heloc computer

Issues Posed by Home Equity Lines of Credit (HELOC)

By Carleton Burch Anderson
McPharlin & Conners LLP Lawyers

Protecting against the stale HELOC and mitigating losses.

Home equity lines of credit (“HELOC”) secured by Deeds of Trusts are a fixture of modern consumer finance. According to an article appearing in the Washington Post, an estimated 10 million homeowners will open a HELOC between 2018 and 2022.

For the title insurer, the revolving nature of the HELOC, coupled with the fact there is no universally accepted procedure for closing a HELOC and reconveying the Deed of Trust in connection with a subsequent transaction, creates a unique problem.

With property values on the rise, there appears to be an uptick in foreclosures of HELOC loans.

Thus, downstream owners and lenders are faced with issues relating to not only the validity, but the amount and priority of the HELOC.

This article discusses ways to protect against the stale HELOC and how to mitigate losses.

From the underwriting perspective, never assume that an earlier refinance, sale or conveyance resulted in the release of the HELOC Deed of Trust unless there is a Full release of record.

More often than not, it happens that a HELOC was paid down through a refinance, but the HELOC was not closed and the borrower continued to draw down.

Where a subsequent lender intended its loan to pay the HELOC and be secured as a first priority Deed of Trust but there is no release (or subordination agreement), a lien priority dispute may arise.

To protect against such a situation, as part of the closing there should be express instruction signed by the borrower to close the HELOC and there should be a full release Deed of Trust or subordination agreement executed by the holder of the HELOC Deed of Trust.

Recent case law confirms the need for caution. The California Court of Appeals decision Bank of New York Mellon v. Citibank, N.A. 8 Cal.App.5th 935 ( 2017) in which the court found that the HELOC was not automatically extinguished as a result of the loan being “paid off” or “paid down” absent express instructions to the lender to close the line of credit and reconvey the security.

The court held that a subsequent owner took subject to the lien of the prior HELOC.

To avoid the unique issues that come with an outstanding HELOC claim, be mindful of any open HELOC Deeds of Trust. Be sure to provide express written instructions to the lender, signed by the borrower, instructing the lender to close loan and reconvey the property.

If you have any questions when working to close out a HELOC Deed of Trust please contact Alliant National’s underwriting department.

New ALTA Closing Protection Letter With Florida Modifications Corrects Unfortunate Case Law

The new American Land Title Association (ALTA) Closing Protection Letter (CPL) form recently took effect in Florida.

The new form both streamlines the previous CPL’s language and addresses and corrects many of the problems created by recent bad case law. It brings the CPL into line with longstanding understandings of CPL’s purpose and scope within the title insurance industry. The clear and laudable aim of this new form is to create a better relationship among the contracting parties with clearer language and more sensible limitations on liability. This article summarizes revisions, with particular focus on those areas that address case law that led us astray.

Hot Topics in Claims Avoidance: Avoiding POA Claims in Florida

In the title industry, a power of attorney (“POA”) is used when one of the parties to the transaction cannot be physically present at the closing. Transactions involving a power of attorney are ripe for fraud and errors.

The following checklist can be used to determine whether or not to proceed with insuring a real property transaction involving a POA:

Hot Topics in Claims Avoidance: Avoiding HELOC Claims in Florida

BY GARY ROSNER & PAULA LEVY,
RITTER CHUSID, LLP

Often, sale and refinance transactions necessitate the payoff and satisfaction of revolving lines of credit, also known as home equity lines of credit (“HELOC”).

These mortgages are loans secured by the debtor’s real property which generally allow the borrower to access the equity in their property utilizing credit devices including checks, ATM cards and credit cards.

The ease by which these accounts may be accessed, drawing up the outstanding principal balance right before, or after, the closing, may leave the agent and underwriter vulnerable to claims.

The recommended practice concerning satisfying HELOCs, and insuring without exception, are as follows:

Claims Stories: A Naked Release Should Trigger a Red Flag

In our continued effort to keep our agents and escrow officers apprised of trends in the Title industry, our claims counsels and administrators have provided the following claim summaries. It is our goal to share these stories and help you avoid similar scenarios in the future. In this article, we will focus on Naked Releases.

A naked release is a release of a lien or mortgage that is not done in connection with a sale or refinance transaction. These releases are a red flag and merit further investigation. Naked releases often involve forgery which are expensive to resolve and cause significant losses.

Here’s how it played out:

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