A recent local news item provides the perfect illustration of why the proper evidencing and reporting of title to real estate interests is so important to our fundamental rights as well as to the regional and national economy.

It seems rather obvious that if you don't make your payments, the lender will foreclose and you will be evicted from your home.  But, what if the owner doesn't live there?  What about the landlords that have failed to meet their obligations, and their renters who have paid the rent?  The system seems to be breaking down when innocent people, who have met their financial obligations, are thrown out on the street. 

Sheriff Thomas Dart, in Cook County, has had an attack of conscience and he has announced that he just won't evict innocent people from their homes anymore.  He is suspending foreclosure evictions in Cook County, which includes the city of Chicago.  He could find himself locked up in his own jail for ignoring eviction orders, but this wouldn't be the first time a sheriff spent time behind bars for refusing to evict people from their homes.  Are you curious to know what happened to the last lawman who took a similar stand?

In most parts of the country, true abstracting hasn't been done in a long time.  I have never done a true abstract.  Though we often refer to a title search as an abstract today, it is not quite the same thing. A true abstract of title reflects a complete history of the parcel searched.  It would show all of the conveyances of any interest in the land going all the way back to the original land grant.  Every mortgage, every release, every court case - both closed and open, every encumbrance and restriction whether or not they still impact the title.  The examiner would then decide what information was relevant.

Today, the "abstractor" does a hybrid of abstracting and examining.  We only show those items that still affect the property.  We make decisions during the course of the search and decide not to show old mortgages that have been released, eliminating the need to abstract them.  We also determine whether certain liens are out by time, extinguished through foreclosure, released, etc.  These decisions were previously made by the examiner, or an attorney, after the abstractor completed the abstract. 

The way we do things today could be seen as much more efficient - why waste time abstracting documents that we know no longer impact the status of title?  However, there are some problems with "title searching" as it exists today.  This could be the reason why some clients are starting to request a quasi-abstract of title instead of the customary title search.  Will this be a new trend? 

Leave it to the geniuses in Congress-- they already want to undo the smartest move they've made all year.

As part of The Housing and Economic Recovery Act of 2008, signed into law by President Bush in June, Congress correctly banned all forms of seller-financed down payment assistance for FHA-insured mortgages:

SEC. 2113. CASH INVESTMENT REQUIREMENT AND PROHIBITION OF SELLER-FUNDED DOWN PAYMENT ASSISTANCE

 

...

(A) IN GENERAL- A mortgage insured under this section shall be executed by a mortgagor who shall have paid, in cash or its equivalent, on account of the property an amount equal to not less than 3.5 percent of the appraised value of the property or such larger amount as the Secretary may determine.
 
...
 
(C) PROHIBITED SOURCES- In no case shall the funds required by subparagraph (A) consist, in whole or in part, of funds provided by any of the following parties before, during, or after closing of the property sale:
(i) The seller or any other person or entity that financially benefits from the transaction.
(ii) Any third party or entity that is reimbursed, directly or indirectly, by any of the parties described in clause (i).
 

This part of the law went into effect October 1st, discontinuing the use of these sham down payments that have already cost taxpayers $4.6 billion in unexpected losses due to excess defaults on FHA-insured mortgages this year alone, according to HUD Secretary Brian Montgomery.

But to the surprise of approximately nobody, there is already a movement underway in Congress to abolish this common-sense return to a true 3% down payment requirement for FHA-insured loans.  Representative Al Green (not the R&B singer, but the Democrat from Texas whose largest campaign donor is the National Association of Realtors) has introduced a bill that would once again make seller-financed down payment assistance legal for FHA loans.  In a legislative environment where Democrats and Republicans can't agree on the color of the sky, no less than 26 sponsors from both sides of the aisle are eager for the taxpayers to once again back mortgages with fake down payments.

Mandamus: A command by order or writ issuing from a court of law of competent jurisdiction, in the name of the state or sovereign, directed to some inferior court, tribunal, or board, or to some corporation or person, requiring the performance of a particular duty therein specified, which duty results from the official station of the party to whom the writ is directed, or from operation of law.  (Ballentine's Law Dictionary)

The Ohio Association of Independent Title Agents ("OAITA") has filed a Petition For Writ Of Mandamus with the Ohio Supreme Court asking the court to force the Ohio Department of Insurance ("ODI") to enforce laws that it has been ignoring.  Quite simply stated, the OAITA believes that the existing laws prohibit affiliated business arrangements ("AfBA") in Ohio, but the ODI has been lax in its enforcement and it has allowed many sham operations to become licensed and receive a share of title insurance premiums through a split of "profits."

In a press release, the OAITA stated:

The suit is the first of its kind in the United States and is an important step towards reducing the overreaching power and influence a bank, realtor and mortgage broker has over a homeowner’s real estate transaction and, in particular, a homeowner’s statutorily protected choice of title insurance provider.

This is a novel suit and brilliant in its simplicity.  There have been laws on the books for a long time prohibiting banks, Realtors and mortgage brokers from engaging in the title insurance business.  But, powerful lobby groups have been trying to find creative ways around them for years.  The Department of Housing and Urban Development ("HUD") carved out exceptions to the Real Estate Settlement Procedures Act ("RESPA") to allow for AfBA's, effectively eviscerating the anti-kickback provisions of Section 8. Everyone seems to have forgotten about the state laws... until now.  The OAITA has put this issue center-stage in Ohio and I'm sure it will draw national interest, especially from the lobby groups that have been successful in obtaining a share of the title revenue for doing nothing more than directing their customers to purchase their title insurance from an affiliated title agency.

We recently did a title search for a client and it revealed a state tax lien that held things up for weeks.  The lien was not released, but the client insisted that they spoke with a state official who assured them that they sent a release of the lien to the county.  We checked again - still no release of record.  The client, again, spoke with the state office that filed the lien and was told that it was released.  This time we scoured the courthouse.  We asked everyone that could have possibly seen it.  Finally, we found it... but it was not recorded.

In my previous entry, I focused on the flawed GSE reform bill which passed the House in 2005. 

As it turns out, there was a much stronger bill coming out of the Senate Banking Committee at about the same time.  That bill, authored by Chuck Hagel (R-Nebraska), would have addressed many of the problems which eventually contributed to the downfall of Fannie Mae and Freddie Mac.

I wrote recently about Mike Pryor, the president-elect of ALTA. (See I like Mike).  Mike is a traditional title guy that really understands the importance of providing a quality product and service to our customers.  He wants to communicate with title agents and he wants to include more than just current ALTA members.  To that end, he has established a Website, www.MikePryor.net, and he plans to send out a periodic email chronicling his experiences as the president of ALTA and to share his thoughts along the way.

The organizational discussions at the inaugural meeting of the Ohio Association of Independent Title Agents ("OAITA") reminded me of the early days of the National Association of Land Title Examiners and Abstractors ("NALTEA").  Some of the most emotional debates in 2004 were over who should be allowed to join.  The main issue for NALTEA was whether to include employee abstractors, or just independent abstractors, and whether the vendor management companies, title agencies and underwriters that employ abstractors should be allowed to become members.

For the OAITA, the membership issue focused around whether to allow independent abstractors - partly because I opened the "can-of-worms."  Prior to attending, I had been asked if abstractors could join.  So, I posed the question at the meeting.  All I can say at this time, is that the issue remains unresolved.  That isn't a bad thing - it is just evidence that the OAITA still has some growing pains to work through. 

If we try to imagine who benefits by the Fannie and Freddie bailout by the Federal Government we could include Wall Street Investors, homeowners, mortgage lenders, foreign investors, politicians, etc.  In the few short days since Sunday's announcement we have seen Wall Street soar, mortgage rates tumble, and politicians seizing the opportunity to curry political favor with voters.  The only people who seem to lose, and lose big, are the shareholders who have seen their investments in the GSEs wiped out.  But, what about the taxpayers who just "volunteered" to guarantee more than $5 trillion worth of outstanding mortgages?  This seems to be a "raw deal" for taxpayers - and doesn't that include just about everyone?