatory oversight of title marketing representatives.

“Senate Bill 133 enhances consumer protection while maintaining the healthy, competitive title insurance marketplace in California,” said Craig Page, the executive president of the CLTA. “The legislation is just the latest example of the industry’s effort to promote consumer choice in the title insurance market. The competitive market in California has led to title insurance rates that are below the national average according to Bankrate.com.”

“Senate Bill 133 is win-win legislation for California,” Aanestad said. “It is pro-business and it is pro-consumer. By curtailing the practice of some real estate agents and brokers who recommend a specified title insurer to clients due to the use of incentives offered by some title marketing representatives, it promotes real competition in the title insurance marketplace. Competition among insurers can transfer into lower rates and a better deal for homebuyers.”

 

 

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