title search

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)

Annual Principles of Abstracting Class slated for May 4-5

The annual Minnesota “Principles of Abstracting and Land Records Management” two day course is being offered on May 4th and 5th in St Paul, MN at the Country Inn and Suites. The course is designed for County Recorders, Title Insurers, Abstractors, and those who deal in land titles. Participants have included Homeland Security professionals who place towers on various sites, Dept of Transportation professionals who deal in Right of Way projects, Bureau of Indian Affairs, and various Utility companies that place easements such as Excel Energy and  Comcast.

The two day course will help prepare attendees to improve their land title search skills, stay in touch with changes in laws, or prepare for the state abstractor licensing examination.  Topics this year include foreclosures, short searches and comprehensive name searching. You can register by mail or online at http://www.landrecs.com/pages/seminar-list.php

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.

Real Estate Titles US – Inexpensive Title Education

A new online education company, RealEstateTitles.us (RETUS) has been formed specifically for title professionals. Its purpose is to provide high quality, inexpensive education for those involved with real estate titles. That includes: Closers, Abstractors and Title Searchers, County Recorders, Real Property Attorneys, Title Examiners, Title Agencies and Title Insurance Underwriters. The company offers primarily Professional Development courses for its customers, as most states have no education requirements for these professionals, but also offers some continuing education classes for those states that require CE. Additional License and Pre-license courses are planned for the future.

“RETUS Online courses provide quality education at lower costs for the consumer, as they don’t have to spend money for hotels, meals or travel, and they have the flexibility of working on their own timeframe. Even 15-20 minutes can be very worthwhile in studying important title concepts- and they can enter and exit courses as time allows.” 

The online courses have all been prepared by subject matter experts in the land title field, some being written or edited by Jeanine W. (Jeanne) Johnson. Courses coming soon include

  •  “A Settlement Agents Guide to Closing,” which will cover the full spectum of closing, including the newest changes to the HUD-1 Settlement Statement;
  •   “Introduction to Title Insurance and Land Titles,” that gives a history of title insurance and is a primer of key concepts in the title industry;
  •  “Real Property Ownership and Land Title Use,” which covers legal descriptions, platting, land use controls, rights of the government in planning. Especially helpful in dealing with new construction, land development and commercial properties.

Take a free test drive of the new title education courses for your state by clicking on your state, then the information button on the US MAP.

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?

 

Are You Ready for the New RESPA HUD-1

Title Companies – All those line items for: Settlement or closing fee, Abstract or title search, Title examination, Title insurance binder, Document preparation, Notary fees, Title Insurance premiums, courier fees, Admin fees, fax fees, email fees, processing fees,  are going away… Fees will be either elimninated, or at the very least, reduced to cost under the new RESPA. No longer will the common mark-ups be acceptable, nor can they be hidden from the customer in a myriad of confusing fees.

Under the new RESPA law, courier fees, admin fees, closing fees and dozens of other charges cannot be hidden in those miscellaneous line items 1102-1199 on the HUD-1.  Title companies will now have to PRINT new all-inclusive rates. These will be filled in as a single item on ONE LINE – line1101. And title companies will have to hold to that number for the lender, because the lender is responsible for overages if settlement charges do not match the HUD-1. Title Companies will also have to legitimately back-up the numbers with specific reports as to their validity, and maintain those reports, so that HUD can audit their authenticity.

While this will make comparison shopping much easier for the consumer, and will force title companies to sharpen their pencils, it will be difficult for an industry that for a long time has used marked up fees for additional revenue. It would seem that no one is anxious to go to the new HUD-1 before he has to – it will cost title companies some serious revenue!

Are you ready for the change? This is NOT simply a matter of updating your software, it means a lot of planning and preparing detailed numbers for all those items on the closing statement. Actual out of pocket costs must be averaged and lumped into a single number for line 1101. (Other lines are intended for third party providers, for example, Line 1102 is only to be used when using a non-title company third party vendor for closing.) When the new numbers are available, schedules must be printed and distributed for your lenders to use on the new GFE, and for savvy consumers to see as well.

Watch for the complete gory details in my soon to be released online course: The new GFE Based HUD-1

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.

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.

 

 

Are Abstractors to Blame for Offshoring?

by Robert Franco | 2008/11/26 | Source of Title, Used with Permission

A couple of recent (Source of Title) posts regarding offshoring have stirred up some controversy.  Sunil Ojha started a blog defending the practice of searching titles from India.  In Misunderstanding and Clearification (sic) of Same and Resolved Your Real Issue, OJha explains why offshoring makes good business sense and how it can be done effectively.  Whether you agree or disagree, the real question is why is anybody offshoring to begin with?  There is no doubt that offshoring cuts costs and that is attractive to companies looking for any advantage in today’s business environment.  But, abstracting was always a localized practice that required a particular knowledge of state and local real property laws to produce a reliable product.  Why would anyone trade quality for savings?  More importantly, have they? 

Source of Title Blog ::

Let’s start with a basic premise that it is possible to reliably search an online title plant.  I am the first to say that I have some doubts about online records, but it is possible.  The real problem that I have with online records is that not all of the information we search is available electronically; thus, the so called “thin-title” plants are incomplete.  However, title plants are the norm in some parts of the country, and even required in some places.  If they are complete, there should be no problem using them for abstracting purposes.

So the real difference between searching a title plant from India and searching a title plant locally, is the skill and knowledge of the abstractor.  As I have stated many times, there are vast differences between the states that have a huge impact on the status of title.  I believe that I have a strong understanding of the real property laws in Ohio, but I would never even consider tyring to do a search in another state. 

Some of the biggest differences between the states could be dower, community property laws, state Medicaid recovery laws, recording statutes, etc.  Anyone can find deeds, mortgages and liens, and report their volumes and pages, and recording dates.  That is the simple part.  But, understanding how those documents affect title is what makes the local examiner such a value to the industry.

I think it is a given that just as I would not be competent to abstract in any state other than Ohio, a searcher in India could not be competent to search multiple states.  It is conceivable that an Indian searcher could learn one or two states, and develop a sufficient level of competence.  Varun Sharma points out that this is exactly what they do in India (see comments).

There are different teams working on different states doing online title searches all at the same time and they are trained on state specific laws and nuances because they are experience in conducting searches in that particular State only.

Even then, it takes several months or even years of on-the-job training to really develop the necessary skills to become a competent, professional abstractor.  I would imagine it would require even more time for someone in another country, who is completely unfamiliar with our laws and culture, to grasp the concepts.  Based on a previous statement made by the head of an Indian outsourcing company, I have my doubts about the quality of training they receive.

Just when Mr Kanth was wondering about the next steps, he met the president of a title company based out of Baltimore in 2003-2004. He told Mr Kanth that there was a refinance boom in the US which resulted in a huge backlog in terms of production. Incidentally, his brother M Sujay Kanth, who is now the COO of ESS, happened to be in the US to explore business opportunities. They took up this opportunity. This was their first break. They met with the title official and looked at the process. “Initially, we had no clue of what was going on and it was very hard to grasp. We took it as a challenge and Sujay got trained in their office for about 40 days after which we started the transition to my India office from 2004,” the doc said.

 

Forty days of training is hardly suffient.  Regardless, to assume that searching titles from India is worse than using local abstractors, it must also be assumed that all local abstractors are well trained and educated in their state’s real property laws.  I believe that is a fallacy.  Basically, there is no difference between a search completed by an unqualified local abstractor and one completed by an unqualified Indian abstractor – except the latter is cheaper, of course. 

Before I continue, let me first acknowledge that there are still some very knowledgeable, local abstractors who provide very valuable services in this industry.  However, I believe that has become more the exception than the rule.  Many abstractors learned to abstract by trial and error, an online course, or from another searcher that doesn’t have the proper knowledge of abstracting.  I believe that this started with the “equity loan,” or “current owner,” searchers.  Once upon a time, they were used to provide very basic information for non-insured products.  Then, they slowly began to expand into “full searches” used for issuing title insurance.  I will never forget the first time I heard one of these searchers say “a full search is nothing more than a really good current owner with a chain of title.” 

Soon, the title industry began embracing current owner searches for title insurance purposes.  Current owners were much cheaper because these searchers, mostly out of ignorance, were taking shortcuts that a professional abstractor would never consider.  As the title industry began to lower the standards for its search requirements, the unskilled searchers flourished.  For better or worse, these over-simplified searches became the norm and everybody wanted them cheaper and faster.  The demand for skilled, professional abstractors dropped dramatically. 

Today the line between “searcher” and “abstractor” is blurred and the two terms have become interchangeable.  I wonder how many abstractors are really qualified to provide reliable title evidence. 

With the modern technological advance of electronic imaging, a title plant can be used to search titles from anywhere in the world.  If the local abstractors are really just finding documents and copying down pertinent information on a report, without a true understanding of the impact of those documents on the title, why not have that function done in India?  It is certainly cheaper… and since they can search around the clock, it is probably faster.

I do not agree with the practice of offshoring.  As Pat Scott said (see comments), “The title search is the foundation of the industry.  It is not a clerical task to be outsourced.” However, it would seem that the depth of knowledge of the local abstractors is not what it used to be.  If the industry were to suddenly stop offshoring and begin demanding quality abstracts, there would be a lot of local abstractors out of work, just the same.  The problem is that there is no way to know which ones are well qualified.  Because there are very few states with any sort of meaningful licensing, anyone can call themselves an abstractor. And, many who probably believe themselves to be professional abstractors just don’t know how much they don’t know.

My basic point is that the level of skill and knowledge between the average local abstractor and the Indian abstractor are probably not as far apart as you may think.  Title searching has been dumbed-down for so long that there are probably few left who care to educate themselves beyond what is necessary to copy recording information from filed documents.  There being little difference between the services provided here in the USA and overseas, it is not that hard to see why so many companies are offshoring title searches.  By failing to maintain a superior knowledge, the abstractors have probably made the offshoring decision much easier for those who chose to embrace it.  It basically turns on an issue of costs and profits.

Again, I am not saying that there aren’t still good, local abstractors out there.  I am merely pointing out that many of them have noticed that they are losing work to cheaper, untrained, incompetent competition; not just in India, but right there in there own counties.

Robert A. Franco
SOURCE OF TITLE

Audits and Title Insurance Fraud

Interestin article on the Grapevine Thread in Mortgage Compliance about what it’s like to go through title insurance Fraud investigation. You have to wonder why they are asking…

 There are many fraud scams in the Title Business these days, and auditing is one way of catching them. Most Underwriters will tell you exactly what they are going to audit if you ask. Primarily it runs to What info do you have in the file to back-up your title work -like an abstract or title search. Who did the work? Did you have an old title policy? Do you have payoff letters?

 Then they will look closely at the Documentation for the loan – Does the HUD match all the checks written? Does that match the title work. Red flags are checks written for even amounts. Checks written for items NOT shown on the title work, such as large checks written to individuals. Checks NOT written for mortgage payoffs is another.

They will be sure the HUD-1 balances. They will look to see policies have all been accounted for and paid to the underwriter. They will particularly watch related businesses where checks are written to the same parties over and over. They will contact your bank to see that the info you provide matches bank records.

Fraud has been a HUGE issue in the title industry recently, and with the downtun in business, it is rearing its ugly head. Every time a scheme is uncovered another rears up.

Have you been exposed to any audit issues.

Info On Home Closing

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