Monday, October 24, 2016

Incorrect Legal Description, Failure To Have Premises Surveyed When Obtaining Title Insurance Policy Before Buying Leaves Homeowner/Couple Out $172K & Facing The Boot; Insurer's Response: Not Our Problem!

Investigative Reporter David Dayen writes in VICE:
  • Danny Shedd's nightmare began with some cows.

    When Shedd, a 12-year veteran with combat experience in Iraq and Afghanistan, finished up his military service at Fort Benning, Georgia, he and his wife Jacinda wanted to move to the prairie. The house they settled on in Big Cabin, Oklahoma, was perfect: a 5,400 square-foot, four-bedroom spot built in 2006, which mortgage giant Fannie Mae purchased in a foreclosure auction and was selling for one-third of its appraised value.

    After inspections and appraisals, the Shedds closed on the house in June 2015, paying $172,425 cash—the product of years of saving. "They said congratulations on your new home," Shedd told me.

    The vet's honorable Army discharge didn't come through until that August, so Shedd settled his wife and kids in the new digs before returning to Fort Benning. But Jacinda soon began complaining about the neighbors' cows lurking around the place at all hours. They would pass through a broken fence and eat the backyard grass, according to Shedd, with cow shit littering the space where his kids wanted to play. Shedd decided to rebuild the fence himself, enlisting a surveyor so he knew exactly where to place it.

    The surveyor came back with bad news: According to the deed, the property Shedd paid for was actually ten wooded acres to the north, in a flood plain. The house his family was living in wasn't even on the property they had the rights to.

    Worst of all, the neighbors are now saying the house belongs to them, and are trying to get the Shedds evicted.

    The bizarre situation speaks to a potential time bomb lurking behind an untold number of US residential mortgages. During the housing bubble that went bust in 2007 and 2008, mortgage companies routinely ignored longstanding property records laws. So defects—whether due to inaccurate deeds or fraudulent transfer documents—have sown chaos in county recording offices and foreclosure courts. These defects create ruptures in the "chain of title," confusing who holds true ownership over properties.

    Shedd's plight shows the potential consequences for unsuspecting homeowners, who can become innocent victims of a housing market assembled on a mountain of fraud. The only question is how far the ruptures have spread.
    The vet figured his title insurance company would resolve the matter, because title insurers are supposed to protect policyholders from defects in their titles. But when he appealed to American Eagle Title Insurance Company, the insurer retained an outside lawyer, Mark Kuehling, to review the claim. "The mistaken possession of the wrong parcel does not constitute a defect to the insured land," Kuehling wrote to the Shedds.

    In other words, Shedd buying ten wooded acres instead of the house he thought he was getting wasn't the title insurer's problem.

    In Shedd's closing documents, he did sign a "hold harmless" form certifying that he did not conduct a survey on the property, and that the title insurer would not be liable for "any damages due to any such discrepancies."
    Central to Shedd's dilemma, it seems, was the cash purchase. "If this were financed, the bank would have done a minimal survey to draw the lot lines," according to Tara Twomey, an attorney with the National Consumer Law Center. "The fact that he paid in cash meant that he didn't have a second person doing due diligence."

    American Eagle's insistence that they exclude a bad property description from claims raises the question of how bad this could get the further we get from the foreclosure crisis. While the survey exclusion is standard, could title insurers similarly refuse to pay out for all the mistakes that clouded properties throughout the 2000s? "Insurance agencies only make money if they don't have to pay out," Twomey said. "My guess is most people have no idea that this is excluded in their policy." ...

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