Title Insurance: What Risks Does It Protect A Property Owner Against?

A recent article by the Kaua‘i, Hawaii Board of Realtors (appearing in TheGardenIsland.com) gives a basic explanation of what risks a title insurance policy actually insures a real estate buyer against.

• [A]lmost every parcel of land has had many owners. What they did or did not do can affect title to the land. Have assessments and taxes been paid? Were there lawsuits or judgments against former owners? Does a contractor or a spouse or utility company have any rights?

• Title losses arise from three principal sources: (1) Errors in searching the records, (2) errors in interpreting the legal effect of those records, (3) facts outside the records, known as “off-record risks.”(1)

• The title insurance company protects itself and the policyholder in the case of the first two sources of risks set out above by employing trained, competent searchers and examiners who are qualified to search and interpret records.

• There are, however, many sources of title defects outside the record, any one of which may also involve loss of title. The owner must assume these hidden defects if the owner does not possess a title insurance policy. Some of these off-record risks are: fraud, forgery, false impersonation, alteration, copyists’ errors, acts of minors, insanity, rights of unrevealed spouses and children, and void judgments(2) and decrees.

For more, see Title insurance: Do you need it?

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(1) A list of 35 off-record risks, or "hidden hazards," that a title insurance policy protects a homeowner and mortgage lender against are (1) false personation of the true owner of the land, (2) forged deeds, releases, etc., (3) instruments executed under fabricated or expired power of attorney, (4) deeds delivered after death of grantor or grantee, or without consent of grantor, (5) deeds to or from defunct corporations, (6) undisclosed or missing heirs, (7) misinterpretation of wills, (8) deeds by persons of unsound mind, (9) deeds by minors, (10) deeds by aliens, (11) deeds by persons supposedly single but secretly married, (12) birth or adoption of children after date of a will, (13) surviving children omitted from a will, (14) mistakes in recording legal documents, (15) want of jurisdiction of persons in judicial proceedings (ie. where a court lacks subject matter jurisdiction over a case, or where it lacks personal jurisdiction over a defendant, for example, failure to properly serve a defendant with legal process), thereby leading to judgments that are either void or voidable, (16) discovery of will of apparent intestate, (17) errors in indexing, (18) falsification of records, (19) capacity of foreign fiduciaries, (20) claims of creditors against property sold by heirs or devisees, (21) deeds in lieu of foreclosure given under duress, (22) ultra vires deed given under false corporate resolution, (23) easements by prescription not discovered by a survey, (24) deed of community property recited to be separate property, (25) errors in tax records (ie. listing payment against wrong property), (26) deed from a bigamous couple, (27) defective acknowledgements (ie. notary public screw-ups when notarizing legal documents, (28) federal condemnation without filing notice, (29) descriptions apparently, but not actually, adequate, (30) corporation franchise taxes, a lien on all corporate assets, (31) erroneous reports furnished by tax officials, (32) administration of estates of persons absent but not deceased, (33) undisclosed divorce of spouse who conveys as consort's heir, (34) marital rights of spouse purportedly, but not legally, divorced, (35) duress in execution of instruments.

(2) With all the foreclosure sales that have already taken place where the foreclosing lender lacked standing to bring the action (which, depending on the law of the particular state in which the property is located, may mean that the court granting the judgment might have lacked jurisdiction over the subject matter of the case, which would consequently make the judgment void - see #15 in footnote 1, above), there are plenty of void foreclosure judgments flotaing around out there. I suspect that the issue of void foreclosure judgments and the complications relating to the legal title to the foreclosed real estate will begin rearing its ugly head as foreclosure defense attorneys begin bringing motions to void these judgments on behalf of their clients. See Thousands Of Foreclosures Are Void, Says Massachusetts Class Action Demanding Lenders & Their Lawyers Prove Note Ownership. title insurance legal issues

Title Underwriters Fined $240K+; Incorrect Rates Used When Issuing Title Insurance To Homeowners

The Missouri Department of Insurance, Financial Institutions & Professional Regulation recently announced:

• The department announced [Jan. 3] that it is ordering two title insurance companies to pay over $240,000 in fines and to fix current title agency rating procedures. Market conduct examinations completed by the department indicate Land Title Insurance Company of St. Louis and First American Title Insurance Company, of California, allowed independent title agencies writing title insurance on their behalf to use incorrect risk rates or risk rates not filed with the department. Risk rates are used in calculating the premium a consumer will pay for the cost of title insurance.

For more, see Two title insurance companies ordered to pay over $240,000 in penalties (Action comes as new title insurance laws become effective).

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Florida Ameriquest Lawsuit Alleging Title Insurance Homeowner Ripoff Now Certified As Class Action; Damages Could Exceed $13M

In Pinellas County, Florida, The Miami Herald reports:

• A lawsuit that alleges lender Ameriquest Mortgage overcharged for title insurance on home refinancings can proceed as a class action, a state judge ruled. Coral Gables lawyer Richard Bennett, who filed the lawsuit in Pinellas County in 2006, estimates the class involves about 66,000 Floridians who refinanced their homes with Ameriquest from May 19, 2002 through 2006. Instead of charging the lower ''reissue rate'' for title insurance on refinancings, the suit claims, Ameriquest collected the higher rate charged on home purchases. Bennett said the overcharges on the policies he has reviewed generally have ranged from $200 to $300 per customer. Assuming that range is typical for the class, the potential damage claims could exceed $13 million.

***

• The lawsuit may be the first filed against a lender for overcharges on title insurance, Bennett said. Several class-action lawsuits were brought against title insurance companies in recent years, with some leading to out-of-court settlements. Ameriquest was the only party sued in the Pinellas County case because it collected the title-insurance costs from the loan proceeds, which it then sent to title agents. ''We didn't follow the money,'' Bennett said in explaining why Ameriquest was the only defendant.

For more, see Title insurance overcharge suit advances (A lawsuit that accuses Ameriquest Mortgage of overcharging for title insurance on home refinancings has been certified as a class-action) (story no longer available online).

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Title Insurance Heavyweight Forks Over $300K, Drops NJ Malpractice Suit Against Buyer's Lawyer For Allegedly Failing To Unearth $2.7M Federal Tax Lien

The New Jersey Law Journal reports:

• A venerable title insurance company has done something unusual in New Jersey, and lawyers aren't likely to applaud. Chicago Title Insurance Co. filed a malpractice claim against a homebuyer's attorney, saying he acted without diligence and owes a piece of the $300,000 the company paid to save a policyholder's home. The Bergen County suit charged Albert Birchwale, of Basile, Birchwale & Pellino in Ridgefield, N.J., failed to investigate a previous sale in the chain of ownership to make sure there was no potential federal estate tax lien.

***

• On Friday, Chicago Title said through its lawyer that the company had decided to voluntarily dismiss the case, Chicago Title Insurance Company v. Birchwale, Ber-L-483-09, but didn't backtrack from the position that the claim has merit.

• The case reminds lawyers that rubber-stamping title commitments can be dangerous, particularly in northern New Jersey, where buyers' attorneys often act as title companies' proxies. It also raises the question of whether title insurers should be added to the list of potential malpractice plaintiffs to be feared by attorneys and their legal malpractice carriers.

The problem started when the executor of a deceased prior owner of the property in question falsely certified that no estate taxes were due when it sold to a subsequent purchaser ("Danton"). The issue reared its head when the IRS filed suit seeking $2.7 million in back taxes against the estate and sought to enforce its lien against the subject property. At the time, it was valuing the property at more than $500,000, and the current owner ("Jhang") (who acquired his ownership from Danton) had only $310,000 of title insurance (presumably equal to the purchase price that Jhang paid Danton for the property). There was concern that the $310,000 title insurance policy wouldn't cover the lien. Ultimately, however, the IRS reportedly settled the lien for $300,000.

For the rest of the story, including what the title insurer and the buyer's attorney say what they should and shouldn't have done to avoid this near-miss of a horror story for the unwitting real estate purchaser, see Insurer Blames N.J. Lawyer for Blot on Title (Suit shows that rubber-stamping title commitments can be dangerous).

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"Secret Lien" On Farm Purchase Ruins Buyers' Retirement Plans

In Dixie County, Florida, The Gainseville Sun reports the story of how the purchase of a 70-acre farm that, unbeknownst to the buyer, contained a "secret lien"(1) that was owed by the seller and that was missed by the company doing the title search, screwed up the retirement plans of the unwitting purchasers. The secret lien, coupled with the buyers' lack of understanding that their title insurance policy obtained when they bought the property requires the insurance company to defend the title against such a claim, and foot the legal bills associated with the defense, led to a 3-year ordeal that left them with lawyer expenses "way up in the six digits" incurred in defending the title to the land and a missed opportunity to develop the property during the real estate boom of a couple of years ago.(2)

For the story, see Couple's legal battle over farm finally settled (The three-year ordeal has left the Old Town couple saddled with legal fees).

For the associated Florida appellate court ruling referenced in the story, see Orix Fin. Servs. v. MacLeod, 977 So. 2d 658 (1st DCA 2008) (which ruled that the buyers' remedy for the screw up, if any, will lie against the title insurer or abstractor or against the clerk of the circuit court itself).

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(1) According to the story, the "secret lien" arose as a result of a judgment creditor’s proper recordation of a lien followed by a screw up in the county recorder's office whereby the clerk failed to properly index (ie. alphabetize) the lien on its records, which explained why the title company missed it when searching the public records for liens and other encumbrances on the property. The Dixie County Clerk of the Court ultimately agreed to pay the judgment creditor $200,000, the state's cap on suits against a government entity, on account of the screw up (although the clerk's attorney was quoted as saying that the settlement was not an admission of liability, but was in the best interests of all parties), the story reports.

(2) Unexplained in this story is why the buyers hired an attorney to defend the title to the property through litigation (and who ran up considerable fees throughout the legal process), and why the attorney failed to inform his clients at the outset that they should simply file a claim with their title insurance company. Under the standard title insurance policy in Florida and other states, the insurance company is required not only to indemnify a property owner for losses resulting from claims against title (up to the dollar amount of the policy), but to supply and pay for the legal defense against adverse title claims when they manifest themselves. title insurance legal issues

Pa. Suit Alleging Title Insurance Premium Homeowner Ripoff Now Certified As Class Action

In Pennsylvania, The Legal Intelligencer (reported at law.com) reports:

• A federal judge has certified a consumer class action suit against Commonwealth Land Title Insurance Co., brought by homeowners who claim they were overcharged for title insurance when they refinanced, because they were never told that they qualified for a discounted premium. The ruling [...] in Alberton v. Commonwealth Land Title Insurance Co. joins a growing list of courts that have certified similar class actions in Florida, Maryland, Minnesota, New York and Ohio. At issue in all of the cases are claims by the homeowners that their entitlement to a statutorily discounted premium should have been detected by the insurer during its title search.

For more, see Consumer Class Action Certified Against Title Insurance Company.

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Title Insurer's Lack Of Action On Subcontractors' Mechanics Liens Filed Against Bankrupt Developer Leaves Recent Homebuyers In Refinancing Limbo

In Woodstock, Illinois, the Chicago Sun Times reports:

• Woodstock resident Deborah Sinnett's taste of the American dream has turned sour big-time, and she blames bankrupt Streamwood-based home builder Kirk Homes. Since Sinnett moved into her $355,000 Kirk home in December, 11 liens have been placed against the property by companies claiming they weren't paid by Kirk.(1) She faces the threat of foreclosure because of the liens, according to a local attorney. But her title insurance should cover her.

• Sinnett said the liens also have complicated her plans to refinance at lower rates. Kirk says she's protected. But the title insurer, First American Title Insurance Co., hasn't taken court action to remove the liens, and Sinnett doesn't know how long the liens will remain on her property. It could be a couple of years, according to state law.

***

• Sinnett said she received the first lien notice shortly before Christmas. She contacted First American Title and was told by letter that her title is insured, but "because there has been no action taken by the lien claimants to enforce their claims through a court proceeding, there is no action for First American to take at this time." [...] First American declined to comment on Sinnett's case, but said it "stands behind its policies of title insurance." But the company indicated Sinnett and others could be in for a long wait.(2)(3)

For more, see Kirk Homes bankruptcy leaves homeowners in limbo (STUCK IN MIDDLE: With Kirk Homes in bankruptcy, many homeowners can't refinance because of contractors' claims).

For more on homeowners left in the lurch due to actions by builders/contractors, go here, go here, go here, go here, and go here.

Go here for other posts involving legal issues related to title insurance.

(1) Reportedly, Sinnett's situation isn't unique as builders across the country fold or file Chapter 11 bankruptcy.

(2) Reportedly, Sinnett shared documents showing liens totaling more than $140,000. "It's costing us hundreds of dollars per month to not be able to refinance. No mortgage company wants to talk with us about refinancing with all those liens," she said.

(3) If faced with a lien on your home, attorney Mark Nora, vice chair of the Chicago Bar Association's real property committee, provides this advice in the article:

• Homeowners can "make demand" on the title insurer to take appropriate action to discharge the lien. The insurance policy will specify how soon a homeowner must make that demand.
• Alternately, homeowners can demand in court that the filer of a lien either file a lawsuit to enforce the lien or be barred from proceeding with one.
• Those in the process of building a home can require in the contract proof that subcontractors are being paid as work has been completed and lien waivers to prevent those companies from filing liens on the property related to that work.
• Work with a qualified attorney, make sure you have title insurance from a company with sufficient reserves to handle claims and read the fine print. title insurance legal issues StiffingContractorsTheta

Crappy Titles From Foreclosure Fallout, Uncleared Issues Purportedly Covered By Letters Of Indemnity Pose Big Challenges For Title Insurance Industry

In New York City, The Real Deal reports:

• Late one Thursday afternoon last month, title insurance agent Rafael Castellanos got an urgent call from an attorney whose client needed a title search on a Brooklyn home that was selling three days later in a foreclosure auction. [...] Castellanos, a managing partner at Expert Title Insurance Agency in Manhattan, got cracking on the search first thing the next morning.

***

• For Castellanos's part, the Monday after he received that urgent call, his research had already uncovered a property file in complete disarray. Among other flaws, the property's tax lot and block were misindexed, and the prior owner had not been personally served with a notice of foreclosure.



• Given these facts, Castellanos rated the property uninsurable -- a conclusion he's reaching all too often these days. "Right now, 60 to 70 percent of the foreclosures have problems," said Castellanos, who does just over 30 percent of his business in Manhattan and nearly 25 percent of his business in the city's other boroughs. "We find all these problems, and we have to tell the client, 'I'm sorry, we can't insure this.'"



• Heading into the second half of 2011, Castellanos and other title insurance executives can add intensifying foreclosure-related woes to a lengthy and growing list of challenges in their industry. Those challenges range from increasing financial losses to widespread consolidation through the industry -- there were just 54 operating underwriters nationally last year, a 43 percent drop from 2008. That has a direct impact on both how many title insurance agents the industry can support, and how the remaining agents have to split up the pie of available business.

***

• Title insurers must also deal with another troubled legacy of the housing boom: letters of indemnity. Such letters were often issued in New York during the boom and remain common.



• For example, if the seller's title insurance company couldn't produce a necessary document in time for a closing date, it would issue a letter taking responsibility for legal claims that might arise from omitting that document, so the new title insurance policy for the buyer could be issued without delay. The practice helped deals get done.



• Now, however, it's unclear how many of these letters were issued, and how many of those cases actually had legal issues that are still not cleared up. "There's a web of indemnity out there, and some of it will shake out, and create a financial impact on some title agents and, more specifically, the underwriters," said [one title agency executive].

***

• [C]astellanos is worried that other proposed legislation intended to help homeowners avoid wrongful foreclosure will backfire, leading to widespread ownership challenges on purchases of foreclosed homes in New York. That, in turn, would lead to huge costs for underwriters and even greater difficulties writing new title insurance policies than Castellanos is seeing now.

For the story, see Title's battles (Insurance industry, hurt by slump in home sales, struggles with foreclosure woes).

Alleged Land Records Search Screw Up, Issuance Of Unauthorized Coverage Lands Attorney In Hot Water With Title Insurance Underwriter, Says Suit

In Winfield, West Virginia, The West Virginia Record reports:

• A California insurance company is suing a Putnam County attorney to recoup losses it incurred from the attorney's failure to conduct a thorough title search, and obtain the sufficient amount of [title] insurance for the purchase of commercial real estate in Hurricane. Alexander J. Ross is named in a two-count professional negligence suit filed by First American Title Insurance Company. In its complaint [...], the Santa Ana, Calif.-based firm alleges Ross not only failed to discover a 50-year-old conveyance on a .6 acre parcel of property being developed for a strip mall, but also obtain the additional [title] insurance to cover the nearly $500,000 purchase price.(1)(2)

For more, see Inadequate title search, insurance results in suit against Putnam attorney.

(1) Pursuant to their agreement, Ross was authorized to act on First American's behalf on purchases of property up to $250,000, the story states. Reportedly, the agreement also called for Ross to "conduct a search of all relevant public records affecting the real property at issue." However, Ross insured the property for full amount of the $495,000 purchase price. Pursuant to their original agreement, Ross was to obtain authorization from First American to insure for amounts exceeding $250,000. Also, First American alleges Ross only conducted a title search going back 40 years instead of the customary 60. It was later discovered that one of the previous owners conveyed .2 acres of the property to the state of West Virginia through a corrective deed on July 18, 1958. The "outconveyance" reduced the true acreage the buyer purchased from .68 to between .452 to .498. The deed Ross prepared for the buyer, First American alleges, did not account for the outconveyance. First American says they had to pay a claim made against them, the story states.

(2) The two factors to consider when shopping for title insurance are the:

• quality of insurance, and
• quality of the title search.

The goal is to find a title company or attorney that will do a thorough search (in order to avoid the alleged title screw-up described in the story above) and an underwriter (insurance company) that will be there in 10 or 15 years if there's a problem. In many states, the title insurance premiums are regulated so there won't be much of a price difference between companies. See Bankrate.com: 6 questions to ask about title insurance. title insurance legal issues

California Lawmakers Seek To Crackdown On Foreclosing Banks Forcing Buyers Of Repossessed Homes To Use Title & Escrow Firms Picked By Lender

The underreported (and unprosecuted) scam currently being perpetrated by lenders looking to unload foreclosed homes whereby they force the buyers of those homes to use their (the lender's) title insurance and escrow companies(1) is now drawing attention from the California state legislature, as evidenced by this excerpt in a recent story reported by the Merced Sun Star:

• A bill to help California's smaller title companies compete in the foreclosure resale market has cleared the Assembly and is now in the Senate. [...] The bill's passage would be a boost to title companies that have been hard-up for business as the market has shifted from real estate agents selling new homes for developers to unloading foreclosed ones for banks. The bill, AB 957 [the Buyer’s Choice Act, go here to check bill status], would establish penalties for banks that force buyers to use a particular title and escrow company.

***

• The practice of forcing buyers to use certain title insurance companies is illegal under the federal government's Real Estate Settlement Procedures Act, though there's been little enforcement. State leaders are looking to crack down by allowing buyers to seek a fine against banks that forced them to use a particular title company.

***

• Banks would be forced to pay the buyer three times what was spent on the title and escrow services. Locally, title transaction fees can run about $1,000, though agents have seen bills double or triple that from other firms. In such instances, banks could be paying thousands back to the home buyer. [...] So far, there hasn't been any opposition to the bill. It passed the Assembly with a 77-0 vote. No title companies or lobbyists have come out against it.

For the story, see Galgiani's title bill on its way to state Senate.

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(1) Lenders holding foreclosed homes with potentially defective titles as a result of errors, irregularities, and other sloppiness in the foreclosure process (ie. lenders lacking standing to foreclose, failure to physically possess the mortgage note when foreclosing, failure to satisfy all "notice" requirements in the legal process, etc.), and who are using "friendly" title & escrow companies over whom they can possibly exert control in the title-clearing & sale-closing process (for the possible purpose of "slipping something past" an unwitting home buyer), appear to be among those that could be affected by this proposed law. title insurance legal issues

Court Says Foreclosure Sales Were Invalid As Banks Didn't Acquire Interest In Delinquent Loans Until After Legal Action Was Completed

In a recent ruling by the Massachusetts Land Court, two foreclosure sales were held to be invalid because, at the time of the publication of the notices of foreclosure sale, neither foreclosing lender owned an interest in the mortgage (either recorded or unrecorded) each was attempting to foreclose.

The facts of the cases in a nutshell are as follows:

• Wells Fargo and U.S. Bank each foreclosed on mortgages it purportedly held and acquired title to the homes securing said loans at foreclosure sales.

• When each lender attempted to unload the homes onto a subsequent purchaser, they were unable to obtain title insurance policies on the homes until a couple of legal issues affecting the property were resolved in the lenders' favor.(1) One of the issues was whether the lenders were the holders of their respective mortgages at the time the notices of foreclosure sale were published.

• The lenders then each commenced legal actions to "remove a cloud from the title" to the homes.

• The court found that the applicable law for this case is found in G.L. c. 244, § 14, Bottomly v. Kabachnick, 13 Mass. App. Ct. 480, 484 (1982), and the cases cited therein which, among other things, appear to require that notice of a foreclosure sale identify "the holder of the mortgage," (See Bottomly, at 483) and that failure to do so renders the "sale void as a matter of law." (Id. at 484.)

• According to the court, the evidence showed that, while Wells Fargo and U.S. Bank were each identified in the published notice of foreclosure sale as "the holder of the mortgage," each acquired its interest in their respective mortgages after the foreclosure sale (in Wells Fargo's case, it acquired its mortgage by assignment ten months after the sale, with the assignment declaring an effective date prior to foreclosure; in U.S. Bank's case, it acquired its interest in the mortgage by assignment nearly fourteen months after the auction took place). Additionally, the court's ruling pointed out that there also was nothing to indicate that each was acting (or purporting to act) as someone else's agent, much less the agent of the principal.

• Because they were incorrectly identified as the mortgage holders in the notice of foreclosure sale when, in fact, each did not acquire its interest until after the foreclosure sale, the court found a lack of compliance with G.L. c. 244, § 14, and therefore, ruled that the foreclosure sales were invalid.(2)(3)

Go here for the consolidated court ruling (U.S. Bank v. Ibanez; LaSalle Bank v. Rosario; and Wells Fargo v. Larace).

In a related story, see Thousands Of Foreclosures Are Void, Says Massachusetts Class Action Demanding Lenders & Their Lawyers Prove Note Ownership.

For posts that reference the failure of mortgage lenders and their attorneys to file the proper paperwork when bringing foreclosure actions, Go Here, Go Here, Go Here, Go Here, Go Here, Go Here, and Go Here.

Thanks to Glenn F. Russell, Jr. of the Law Office of Glenn F. Russell, Jr., Fall River, Massachusetts for the heads up on this case, and for providing a copy of the court ruling.

(1) For the kinds of title problems one can encounter in buying real estate in a transaction, see:

• Buyers Cautioned To Address Title Issues When Buying Foreclosed Homes, and
• Title Insurance: What Risks Does It Protect A Property Owner Against?

(2) In a third case, the court found in favor of a foreclosing lender, ruling that possession of an unrecorded assignment of mortgage at the time of the publication of the notice of sale was sufficient to establish its status as a holder of the mortgage. Failure to record the assignment of mortgage was not fatal to its position as holder in this case.

(3) In the following excerpt from the court ruling, the trial judge makes an observation that may be of some interest to those in the title insurance industry who are asked to insure the potentially crappy titles to foreclosed homes that may contain title defects as a result of errors made by assembly-line, foreclosure mill lawyers bringing lawsuits on behalf of lenders who lack standing to foreclose. Real estate purchasers buying foreclosed homes, either at a foreclosure auction, or from the bank directly after it acquires title to the foreclosed home, may also have some interest in the following (footnotes omitted):

• As even a cursory glance at the current caseload of this court reveals, titles arising from mortgage foreclosures can have many problems. These include the most fundamental: Did the party conducting the foreclosure have the authority to do so and, if challenged, can it prove that it had such authority? In short, will a purchaser at the foreclosure sale get good title and will get it in prompt fashion? These are increasingly important questions in the current deteriorating real estate market and are not small concerns. It is increasingly rare for a mortgage to remain with its originating lender. Often, as here, mortgages are assigned to other entities, and then assigned yet again into large securitized pools. Often, as here, the paperwork lags far behind. Sometimes mistakes are made. Mistakes can only be corrected, if at all, through confirmatory documents (which the borrower may not so easily agree to) or litigation. With so many foreclosed properties available for purchase, why bid on a property with even the possibility for such trouble? Why bid on a property when the foreclosing party cannot produce all the documents (including proper mortgage assignments in recordable form) that would give good title? Why take the risk that the foreclosing party will be able to produce the documents promptly after the auction takes place, that those documents will be complete and in proper form, or even (in this era of failed and failing institutions) that the foreclosing party will still be in existence, with intact files and knowledgeable employees able to find those files so that the proper paperwork can be completed? Since these concerns affect the ability to obtain clear, marketable title, why bid a reasonable market value instead of a discount price to account for that risk?

• None of this is the fault of the mortgagor [Editor's note: "mortgagor" = the foreclosed homeowner], yet the mortgagor suffers due to fewer (or no) bids in competition with the foreclosing institution. Only the foreclosing party is advantaged by the clouded title at the time of auction. It can bid a lower price, hold the property in inventory, and put together the proper documents at any time it chooses. And who can say that problems won't be encountered during this process? It is interesting that it took the plaintiff (the foreclosing party and successful bidder) almost fourteen months after the auction to obtain its assignment in Ibanez and ten months after the auction in Larace. Would any reasonable third-party bidder have been willing to wait that long, trusting that no other issues would arise? Only in Rosario was the assignment (showing that the foreclosing party held the mortgage and could convey title as a result of the sale) in hand and ready for recording at the time of the auction sale. EpsilonMissingDocsMtg title insurance legal issues

Title Insurance: A Necessary Evil?

Described as "a $16 billion industry that consumer advocates and government regulators say few people understand yet blindly feed whenever they buy, sell or refinance a home or property," title insurance is the subject of a recent article in the Janesville Gazette (Wisconsin). For those looking for a primer on what exactly title insurance is all about, see A necessary evil: Confusion clouds title insurance.

Go here for other posts involving legal issues related to title insurance. title insurance legal issues

Title Insurance Companies Targeted In Class Action Lawsuits For Miniscule Overcharges In Real Estate Closings

In Kansas City, Kansas, The Kansas City Star reported last month:

• Two Kansas residents who sued Chicago Title for charging $6 more in recording fees than it paid have lost their bid to bring the case as a class action. James A. and Aimee Doll alleged that when they refinanced the mortgage on their house in 2002, Chicago Title, which acted as the settlement agent, charged them recording fees of $45 for the mortgage and release. The company, however, paid only $39 to record the documents, the Dolls contended, and failed to refund the excess charge.

• The couple sought to have the case certified as a class action on behalf of residents of Kansas, 17 other states and the District of Columbia. But in a 29-page decision last [month], U.S. District Judge John Lungstrum ruled that the Dolls’ claims were not typical of all claims in the would-be class — a prerequisite for class-action certification.

***

• [The Doll's attorney Kirk] May and his law firm have already filed similar suits against title insurance companies in other jurisdictions. Pending in Jackson County Circuit Court are four such actions — against Chicago Title, Nations Title, Kansas City Title and Old Republic Title. Yet another action against several firms, including Chicago Title, is pending in Texas. Although all the pending suits involve minuscule amounts of money on an individual basis, multiplied by thousands, or even millions, of transactions, the sums at stake are considerable.

• “It’s death by a thousand cuts,” May said. “For the one person, we’re not talking about much. But when you have 5 million, 7 million transactions, it turns into some real money.”

For more, see Lawsuit against title company won’t be a class action (if link expires, try here).

Go here for other posts involving legal issues related to title insurance. title insurance legal issues

Ohio Lawsuit Alleging Title Insurance Homeowner Ripoff Certified As Class Action

In Toledo, Ohio, the Toledo Blade reports:

• A federal judge in Toledo granted class-action status [last week] in a lawsuit that could result in refunds for tens of thousands of Ohio homeowners who may have been overcharged for title insurance. A lawyer for defendant Fidelity National Title Insurance Co., which is among the nation's largest issuers of policies to protect buyers and lenders from hidden liens and other deed problems, declined to comment on the development.

***

• In a practice that is the subject of suits nationwide, the [plaintiffs] allege that Fidelity failed to give them and other customers posted discounts on policies issued in mortgage refinancing transactions that took place within 10 years of the original home purchase. Typical discounts at Fidelity were supposed to be $100 to $250 a customer, the [plaintiffs'] lawyer said previously. If they win their case, up to 94,000 homeowners who bought policies from Fidelity since Feb. 15, 2000, could be affected.

For more, see Class action granted in Ohio case against title firm (Judge in Toledo cites interest of fairness).

Go here for other posts involving legal issues related to title insurance.

Editor's Note: Fidelity Title is reportedly part of Jacksonville, Florida-based Fidelity National Financial Inc., a Fortune 500 company which, coincidentally, is located at the same street address as Fidelity National Information Services Inc., the alleged "secret puppetmaster" of creditors' lawyers recently accused in an unrelated lawsuit of ripping off bankrupt homeowners in foreclosure (see Class Action Suit Alleges Conspiracy To Squeeze Bankrupt Homeowners In Foreclosure; Fidelity An Alleged "Secret Puppetmaster" Of Creditors' Lawyers).

I wonder if there's any connection between the two companies??? title insurance legal issues

HUD Settles Case With Six Home Builders In Alleged Scheme To Hide Title Insurance Kickbacks

HUD allegations of violations of Federal law by six major homebuilders involving hidden title insurance kickbacks, referral fees, etc. allegedly received by them were settled by the parties, according to the following excerpt from a 10-29-07 HUD press release:

• The U.S. Department of Housing and Urban Development [...] announced separate settlement agreements with six major homebuilders that engaged in complex business arrangements involving captive title reinsurance. The agreements announced [...] stem from alleged violations of The Real Estate Settlement Procedures Act (RESPA) and total nearly $1.4 million. [...] “There’s no legitimate purpose for captive title reinsurance when it comes to single-family homes,” said Brian D. Montgomery, HUD Assistant Secretary for Housing and Federal Housing Commissioner. “It’s increasingly clear to us that these complicated business arrangements serve no other purpose than to hide referral fees and kickbacks which are expressly forbidden by law.” [...] In HUD’s view, any captive title reinsurance arrangements in which payments are not bona fide and exceed the value of the reinsurance are a violation of RESPA.

The six builders targeted by HUD in this enforcement action were: Pulte Homes, Inc., KB Home, Beazer Homes USA, Inc., Meritage Homes Corp. and affiliates, The Ryland Group, Inc., and Technical Olympic USA, Inc. (TOUSA Homes), along with their captive title reinsurance companies.

For more, see HUD Announces Six Settlement Agreements With Builders Involved In Captive Title Reinsurance Arrangements (Nearly $1.4 million in settlements the result of Department’s enforcement effort).

For links to the six separate 10-29-07 settlement agreements, as well as RESPA settlement agreements resulting from enforcement actions by HUD against other alleged RESPA violators, see RESPA Settlement Agreements, on the HUD website.

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First American To Fork Over $5 Million In Alleged Kickback Racket

In Florida, the St. Petersburg Times reports:

• Florida's second-largest title insurance company will pay $5-million to settle charges that it ran an elaborate kickback scheme to build its business, state and federal officials said Friday. Regulators say that First American Title Insurance Co. illegally paid real estate agents, mortgage brokers, banks and home builders for referrals by making them partners in sham title companies. Eighty-four of these companies were created to funnel business to First American and payments to those making the referrals, authorities said.

For more, see Title company to pay $5M (First American says it did nothing wrong but agrees to close partnership companies).

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County Recorder's Spelling Error May Cost Family Its Home As Homebuyer Fails To Buy Title Insurance

In Zanesville, Ohio, The Columbus Dispatch reports:

• A spelling error by a government worker might cost Andy Mateja his house. [...] When Mateja bought his house, he paid for a title search that found no liens on his property. It turns out that wasn't true.

• JPMorgan Chase had placed a $150,000 lien on the house in 1998, when it was owned by Dr. Subbarayudu Koppera. But the lien was mistakenly entered into the public record under the name Koppepa, so it did not show up when the title company searched for liens by the owner's last name.

***

• In buying the house, Mateja did not take out title insurance that would have protected him from claims against a previous owner. Now JPMorgan Chase is going after the Matejas' house. The Matejas have countersued the bank and Koppera. The case is scheduled to go to court June 19.

For more, see Clerk's error jeopardizes family's home (Undetected lien against seller haunts buyer).

For story update, see:

• The Columbus Dispatch (8-9-08): Bank can't foreclose over typo, judge rules.
• Zanesville Times Recorder (8-7-08): Judge rules in favor of Stonehenge couple (Tax lien error led to foreclosure action).

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Closing Agent's Use Of Rubber Checks To Pay Off $1.6M In Existing Mortgages Leaves Refinancing Homeowners Mired In Legal Mess, Facing Foreclosure

In Will County, Illinois, the Chicago Tribune reports:

• In early April, Jeff Franson refinanced his mortgage, switching it from Chase to SecurityNational Mortgage Co. On a sunny Saturday in early October, as he was mowing the front lawn of his Mokena home, a process server drove up and handed Franson papers that showed Chase was planning to foreclose on his home. Franson was current on his mortgage with SecurityNational. But the $93,702.51 check cut by Counselors' Title Co. to pay off the Chase loan bounced. After months of phone calls and letters between Franson, his attorney and the companies involved, Chase filed foreclosure papers in Will County Circuit Court.

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• Franson and at least seven other Midwestern homeowners who did business with Counselors are wondering what's in store for their homes and what happened to the $1.6 million that was supposed to pay off their loans. [...] The crux of the problem for Franson and other homeowners who closed their transactions at Counselors' offices is that Ticor Title Insurance Co., a national title insurance underwriter, says it terminated its underwriting agreement with Counselors before those closings occurred.

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• In early May, less than a week after Chase notified Franson of the bounced check, Ticor filed suit in federal court in Cincinnati against Counselors, [and its three principals, James Erwin and Shari Erwin of Chicago and Damian Sichak of Homer Glen], claiming they had committed breach of contract and fiduciary duty, fraud and negligence, among other allegations. Ticor's suit states that it terminated its contract with Counselors on March 13, but that Counselors continued to "issue purported Ticor title insurance 'commitments' " and "is representing to its customers that Ticor remains its title insurance underwriter." In the filing, Ticor said it was aware of eight affected borrowers in Illinois, Indiana and Ohio, including Franson, and loans totaling almost $1.6 million. The suit also stated that Counselors told Ticor a fire destroyed many of its records at its Crestwood office in January and, as a result, it was unsure how many other checks it issued would bounce. Ticor's suit also claims the Erwins and Sichak are personally liable for Counselors' failure to comply with its agency agreement.(1)

For more, see Homeowners left in a lurch after mortgage refinancing checks bounce (Borrowers face foreclosure after title company fails to pay off original mortgages).

(1) Separately, in July, Landmark American Insurance Co., which provided Counselors with professional liability insurance, filed suit in Cook County Circuit Court against Counselors, the Erwins, Sichak and Ticor, the story states. Landmark claims it is not responsible for covering any claims if there is a court finding of dishonest, fraudulent, criminal or intentional activity, if the principals were found to have signed personal guarantees, if the company is insolvent or if the escrow funds were improperly handled, according to the story. title insurance legal issues EscrowRipOffKappa

NJ Class Action Accuses Closing Agent, Title Insurers Of Clipping Homeowners With Inflated Recording Fees

The Philadelphia Inquirer reports:

• Title insurance companies and their agents charged thousands of New Jersey home buyers more than allowed by law to record deeds and mortgages, according to a lawsuit filed in federal court in New Jersey. Hundreds of thousands of buyers would be reimbursed if the suit, filed last month, succeeds, Esther Berezofsky, a lawyer in the Cherry Hill office of Williams, Cuker, Berezofsky, estimated yesterday.

• "Initially, we thought it was just a single occurrence of overcharging. Then we started investigating, and we discovered it was rampant," said Berezofsky, whose firm worked with O'Conner, Parsons & Lane, of Westfield, N.J.

• The 50-page lawsuit details eight cases of buyers who paid higher fees at settlement than the settlement agents paid to the county recording offices. The lawsuit alleges that settlement agents pocketed the difference. The lawsuit, [...] covers consumers who have bought residential real estate in New Jersey since Jan. 22, 2003.

For more, see Suit alleges title insurance fraud in New Jersey.

New Jersey home buyers who want to know whether they were overcharged fees at closing or who want to provide information can visit www.njtitlelawsuit.com.

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Thanks to Bill Collins of Crossroads Abstract, Rochester, NY for the heads-up on this story. title insurance legal issues

Buyers Cautioned To Address Title Issues When Buying Foreclosed Homes

In a Q & A article in The Memphis Daily News, Tennessee real estate attorney Ryan E. Byrne cautions investors about buying foreclosed properties without understanding all the risks and legal ramifications. One potential problem arises when a lender, in its effort to unload a foreclosed home, requires the use of a title insurance agent selected by them to insure the title to the home.

• [T]he perception is that a foreclosure wipes away any clouds on a title that were there before. A foreclosure wipes away a lot, but it doesn’t clean the slate completely clean. If there’s anything that was in existence prior to the deed of trust that was foreclosed upon, that remains an issue, and often times, these foreclosing banks require you to close with their chosen title officer. They don’t give you the option of closing with your own attorney, and sometimes these old title issues – not only are they not dealt with properly by the foreclosing banks – they usually aren’t disclosed to the purchaser. Sometimes, several years later, these things pop up when the client is going to sell the property.(1)

For the story, see Byrne Warns of Legal Pitfalls With Foreclosure Buys.

(1) Reading between the lines, the story may be cautioning purchasers of foreclosed homes to be alert to attempts by the lender/seller to unload a property that may have title problems, and that the requirement that the buyer use the lender's title agent may be an attempt by the lender to "control" the closing in a way that will make it easier for it to "slip something past" the unwitting buyer.

One source of title problems involving foreclosures may arise from the fact that a lender may have lacked the legal standing to initiate the foreclosure process in the first place. In such a case, an argument can be advanced that the court (or the trustee, in non-judicial foreclosure states) lacked jurisdiction/authority to authorize the foreclosure sale, potentially making such a sale, and any subsequent conveyances of the property, void.

Go here for case law that supports the proposition that a lender that lacks standing to initiate the foreclosure process leaves the court without subject matter jurisdiction to entertain the matter.

See also, Thousands Of Foreclosures Are Void, Says Massachusetts Class Action Demanding Lenders & Their Lawyers Prove Note Ownership. title insurance legal issues