Keith's Blog

LIFE KEEPS CHANGING

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Thu, 06 Nov 2008 09:24:33 -0600

I have not done a personal blog on my site, but thought that this would be a good time to start.

It seems just like yesterday my oldest daughter came into my life. She is now 20years old and doing great. In the spring she married an awesome young man which I was pleased to walk her down the aisle to. They were young to be getting married, but they both had such strong paths they wanted to take together, it seemed unfair to keep them from attaining them. He is in the military and is currently stationed in Missouri finishing up with his training before moving to North Carolina where he will be stationed.

They have done very well for themselves since their wedding. My daughter moved up to Missouri and has been living just off base to where on his short leaves; they can spend some time together. She has had no family or friends to spend the very vast times of separations with, but has kept herself busy and out of "trouble".

I received a phone call from her the other day, and I was glad that I could not get to my phone and it went to voice mail. I had had a hard day and when I listened to it, I melted. It was one of those phone calls that a parent waits to hear. She was going to be moving into their first apartment and had been shopping for some kitchen items. The message was that she wanted to let me know how much she loved me and that she appreciated what I had taught her throughout her life. She was very proud that she was able to go to a thrift store and bought plates, glassware, pots, pans and other assorted kitchen items for the low price of $12.00 for everything! She had BUDGETED (not a word most young people know) to spend over 100.00, and she was excited and thrilled that she had some money left over! I called her back and let her know who much that message meant and how proud I was of her and her husband.

Now for the GREAT news...this past weekend they called me and told me that I was going to be a grandpa!!!! I couldn't be more excited...even though I still have two small wonderful girls, ages 8 and 4 that I still have at home. My oldest couldn't wait to tell her sisters that they were going to be aunts!!! The older one took it well, she understood, but the younger one said "I don't want to be an aunt...I squish ants and I don't want to be squished!!!"...she just isn't quite old enough yet to understand.

We have settled on me being called "Opa" a good German name for grandpa, and my wife is going to be called "Oma"...we couldn't be more excited. My oldest is going to take with her the crib we used for her younger sisters, which means a lot to her, and to me as well.

It is going to be a great summer...I guess the inevitable is happening...I will be a grandpa before my baby goes into kindergarten. She will more than likely be the only aunt in her class.

Thanks for letting me share.

FRAUD ALERT

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Mon, 13 Oct 2008 09:15:37 -0500

I wanted to let the community of active rain be aware of a "new" fraud alert that we, LandAmerica, have addressed and are making arrangements for, to keep this from becoming a possible issue on the part of the buyer, the Buyers agent as well as for the title company. Please make sure your title company takes steps as well.

In today's market where every dollar counts to both the buyer and seller, some people have taken to desperate measures. With the onslaught of the lending practices over the last few years (and coming to a head now) "open ended" mortgages or "revolving lines of credit" were in abundance, especially in "2^nd position" behind a first mortgage. As a title company we would receive a payoff letter from the lender and then proceed to close the transaction and then send in the payoff letter asking for the mortgage to be discharged and the account to be closed... this is what has changed and why.

In some instances consumers would take a draw (using checks or a credit type of card) against the line of credit just at, or just after the closing of the transaction, after they new there had been an inquiry for payoff placed. The title company would send in what they thought to be the "payoff" and to have the account closed. Sometimes the lender would accept this, but then find out later a "draw" was put against the account and it would remain open and therefore a valid lien on the property affecting not only the title company but also the new buyer as well. In some cases they would reject the payoff and notify the title company days after the transaction. If either occurs, it is hard to collect this from the seller and the title company has to satisfy this transaction as a claim.

This is why you close at a title company, to ensure stuff like this is handled in a professional manner...but...claims affect everyone. If too many claims happen it can cause title company to raise rates, closing fees, or worse go out of business, especially if an Agent.

We at LandAmerica have initiated a new policy that we are requiring the "open ended mortgage" to be closed or suspended at the time we request a payoff statement from the lender and must be returned to us 5 days prior to closing. It requires some extra papers to be signed prior to closing but hampers this from happening after the transaction is completed.

It is my suggestion that everyone urge their title company to do this, for the safety of your buyer, seller and your business. Everyone is looking toward their current clients for referrals. If this type of "fraud" happens and your buyer is affected in any way, the chance of referral goes down, especially if the title company you use doesn't take care of the problem in a timely manner.

ALL INCLUSIVE CLOSING FEES FROM LANDAMERICA - Grand Rapids, MI and surrounding area only

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Fri, 03 Oct 2008 13:12:46 -0500

CLOSED OFFICE...WHY???!!!

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Fri, 03 Oct 2008 13:03:26 -0500

As I am traveling around the greater Grand Rapids area, over and over again I am told that "we have our own title company...and we are asked to use them" and asked to leave, and not even allowed to leave information behind of the offers and services that either I or my company have to offer.

Ok...I understand that there is a convenience factor here, and that the broker may be leading you to "our" (more like his/her) title company...but here is a reality I want you all to consider (if you haven't already).

Let's say one day the title company you use within your office is suddenly closed. All you know are the people within that title company and you have "shut out" the other title companies within the area due to this affiliation. I know that you have closed transactions in other title companies in the past, but have you built any kind of rapport with them? Here are some questions I want you to ask yourself:

1. Do you know another title company well enough to continue where "your" title company left off?

2. Would your business suffer due to the time laps in getting to know another title company?

3. Do you know who to turn to that will continue to make your closings go they way you want it?

4. Are they (the title company) going to make you look good to your clients?

My friends don't go down this road. You have worked to hard to build your business and to look to your past clients for referrals. You all are FREE AGENTS and therefore can use other title companies in your area. Who knows...they may make your experience and your clients better than the one you use. It is my belief that any Realtor should have at least 2 title companies that they can rely on at any given point. Ones that you know will "make you look good" to your clients.

If I can be of any help, please call me. If not me, then please find someone you can use in conjunction with your "in house" title company. Times are tough and things are happening all over in the market these days. Don't be caught in the dark.

I'm BACK to serve you better!

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Thu, 18 Sep 2008 09:45:23 -0500

My Friends,

After a brief journey outside of the community of Grand Rapids working still in the title business, I am pleased to be returning to Grand Rapids.

I have moved to LandAmerica Lawyers Title in this transition with every intention of giving my customers the utmost in customer satisfaction and remaining with a leader in Title Insurance.

LandAmerica has a lot to offer it's customers and I will be sharing all of their expert levels of service with you via personal visits to my direct clients and abroad via this blog.

Keep informed as the information will be forthcoming soon!!!

Thank you for your continued success and your support.

Keith Jarrett

LandAmerica/Lawyers Title Co.

I'm BACK!!!!

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Tue, 16 Sep 2008 15:34:20 -0500

My Friends,

After a brief journey outside of the community of Grand Rapids working still in the title business, I am pleased to be returning to Grand Rapids.

I have moved to LandAmerica Lawyers Title in this transition with every intention of giving my customers the utmost in customer satisfaction and remaining with a leader in Title Insurance.

LandAmerica has a lot to offer it's customers and I will be sharing all of their expert levels of service with you via personal visits to my direct clients and abroad via this blog.

Keep informed as the information will be forthcoming soon!!!

Thank you for your continued success and your support.

Keith

READING THAT WILL MAKE YOU THINK TWICE

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Wed, 09 May 2007 15:16:20 -0500

Today I went to a seminar that opened my eyes to what exactly we do as title agents and settlement agents on behalf of the CONSUMER!!! That's right the consumer.

We have a fiduciary responsibility to the Buyer, Seller and the Lender (or entity loaning the money) to ensure that the transaction is done completely, ethically and give free and clear title to the buyer. (Sorry guys, you noticed I did not say Realtors and Loan officers.) We rely on Realtors and Lenders to survive, and we appreciate the business you give to us due to exceptional service etc. we offer to your clients, the Buyer and Seller.

I have the permission of Ed Rybczynski to post these sites on my blog in hopes that you will read and understand the importance of what we do as an industry.

http://title-opoly.squarespace.com/

http://www.squidoo.com/mortgagefruad/

Please review these blogs...and think about what could happen if you say "don't ask...don't tell...don't know".

RESPA Q&A and other "fun" facts!

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Mon, 07 May 2007 11:40:25 -0500

I have received many comments and questions pertaining to my last BLOG asking questions of "right and wrong" for RESPA.

Here is a link to RESPA that has lots of great information pertaining to RESPA guidlines.

http://www.hud.gov/offices/hsg/sfh/res/respa_hm.cfm

Keep the questions coming...we all can continue to learn and STAY OUT OF THE HEADLINES in bad press.

FREE MARKETING MATERIAL...NOT!!!

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Thu, 03 May 2007 11:24:58 -0500

Are you receiving "free" marketing materials from your title company??? If so, you may be surprised to find out that it could cost you and your company a lot of money if the RESPA police get a hold of you.

It has been in the papers and journals over the last year. Title companies around the nation have been put under the gun for what has been "created" in the market as "good business". Well this business is being interpreted by HUD and RESPA as a violation of Section 8(a) of RESPA, plain and simple.

Did you know that if a title company contributes to a broker and/or agent more than $25.00 PER YEAR in goods, services, entertainment, meals, MARKETING MATERIALS etc...it is a violation of this Section 8(a) code. Fines are not being limited to just the Title company anymore...they (HUD) is now charging the receiver of the "gift" as well!!!! THIS MEANS YOU!!!

Times are tough; especially in the Michigan market...I know this. Marketing is still needed to get your name and/or exposure to the market place. Pay a nominal fee and keep yourself out of the possibility of being fined. If you don't want to pay for these services, then find another way of getting your name out there...here is a hint...Active Rain!!!

No one is going to be safe. It is my personal feeling that with our struggling government here in Michigan, it is not going too far in the future until our government officials figure out one way to decrease the deficit would be to follow through with other states (Minnesota, New Mexico for instance) and start "governing" practices by title companies right here in our state and pull HUD/RESPA in and start fining title companies, brokers, agents for the Section 8(a) violations. In two cases I know of...it was the State that received the monetary benefit of the lawsuits and the Federal government as well.

Change your ways my friends. Don't let your luck run out and risk everything for those free postcards, flyers etc. It could cost you more than just money!!!

SHORT SALE "OOPS" - DON'T MAKE THIS SAME MISTAKE

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Thu, 03 May 2007 10:54:25 -0500

Short Sale

Milton, MA--Horst and Inger contracted to buy this duplex from Pete, a local developer. The closing would be handled by David, an attorney. With the closing date near David realized this would be a short sale: After paying off the existing first mortgage, remaining sale proceeds ($58,000) would be insufficient to pay the balance due on the second mortgage ($81,000). The holder of the second mortgage was a local bank. At Pete's suggestion David called the Senior Vice President of the bank, who told him the bank would release the mortgage without payment since Pete was a good "developer" customer. The Good Customer--A favor to the seller was fateful for the buyers.

David closed the transaction without having received the bank's release. Unfortunately, as he would later explain, this deal closed at a time when his conveyancing practice was starting to grow, and he did not yet have in place procedures to follow up and get the bank's release.

In other words, oops.

Horst and Inger had an owner's policy from First American. When they later went to refinance, the old second mortgage showed up as still unreleased; and since it was unreleased it now appeared as a first mortgage.

Horst and Inger made a claim and First American contacted David to get the release.

But it was too late. Things had changed at the bank. Mainly, the bank had failed and was taken over by the FDIC. So now we couldn't get a release. Worse yet, Pete filed bankruptcy and went out of business.

The Company paid $80,823 for the elusive release, plus legal expenses of $9,204. Most of this was later reimbursed by David's malpractice insurance.

MORAL: Title companies are frequently asked by real estate investors and developers to "write-over" an existing mortgage with the promise of a payoff to come from some other transaction.

This is pure risk, and in some states (principally Texas) the practice is regulated by law.

Since this risk was not authorized by First American, it was David who ultimately paid for the bank's favor to its "good customer."

MOBILE/MANUFACTURED HOMES - process to convert to "REAL PROPERTY"

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Mon, 23 Apr 2007 13:12:54 -0500

In the State of Michigan a Public Act (NO.44) was effective as of July 14^th, 2003. In this Act, it contains provisions that allow an owner to affix a mobile home/manufactured housing unit to real property by means of an Affidavit of Affixture. In other words, the unit is changed from personal property to real property.

To become a fixture to real property the manufactures housing unit must have its wheels, axles and towing hitches removed, be permanently attached to the land, and connected to a septic tank, sewage system or public sewer and other utilities.

The reason behind the need for the Affidavit of Affixture is this. Prior to 2003 if a mobile/manufactured unit was included in a bankruptcy case, the mobile/manufactured unit could be sold at auction to pay back debtors in the bankruptcy. This was done and left the mortgage company left holding nothing but the land and possibly a hole in the ground...not good. This affidavit converts this mobile/manufactured unit from personal property to Real property...so it can not be sold at auction due to bankruptcy.

The Affidavit of Affixture form can be downloaded as per this link:

http://www.michigan.gov/documents/dleg_bccfs_mhaffida_134013_7.pdf

After completion, the owner may send the form to:

Michigan Department of Consumers and Industry Services

PO Box 30255

Lansing, MI 48909

(Phone: 517-241-9317)

Or for faster service you may overnight completed form to:

Michigan Department of Consumer and Industry Services

2501 Woodlake Circle

Okemos, MI 48864

NOTE: overnight packages are usually processed and returned in 7 to 10 business days.

Either way you submit you are required to include an additional self-addressed stamped envelope or a completed overnight slip/envelope for the approved affidavit to be returned.

LOST TITLE REPLACEMENT

This is the procedure as we understand it currently. This is subject to change without notice from the Michigan Department of Consumers and Industry Service.

When the current owner of a mobile home has lost the title, a duplicate will need to be obtained from the Secretary of State. A mobile home title application can be obtained at any branch office of the Secretary of State. They have records for the last 10 to 12 years (sometimes more) and can issue a duplicate title.

When title in the current owners name is lost and there is no record at the office of the Secretary of State, or a transfer to the current owner was not made, proof of ownership must be submitted with the mobile home title application. This proof may be on of the following:

•1) Property tax receipts in the name of the applicant. Along with the receipt, information is needed from the assessing jurisdiction that the mobile home is part of the property.

•2) A court order establishing ownership. The year and make or VIN must be included in the court order.

•3) A surety bond (Form TR-122). Mobile home surety bonds are posted for twice the value of the mobile home for 5 years. After 5 years the bond is returned to the insurance company if no claims were filed. (The owner can sell the mobile home before the 5 year period is up.)

The following is the procedure for obtaining a title using a mobile home surety bond:

•1) The applicant will need to provide the mobile home's VIN. If a VIN cannot be found, a VIN number will need to be assigned. Contact the Secretary of State for the procedure to assign a VIN.

•2) The applicant submits a properly completed TR-122 mobile home surety bond form. (Available at the Secretary of States office). Also submit the bond company's authorization to issue surety bonds. This document shows the company's restrictions for issuing bonds.

•3) Complete a TR-34 certification statement explaining from whom, how, when and where the mobile home was acquired. The certification must include a statement which confirms inspection of the VIN (e.g. "I have examined the serial number on this mobile home and it is number_____.)"

•4) Any lien shown on the title record must be terminated.

•5) Complete a mobile home title application (Form S-110)

•6) A Fee of $90.00 will be charged. When applicable, a use tax fee may also be used.

NOTE: sometimes the Secretary of States offices may accept information other than that outlined above as proof of ownership of the mobile home and be willing to issue a vehicle title. Since considerable expense is involved in some of the above options, it may be worth taking all the information available to their office to see if it may be sufficient.

IF THE DEALER YOU BOUGHT IT FROM GOES OUT OF BUSINESS

The Manufactured Housing Division can assist in obtaining a title when a person who bought a mobile home from a dealer did not receive the title and the dealership is out of business. You will need to provide some type of proof of purchase, such as:

•1) Cancelled check

•2) Money order purchased by the owner

•3) Purchase agreement

•4) Financing records

•5) Bank records

You will also need to obtain a certification statement showing the correct VIN number on the mobile home.

Call the Manufactured Housing Division at 517-241-6300 for assistance.

TRUSTS...WHAT TO DO WHEN YOU ENCOUNTER ONE ON A TITLE WORK

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Fri, 13 Apr 2007 13:50:29 -0500

Living trusts use to be only for the wealthy. Now its use is common practice to minimize estate and inheritance taxes. It is imperative that the title company sees, at minimum, the section of the trust that relates to the transfer and acceptance of property (also known as the "powers of the trustee"). The reason behind this is that each and every trust is established for very different reasons and we must protect the original intent of the trustees to abide by their intentions.

At First American Title of Michigan, we require a "Certificate of Trust" to be recorded along with the mortgage and/or deed at the time of closing. This certificate must be dated within 60 days of closing.

This is due to a requirement as per Michigan Land Title Standard 8.3 and Section 565 of the Michigan Compiled Law.

This is for the protection of the Buyer, Seller, Realtor and Lender. It is also needed for the title company to ensure a proper and legal transfer of title to occur.

MORE INFORMATION REGARDING CERTIFICATE OF TRUSTS

What needs to be on the Certificate of Trust? See the following link to find out.

www.legislature.mi.gov/(S(soa0tk55d4jxx2b4dz3dlo55))/mileg.aspx?page=getObject&objectName=mcl-565-432

Who can sign a Certificate of Trust? See the following link to find out.

www.legislature.mi.gov/(S(soa0tk55d4jxx2b4dz3dlo55))/mileg.aspx?page=getObject&objectName=mcl-565-432

FEDERAL TAX LIEN SUBORDINATION PROCESS

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Tue, 13 Mar 2007 08:19:02 -0500

Did you know that there is a process involved in getting a Federal Tax Lien subordinated? Well there is.

There are NO formal forms from the IRS that can be filled out, but with the right person helping you, you can get one created and sent in to have processed. The IRS keeps this a quiet secret, but I found the information you need to get one started.

Of course there are no guarantees that the subordination will be granted, but at least if you have one and you thought there was no hope, now you can have some.

The process will take anywhere from 30-60 days to process.

Please feel free to call me, and I will help you get one done for yourself or for one of your clients.

UPDATE: This really works. I have the subordination and am ready to get this deal closed!!! If you need assistance in creating the document, I will be more than happy to assist!!!

BLOGGING SEMINAR - APRIL 11TH 2007 - GRAND RAPIDS, MI

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Tue, 27 Feb 2007 09:59:26 -0600

IT'S TIME TO GET WITH THE PROGRAM!!!

JOIN US FOR AN IN-DEPTH LOOK AT THE NEW WAY TO MARKET YOURSELF ON-LINE

BE NOTICED ON THE INTERNET FIRST
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BUILD LASTING FRIENDSHIPS IN A BUSY WORLD.
STAY CONNECTED TO TODAY'S LATEST IN MARKETING TOOLS

DATE: APRIL 11,2007
TIME: 11:30 AM
WHERE: NOTO'S RESTAURANT
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COST: $25.00 PER PERSON
TO RSVP: CALL 616-283-7832 OR EMAIL: CRAIGBOENING@SBCGLOBAL.NET

PROUDLY BROUGHT TO YOU BY MY ASSOCIATES!!!

YOU COULD WIN A GARMIN iQUE HANDHELD GPS UNIT FOR ATTENDING!!!!

THE POWER OF A POWER OF ATTORNEY - OUCH!!

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Tue, 27 Feb 2007 09:50:15 -0600

Power of Attorney

McLean, VA--A power of attorney is a legal document by which a person ("the grantor") authorizes another (the "attorney-in-fact") to make decisions or contract for the grantor. This home in a suburb of Washington, D.C. was owned by a mother and daughter who were Korean citizens living in Japan. The home was occupied by Sung-Joon (also known as "Alex"), a son and brother of the owners. When Alex's business investments soured he arranged, through a mortgage broker, to borrow $40,000 secured by a third deed of trust against the home. Cloak of Authority --The title to this home was "stolen" through a series of fake documents.

To enable himself to sign loan doc's without his mother or sister's knowledge, Alex forged powers of attorney containing their falsified signatures making him their attorney-in-fact. He next signed a deed from his mother and sister into his mother, sister and himself (relying on the forged powers of attorney)--and then signed the $40,000 deed of trust on behalf of his mother and sister (again relying on the forged powers of attorney) as well as himself.

All of this paperwork must have looked pretty impressive, but in truth it wasn't worth the price of postage to mail it across the street.

The $40,000 deed of trust was insured by an agent of First American. Apparently the agent was satisfied with the explanation that powers of attorney were used because Alex's co-owners were in Japan.

When the loan fell delinquent, the lender got a letter from an attorney for the mother and sister claiming the insured deed of trust was a fraud.

First American hired lawyers to investigate--and the forgeries were confirmed. The Company paid its insured lender $40,000, and incurred legal expenses topping $17,000.

Meanwhile, Alex was arrested and he named an accomplice. The two of them faced criminal charges, with Alex looking at deportation in the bargain.

First American was not the biggest loser here. It turned out there was a second deed of trust, for $239,000, made using the same scheme. A different lender, perhaps insured by some other title company, faced that loss.

MORAL: Lots of lessons here:

First, title examiners are cautioned against relying too heavily on a power of attorney where the attorney-in-fact is benefitted by use of the power. It's a built-in conflict of interest--enough to cause the examiner to give the transaction careful scrutiny.

Second, an examiner should always want to know why a power of attorney is being used. Why is the grantor unavailable? If the grantor is in another state or a foreign country, it may be better to have documents signed there and notarized by an out-of-state notary or at a U.S. Embassy.

Third, if the reason given for the power of attorney is that the grantor is sick or incapacitated, the examiner should look to see whether the power of attorney is of the "durable" type--that is, whether it authorizes the attorney-in-fact to act while the grantor is incapacitated. And, the examiner should also be satisfied the grantor was mentally competent at the time the power was signed.

Finally, if the grantor is deceased, a power of attorney shouldn't be relied on. Any real property in a grantor's estate after death should pass through probate.

TRUSTS and how to work with them when on title work

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Wed, 14 Feb 2007 15:16:42 -0600

Living trusts use to be only for the wealthy. Now its use is common practice to minimize estate and inheritance taxes. It is imperative that the title company sees, at minimum, the section of the trust that relates to the transfer and acceptance of property (also know as the "powers of the trustee". The reason behind this is that each and every trust is established for very different reasons and we must protect the original intent of the trustees to abide by their intentions.

At First American Title Insurance Company, we require a "Certificate of Trust" to be recorded along with the mortgage and/or deed at the time of closing. This certificate must be dated within 60 days of closing.

This is due to a requirement as per Standard 8.3 of the Michigan Land Title Standards, and Section 565 of the Michigan Compiled Law.

This is for the protection of the Buyer, Seller, Realtor and the Lender on the transaction. It is also needed for the title company to ensure a proper and legal transfer of title to occur.

See the attached links: ( cut and paste to link to your browser)

This link will explain:

who can sign a certificate of trust

how a Certificate of trust needs to be written

what a certificate of trust is

http://www.legislature.mi.gov/(S(xmysbk2webf3ja45bwm1td55))/mileg.aspx?page=getObject&objectName=mcl-Act-133-of-1991

This link will take you to the Michigan Legislature depicting what all is required for trusts. At any point, please feel free to call me with any questions.

FSBO Package - For Sale By Owner

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Fri, 02 Feb 2007 10:52:47 -0600

We at First American Title are always one step ahead to assist customers in handling their real estate transactions. We have a complete FSBO package that is FREE to customers trying to buy or sell their property on their own. Included in this package is a step by step procedure to take you from the beginning to the end of the transaction. Please contact me and I will send to you the complete package covering the greater Grand Rapids area. It is recommended to speak with a qualified real estate attorney to assist you with your transaction. If you would like to use a licensed real estate agent, please don't hesitate to contact me for a list in the area you are looking for.

RESPA - what is it!!!

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Thu, 01 Feb 2007 15:44:02 -0600

Background and Selected Issues...

Background And Selected Issues On HUD's RESPA Regulations

By Kenneth R. Jannen

Vice President and Senior Regional Counsel

First American Title Insurance Company

The Department of Housing and Urban Development has promulgated regulations implementing the Real Estate Settlement Procedures Act (RESPA) 12 U.S.C. 2601 et seq. which applies to settlement services provided in transactions involving federally related mortgage loans secured by one to four family residential property, including refinancings, assumptions (if the lender's approval is required and obtained) and subordinate financing. The regulations, known as Regulation X, appear at 24 C.F.R. Part 3500 et seq.

The regulations contain exemptions for transactions involving:

agricultural property of 25 acres or more;
temporary financing, (including construction loans if not used or convertible to permanent financing by the same lender to finance the transfer to the first user, or for a term of two years or less);
"business purpose" transactions, if the borrower is not a natural person, and the proceeds are not used to acquire, refinance, improve or maintain as a 1 to 4 family property used or to be used to rent to other persons;
loans secured by vacant or unimproved property, unless a structure, including a manufactured home will be placed on the property, using the loan proceeds within two years of the date of the loan;
"secondary market transactions," which involve the transfer of a loan obligation in the secondary mortgage market; and
any transaction, the purpose of which is to change the interest rate, term, or periodic payment amount of a federally-related mortgage loan, so long as the transaction involves no charge, or a nominal charge (less than 1/4 of 1% of the outstanding loan amount), and does not involve a transfer of title.

Several aspects of the regulations have become controversial for the title insurance industry, including title agent services, the employee compensation qualification to the restrictions on controlled business, and the controlled business exemption, itself. They have also caused a somewhat renewed focus on the conduct of the marketplace with regard to kickbacks and referral fees, leading to a great increase in complaints to HUD'S RESPA Enforcement Unit, primarily by industry competitors.

Title Agent Services

Under the prior version of Regulation X, Appendix B contained example no. 9. In that example, "A", a title agent took applications for title insurance, but the search and examination was done by "B", the title insurance company. "B's" search and examination included the determination of insurability. "A" issued policies on behalf of "B" but received the same commission as agents who did the search and examination to determine insurability and prepared and issued the policy. The comment to the example was that, since the commission paid to "A" was equal to that commission customarily paid to full service title agents who performed substantially greater, more valuable services, the commission paid to "A" was really intended to compensate him for the referral of business. The amount of the commission paid to "A" in excess of the reasonable value of the services was considered by HUD to be a referral fee prohibited under Section 8 of RESPA (12 USC 2607).

This resulted in some questions of interpretation as to the status of title agents who purchase the search and examination from their title insurers, issue the commitments based upon that search and examination and then perform the balance of title insurance services necessary to issue the policy, to wit: preparation of vesting documents, clearing of title objections, disbursement of settlement funds, evaluation of surveys, evaluation of documents for affirmative coverages and endorsements such as under the ALTA Form 6 (Variable Rate Mortgage Endorsement) and the ALTA Form 9 (Restrictions, Easements and Minerals Endorsement).

Example 9 left some questions unanswered because it stated that:

"Section 8 does not prohibit variations in the amount of commissions that may be paid nor does it require that the quantum of services rendered be identical in all cases, so long as services significant to the issuance of a title insurance policy are rendered and the amount of the commission bears a reasonable relationship to the services rendered."

Consequently, title insurers who charged the title agent actual cost or fair market value for the search and examination considered that charge to be a reduction in the customary title agent's commission, resulting in a reasonable amount being paid for the balance of the services.

After the creation of a RESPA Enforcement Unit at HUD in 1990, investigations were commenced in various states, most significantly in Illinois, where, in 1991, HUD entered into a settlement with Intercounty Title Company of Illinois, an agent of Stewart Title Guaranty Company. As part of the settlement, Intercounty agreed to pay HUD $1 million. In that action, HUD took the position that, to justify the payment of a title insurance commission, the agent must independently determine insurability through evaluation of a search package.

In a separate case, Stewart Title Guaranty Company and a number of individuals brought an action against Gilbert Ruiz, Director of the Department of Financial Institutions of the State of Illinois, who had the statutory responsibility for administration of that state's Title Insurance Act, for a writ of mandamus requiring that he register certain attorneys as title agents. The proposed agents were to participate in a program Intercounty Title Company of Illinois had established whereby it would prepare a list of standardized exceptions in a format that could be photocopied inside a transparency to prepare a title commitment. The list, together with a title search package, would be reviewed by the agent, who would have liability for any inaccuracy in the commitment to be issued by the agent. The Director refused to register the prospective agents, taking the position that the program would violate RESPA and, consequently, the Illinois Title Insurance Act. In 1992, the court ruled that the agents would be providing substantial services that would justify the payment of a commission and that the program did not violate RESPA. Possibly, as a reaction to or in anticipation of this ruling, or to formally establish its position with regard to similar practices in Florida and other states, HUD included in Regulation X, under Section 3500.14 "Prohibition Against Kickbacks and Unearned Fees" under the subheading of "Multiple Services" a regulation indicating that, when a person in a position to refer settlement service business receives a payment for providing additional settlement services as part of a real estate transaction, the payment must be for services that are actual, necessary and distinct from the primary services provided by him. It then provides an example:

"...for an attorney of the buyer or seller to receive compensation as a title agent, the attorney must perform core title agent services (for which liability arises) separate from attorney services including the evaluation of the title search to determine the insurability of the title, the clearance of underwriting objections, the actual issuance of the policy or policies on behalf of the title insurance company, and, where customary, issuance of the title commitment and the conducting of the title search and closing."

Unfortunately, this clouds nearly as many issues as it clears up. For instance, may the title agent sub-contract out the search and examination? Example no. 4 in new Appendix B states that he may not; however, the use of independent searcher-examiners is wide-spread throughout many parts of the country. Provided that the agent remains responsible for the work of that independent contractor, there does not seem to be a logical reason for a distinction between a title agent using its own employees or using independent contractors, especially for those title agents who do not have enough volume of title work to warrant putting an employee on the payroll.

If the title agent has not been retained to provide other services that might duplicate those for which he is being compensated as a title agent, must he still perform all of the "core title agents services?"

If the title agent's commission is adjusted so that he is paid substantially less in a situation where the title insurer performs the search and examination and determination of insurability, with the title agent performing the balance of the services, is RESPA violated?

If a title insurer's contract with its agent provides that, upon reaching a certain level in its policy sales, its commission will increase, does the differential constitute payment for the mere referral of business?

Although verbal opinions have been provided by HUD's staff, the staff has advised they are not binding on the Department, that there will be no written opinions forthcoming and that formal positions will be expressed, if at all, through further rule making or interpretative bulletins. A bulletin dealing further with the issue of core services is anticipated for October, 1994.

Some of the verbal opinions may be instructive; however. For example, HUD staff has indicated that it may be a "kickback" for a title insurer to fail to seek recoupment on a claim caused by the negligence of its policy issuing agent.

This seems consistent with the provision in its regulation that requires that liability arise for the core services provided by a title agent. If a clear case of the liability of the agent is extant, then the failure of the insurer to hold the agent to that liability may be the giving of "a thing of value" for the referral of settlement services (or the giving of a thing of value may have been the payment of a commission to the agent without liability for his core services).

Another verbal opinion provided by HUD staff relates to "wash out" arrangements. A practice in Florida involved an arrangement with surveyors, title companies and other related service providers whereby their charges would be canceled if the transaction failed to close. HUD Staff took the position that any time that the charge for services that have actually been provided is canceled in expectation of future referrals, a thing of value has been given and violates RESPA.

Controlled Business Arrangements

Under RESPA, a controlled business arrangement is "one in which a person who is in a position to refer business incident to or part of a real estate settlement service involving a federally related mortgage loan or an associate of such person has either an affiliate relationship with direct or beneficial ownership interest of more than one percent in a provider of settlement services." The terms "associate", "affiliate" and "beneficial ownership" are all defined in the Regulation. Such an arrangement may exist where a realtor holds stock in a title insurance agency or escrow company. Section 8 does not outlaw such an arrangement if, at or prior to the time of the referral, a disclosure is made of the existence of such an arrangement and the person referred is provided a written estimate of the charge or range of charges generally made by the provider to which the person is referred. If a lender makes the referral, this requirement may be satisfied at the time that the good faith estimate of closing costs is provided. The person referred may not be required to use any particular provider of settlement services; however, an arrangement that requires a buyer, borrower or seller to pay for the services of an attorney, credit reporting agency or real estate appraiser chosen by the lender to represent the lender's interest or where an attorney or law firm represents a client in a covered real estate transaction and issues or arranges for the issuance of a policy of title insurance in the transaction directly as agent or through a separate corporate title insurance agency operated as a adjunct to his law practice is not considered a required use that will violate the statute. The only thing of value that may be received from a controlled business arrangement is a return on the ownership interest or franchise relationship.

This led to questions which have been answered, to some extent, by amendment to the regulations promulgated in 1992: A referring entity may compensate its employees for referral of business by the employee to the affiliate. The affiliate may not compensate the employee directly, nor may it reimburse the referring company for the amount of the incentive paid to the employee. The referring entity may, however, reap its reward through a return on the ownership interest in the affiliate. The regulation authorizing the compensation of an employee of the related entity has come under some criticism, due to the inherent conflict of interest of the employee. Proposed amendments to the regulations published in the Federal Register on July 21, 1994 attempt to minimize this by providing that the incentives may only be in the form of bonuses and compensation to managerial employees, may not be calculated based upon the number of referrals, and may only be paid to employees who do not routinely have direct contact with the customer. The terms "employee" and "managerial employee" specifically exclude real estate agents or other independent contractors, in the proposed rule.

May a group of affiliated companies package their services and provide an overall discount for the package? Under the 1992 regulations, the offering of a package or combination of settlement services or the offering of discounts or rebates to consumers with the purchase of multiple settlement services, does not constitute a required use. Any package or discount must be optional to the purchaser. The discount must be a true discount below the prices that are otherwise generally available and must not be made up by higher costs elsewhere in the settlement process.

Some controversy surrounds the issue of whether the regulations concerning controlled business preempt state law. The American Land Title Association requested that HUD support legislative revision of RESPA to include limits, similar to those found under state statutes, on the amount of business done by a title agent from affiliated sources. In the comment section to the July 21, 1994 proposed regulations, HUD declines to do so, and further declines to promulgate any criteria for determining whether a state law provides "more protection to consumers and/or competition," which is the standard for determining whether state law, rather than RESPA, will apply to a controlled business arrangement.

Since the regulation went into effect, there has been some interest shown by real estate brokerages seeking to affiliate with title agencies and other settlement service companies. Some of the leadership in the real estate industry feels that there will be increased pressure to establish such affiliations in order to provide "one stop shopping" for the settlement service consumer.

The regulations touch upon several aspects of a residential real estate transaction not covered by this article, including content of the HUD-1 Form and computer loan origination services. Legal staff members at HUD have indicated that its applicability may go beyond what one would ordinarily assume, including financing of unit weeks in timeshare projects.

Almost all title insurance underwriters are issuing bulletins and providing seminars discussing Regulation X and have expressed an interest in any questions or issues that may be raised, to the extent that the new regulations may affect the title insurance industry. The regulations impact attorneys, realtors, title agents and insurers on the issues of liability and competitiveness and will probably change the way that settlements are conducted in the coming years. It is important to stay informed not only of the changes to RESPA and the regulations interpreting it, but to stay informed on the issues being considered, so that you can participate in deciding what those changes will be.

WHY THE EAGLE POLICY - ALTA 98

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Thu, 01 Feb 2007 15:14:14 -0600

Eagle Policy Coverage

Here is what's exciting....

POST-POLICY PROTECTION FOR COVERED RISKS

Several important new risks are now covered on a post-policy basis. This means that some defects in title that did not exist at the time the insured purchased the property, but are now asserted by others, are covered.

These post-policy covered risks involve cases in which someone other than the homeowner claims to own an interest in the title; or has rights affecting the title arising out of leases, contracts or options; or claims to have rights affecting the title arising out of forgery or impersonation; or has an easement on the land; or has a right to limit the insured's use of the land; or in which the title is defective.

The following are several examples of this post-policy protection:

POST-POLICY FORGERY

The homeowner is covered when someone forges the insured's signature to a deed or mortgage in an effort to sell or impose a lien or restriction on their home.

POST-POLICY ENCROACHMENT

This coverage protects the homeowner if, after his or her purchase, someone else builds a structure (excluding boundary walls and fences) which encroaches on the homeowner's land.

POST-POLICY CLOUD ON TITLE

Coverage is provided when the homeowner's title is clouded because someone recorded in the land records a document containing the legal description of the homeowner's land, whether by mistake or in a specific effort to cause the insured harm, and the homeowner is prevented from completing a loan or sale transaction on their home.

POST-POLICY ADVERSE POSSESSION

Coverage is extended to a homeowner when someone claims to have the insured's title arising out of someone else's continued use and occupancy.

POST-POLICY EASEMENT BY PRESCRIPTION

The homeowner is covered in the event another party claims to have the right to use a part of the insured's land as an easement because of continuous use over time.

Previously, these types of risks were only covered if they existed on the policy date, although our original EAGLE Policy included coverage on a post-policy basis for forgery and encroachments onto the land.

Other exciting coverages include ...

EXPANDED ACCESS

The new EAGLE Policy expands access coverage to include, for the first time, actual vehicular and pedestrian access to and from the land, based upon a legal right.
The access coverage traditionally provided by title insurance was tied to a legal right of access and did not include actual access. The new EAGLE Policy affords the type of access protection most needed by homeowners.

BUILDING PERMIT AND ZONING VIOLATION

Coverage is extended to a homeowner who is forced to remove or correct existing structures that were built without a building permit or that violate an existing zoning law or zoning regulation. The zoning coverage even extends to boundary walls and fences!

The original EAGLE Policy coverage in this area was tied to forced removal, not forced remediation. Because we have found it far more likely that a homeowner would be forced to correct a building permit or zoning violation than to actually remove the structure, the coverage has been expanded in the new EAGLE Policy to specifically include forced remediation. The homeowner is covered for losses up to $25,000 (after a small deductible) for building permit violations and forced remediation of zoning violations, and up to the full Policy Amount for forced removal of structures due to zoning violations.

SUBDIVISION VIOLATION

The homeowner is covered where subdivision laws have been violated prior to the homeowner's purchase and, as a result, the homeowner is unable to obtain a building permit, is forced to correct or remove the violation, or is unable to complete a sale or loan transaction. The new EAGLE Policy continues to provide homeowners up to $10,000 (after a small deductible) for protection against risk - a benefit which homeowners who obtained our original EAGLE Policy have found most valuable.

ENCROACHMENT BY BOUNDARY WALLS AND FENCES

The homeowner is covered if he or she is forced to remove a boundary wall or fence because it encroaches onto a neighbor's land, onto an easement or over a building set-back line.

Previous policies excluded boundary walls and fences from this type of coverage. We have found that the encroachment of boundary walls and fences onto neighboring land is far more likely to occur than the encroachment of other structures and, therefore, have determined to provide the homeowner protection of up to $5,000 (after a small deductible) for these types of encroachments.

RESTRICTIVE COVENANT VIOLATIONS

Coverage is provided for violations of restrictive covenants occurring before the homeowner acquired the land, if the homeowner is forced to correct or remove the violation or if the homeowner's title is lost or taken because of the violation. Examples of such violations would include the following, if not permitted by the applicable restrictions: (1) additional buildings; (2) types of roof material; (3) color of home; (4) number of stories; and (5) types of fencing. While these coverages have been available by endorsement for some time, they were never provided automatically until our original EAGLE Policy. The new EAGLE Policy expands the coverage in this area from that provided in the original EAGLE Policy by eliminating the deductible that applied to a portion of this coverage.

How To Order An Eagle Policy

Call your local First American representative to see how simple it is to obtain EAGLE Protection, and how valuable it can be.

The EAGLE Policy. . .

peace of mind for homeowners and the professionals who serve them.

WHY YOU WANT TITLE INSURANCE - STORY - NEST EGG

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Thu, 01 Feb 2007 12:43:59 -0600

Nest Egg

Marlow Heights, MD--When she bought this home, Ethel made a large down payment to keep her monthly mortgage payments low. It was more than a home, it was also her nest egg. So Ethel was understandably shocked one day, four years after she moved in, to be served with a lawsuit seeking to give the property back to its previous owner, the seller to Ethel. It seemed the seller, Lola, had been represented in the sale by her son, Carl, who acted under a Power of Attorney. Out of the Past--Four years after she moved in, Ethel's ownership was challenged.

But now Carl was deceased and Lola's remaining son, Larry, had just learned the home was sold. When Lola told Larry she had no recollection of the sale, he filed suit on Lola's behalf.

In the lawsuit, Larry claimed that when the Power of Attorney was signed Lola was under 24-hour nursing care at a convalescent home in Florida. While Lola recalled having signed "papers" at the insistence of Carl and his wife, Evi, she didn't know what the papers were about.

She said Carl had placed a book over the papers, so all she could see was the signature line. Evi was firm, saying "Mrs. C., if you don't sign we can't take care of you."

Worse yet, the lawsuit claimed that at the time of this signing Lola was mentally incompetent. If proven, such a claim could void the Power of Attorney and invalidate Ethel's deed.

Lola's attending nurse, Rose, had been present at the signing. Rose recalled that Lola was under pain medication and acted confused. The next day, Lola complained that no one ever came to see her, and had to be reminded of Carl and Evi's visit the night before. Rose also remembered the papers being covered by a book.

First American hired an attorney to defend Ethel's title. The attorney learned that the sale proceeds check, payable to Lola for $92,840, had been negotiated by Carl and Evi using the Power of Attorney.

It all came down to this: The property was all Lola had, it was her nest egg. Now it was gone, Carl was dead, Evi was not in touch, and neither Larry nor Lola knew where the money went.

After months in litigation, Larry stopped communicating with his lawyer and the lawyer withdrew from the case. The suit was dismissed. First American paid legal expenses of $24,236 on behalf of its insured, Ethel.

MORAL: Even a half-baked legal challenge can cause a homeowner with limited resources to lose their property, and this was not half-baked.

A document signed by one who is mentally incompetent may be void, having no legal effect. Likewise, a document signed by one who has been deceived about its contents, through no fault of the victim or through excusable neglect, may be voided through court action.

These hidden risks are among those covered by title insurance.

WHY YOU WANT TITLE INSURANCE - STORY - NEST EGG

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Thu, 01 Feb 2007 12:36:17 -0600

Nest Egg

But now Carl was deceased and Lola's remaining son, Larry, had just learned the home was sold. When Lola told Larry she had no recollection of the sale, he filed suit on Lola's behalf.

She said Carl had placed a book over the papers, so all she could see was the signature line. Evi was firm, saying "Mrs. C., if you don't sign we can't take care of you."

Worse yet, the lawsuit claimed that at the time of this signing Lola was mentally incompetent. If proven, such a claim could void the Power of Attorney and invalidate Ethel's deed.

It all came down to this: The property was all Lola had, it was her nest egg. Now it was gone, Carl was dead, Evi was not in touch, and neither Larry nor Lola knew where the money went.

MORAL: Even a half-baked legal challenge can cause a homeowner with limited resources to lose their property, and this was not half-baked.

These hidden risks are among those covered by title insurance.

CLAIM STORY - DEAR JOHN

Keith Jarrett (LandAmerica/Lawyers Title Co.) — Thu, 01 Feb 2007 12:26:55 -0600

Dear John

Dunlap, IL--Returning home from work one day John found this note tacked to the door: "John, sold the place. I filed for divorce. The marriage is over. You have 30 days to get out! Good Bye, Jan." He didn't know where she'd gone, and after a few weeks he forgot about the note. Then one day while napping on the couch John was awakened by voices. There in his living room were Mr. & Mrs. Schaer, who claimed to be new owners of his home. Self Help--She wanted a divorce, without the hassle.

When John objected to them moving in, the Schaers retreated to make a claim under their title policy. First American hired an attorney to represent them.

It turned out that Jan had sold the property for $30,000, and forged John's signature to a deed. Then she moved to a mobilehome park in nearby Peoria.

Since the Schaers' deed was hopelessly defective, First American paid them the policy amount of $30,000. Then the Company made claims for reimbursement against Jan and the hapless notary on the forged signature. This turned out to be an expensive quest.

Ultimately, John agreed to pay for Jan's half interest in the property by giving a note and mortgage to First American (as successor to Jan). Then John filed a chapter 13 bankruptcy and things got complicated again.

Although the Company recovered most of the $30,000 it had paid, unrecoverable legal expenses totaled more than $50,000.

MORAL: After a split-up, exes sometimes leave title to property that was once jointly owned now open to question. Of course, Janis overdid it--and she faced criminal charges. Title insurance is great protection against becoming entangled in the personal problems of others.