I’ve had the privilege of representing title insurance companies and their insureds for the past ten years.
Each claim represents a unique challenge. With the benefit of hindsight, I have reached some conclusions that may assist agents and local counsel in avoiding claims.
Looking to avoid title claims related to unpaid mortgages and deeds of trust? We offer 4 tips
Our Claims Team has received various claims related to unpaid mortgages and deeds of trust. Here are two scenarios we have seen arise in the context of a claim:
The agent receives a payoff statement from the seller. The seller sends an email requesting the payoff from the lender and copies the agent on the email.
The agent relies on the email and the payoff statement to wire funds to the lender.
Later, it is discovered that the email address for the lender is fake, and the bank account receiving the payment was held by the seller, not the lender.
The agent reaches out to the lender for a payoff statement. However, the closing date is approaching, and the lender has not responded.
The seller provides the agent with a printout showing a zero-balance owed on the account. The agent contacts the lender once again for a payoff statement.
The lender confirms over the phone that a zero balance is owed. The agent closes the transaction based on these representations.
Later, it is determined the original lender confirmed a zero-balance due because the loan had been sold to another lender.
An assignment of the mortgage had been recorded, and the current holder of the notes filed to foreclose.
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.
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: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: