By Martin R. Ufford Member
Hinkle Law Firm,LLC
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.
Here are 4 tips to help you avoid these types of claims:
- Always obtain a payoff statement directly from the lender. Do not rely on payoff statements provided by other parties. Your request for a payoff should include a letter of authorization from the borrower, the loan number, the property address, the borrower’s name and your fax number or email address.
- Only rely on a payoff statement sent by the current holder of the note. Check the MERS system, (if the mortgage is a MERS loan), and the public records for the last assignee.
- Be mindful of working with hard money lenders – hard money lenders may assign their interests off the record. (See Bulletin 2017-02 and Claims Title Tip dated September 18, 2017 discussing hard money lenders .)
- Obtain separate payoff statements directly from each lender with an interest in the property being sold or refinanced. Do not rely on representations from the borrower or other institutions regarding the balance of a loan.
By Scott A. Malm
Many lawyers representing creditors record their money judgments and let escrow companies collect the judgment amount for them when the debtor sells real property.
But after a recent published opinion in Arizona applying its homestead protection laws, that practice may soon come to an end if the real property is protected by the homestead statutes.
In Pac. W. Bank v. Castleton, No. 1 CA-CV 17-0667, 2018 WL 6815531 (Ariz. Ct. App. Dec. 27, 2018), the Arizona Court of Appeals considered the effect of a $5.2 million recorded judgment on a subsequent conveyance of a personal residence by the judgment debtor to a third-party buyer.
After the close of escrow, the judgment creditor sought to collect its judgment against the buyer by filing a judicial foreclosure complaint.
Such action triggered coverage under a title insurance policy (not an Alliant National policy!) because the judgment was not listed in Schedule B.
The Arizona Court of Appeals had to decide the purely legal question: Is a recorded judgment a lien that encumbers homestead property? If so, the insured would lose its property.
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.
Successful SSAE 18 Type II examination validates Alliant National’s processes for approving, monitoring and reviewing its agents
LONGMONT, Colo. – Alliant National Title Insurance Company, a unique title insurance underwriter that partners with Independent Agents to improve their competitive position in the marketplace, announces the successful completion of the Service Organization Control (SOC 1) SSAE 18 Type II examination for the fifth consecutive year.
The examination results in an AICPA endorsed report stating that Alliant National Title Insurance Company has maintained effective controls over its Agent Quality Management System. A-Lign Certified Public Accountants of Tampa, Fla., performed the engagement and certification.
The successful SSAE 18 Type II examination validates Alliant National’s processes for approving, monitoring, and reviewing its agents, which results in its agents being designated as Authorized Service Providers or Certified Service Providers of Alliant National. Under this framework, Alliant National’s Independent Agents are reviewed annually against rigorous quality standards.
Lenders relying upon Alliant National’s oversight of its agents and Authorized and Certified Service Provider programs receive additional assurance that processes and controls are designed and function properly and accurately.
Alliant National was certified to the SSAE 16 Type I standard on Dec. 1, 2013 and received compliant status to the more rigorous SSAE 16 Type II standard effective Aug. 31, 2014 and each year through December 31, 2018. That makes 2018 the fifth consecutive year of continued compliance to SSAE Type II standards. The unqualified report was issued without exceptions.
“Alliant National was the first title insurance underwriter in the nation to obtain an SSAE16 Type II compliant status and is the only title insurance underwriter to achieve compliant status for five consecutive years. This certification provides strong independent assurance of our agent oversight systems to lenders and all stakeholders,” Alliant National President and CEO, Bob Grubb said. “Our goal is to provide unequivocal evidence of the quality of our agents through an independently audited system.”