TitleSearchBlog.com

The future of title searching and abstracting

Dave Pelligrinelli — Tue, 05 Oct 2010 13:52:31 EST

The conspicuous headlines for the past few weeks have been about the mortgage assginment crisis. For industry professionals who have been paying attention, this is old news, since it has been talked about for years. As far back as 6 months ago you read here that the issue was "blowing up."

Professional title searchers should not be distracted by the noise in the mortgage industry. Over the next few years, the abstracting industry will change forever. Remember outsourcing and offshoring? It is back with a vengeance. First American is still increasing its offshore title processing capacity, and Fidelity announced today that it currently has 800 title searchers in India, with plans to increase that to 1800 next year. That is one of the largest groups of associated abstractors in the world, and it is not going anywhere.

In The Economic Times (India) article, Fidelity's senior vice president provided a preview to the direction of their future development. He said the company has now graduated from doing indexing and data entry to detailed property title searches and other value added transactions like title policy underwriting and engineering, database management, mortgage and tax services. The firm is developing software to process title insurance policies in India for the US market. The software development team alone will grow from 25 to 100 people within 6 months. Professional title abstractors should know that these offshore operations aren't just thin-search document fetchers anymore.

Certainly keep an eye on developments in the mortgage assignment gap controversy, but be especially vigilant as to how all of these issues will affect the future of title abstracting. The upcoming 2010 NALTEA Conference in Dallas TX will address the critical issues to be faced by professional title abstractors in the coming years. Adapting to new business environments and developing business in non-traditional markets such as mineral rights searches, cell towers, commercial properties, and pipeline easements will be presented. Experts from within the country records system will offer their insight into the future of public records. Informative training and roundtable discussions are scheduled for NALTEA members in attendance to draw knowledge and resources from. Industry leaders from the vendor manager side of the business will advise attendees on building relationships with lenders and title companies.

With all that is occurring in the title industry, it is not an exaggeration to say that this might be the most important event the independent abstractor could attend.

Dave Pelligrinelli

TitleSearchBlog.com

Mortgage assignment gap controversy is blowing up

Dave Pelligrinelli — Wed, 07 Apr 2010 14:08:01 EST

In February 2009, I first began writing about the looming issue of mortgage assignment gaps as a title defect, particularly on foreclosed properties. I have updated the subject a few times since then as there were developments. In the United States, the open, public and discoverable nature of title records is a critical feature of secure property ownership. Recently, the issue has hit the mainstream. Attorneys and lenders are in crisis mode as even Realtors are now aware of the issue, and scrambling to figure out how to disclose the risk to foreclosure buyers.

One broker sees "an explosion of litigation in this area" as the serious title defects are discovered. From the article:

"In the case of maintaining a public chain of title to real property, it was thought to be essential and generally required by the law. (Lenders) stopped recording the assignments in public and track them instead in an electronic data base that the major lenders would operate through a cooperative entity. Say hello to Mortgage Electronic Registration Systems, affectionately known as MERS. Not only did it save them a fortune in county fees and manpower, it turned out to be a cash cow. Never mind that the cost of maintaining a county recording system is paid, in part, by the recording revenue. They still have to maintain the apparatus, but now they aren't receiving the revenue intended to maintain the system. Many homes have been unlawfully foreclosed by entities not entitled to anything. The former owners of these homes have rights that will need to be addressed. Many people bought these homes and have potential future claims. If there is a cloud on title, the new owner is at risk of being unable to sell or encumber the property. If the foreclosure were unlawful, the borrower is entitled to their property.

The Bellistri v Ocwen case in Missouri, and the US Bank v Ibanez case in Massachusetts are the most often quoted examples of this potential issue. In these cases lenders foreclosure rights were challenged because of undocumented and unrecorded assignments of the notes underlying the mortgage. There is an alternate point of view. In Connecticut, the appellate court ruled in favor of a lender and upheld the validity of an unrecorded assignment, even a blank assignment. The premise was that a mortgage note is a bearer instrument.

"General Statutes § 49-17[ 6 ] permits the holder of a negotiable instrument that is secured by a mortgage to foreclose on the mortgage even when the mortgage has not yet been assigned to him.The "holder" is the person or entity in possession of the instrument if the instrument is payable to bearer. General Statutes § 42a-1-201 (b) (21) (A). When an instrument is endorsed in blank, it "becomes payable to bearer and may be negotiated by transfer of possession alone . . . ." General Statutes § 42a-32-05 (b).As stated previously, the subject promissory note was endorsed in blank by BNC Mortgage, Inc., and, therefore, is payable to bearer. The plaintiff, by way of its possession of an instrument payable to bearer, is a valid holder of the instrument and, therefore, is entitled to enforce it."

This contradicts the language used by the court in the Massachusetts ruling: ""The blank mortgage assignments they possessed transferred nothing.in Massachusetts, a mortgage is a conveyance of land. Nothing is conveyed unless and until it is validly conveyed. The various agreements between the securitization entities stating that each had a right to an assignment of the mortgage are not themselves an assignment and they are certainly not in recordable form." Part of the what makes the cases different is the venue. Each state has different statutory requirements for the validity security instruments. Regardless, foreclosure defense is latching on to the potential weaknesses of unrecorded assignments as a strategy. The success of these claims is a combination of the specific strategy used by the attorney, and the laws in the state where the case is located. Some lenders attempt to correct this potential defect by creating assignments after the fact. Where it is done correctly, it sometimes works. When the execution is sloppy, it borders on fraud.

These Specially-Made Assignments have created havoc in the courts. In many cases, the Specially-made Assignments are dated AFTER the foreclosure action has been initiated, making it appear that the Trust somehow magically knew prior to the assignment that it would acquire the defaulting property several months after the foreclosure action was initiated. Repeatedly, courts have asked Trustees to explain why they were acquiring nonperforming loans and whether such acquisition was a violation of the trustee's fiduciary duty to the Trust. In lieu of valid Assignments, Trusts continue to rely on Assignments specially made by their own law firms and mortgage default service companies. Eventually, these fraudulent Assignments are being discovered by Courts, and the foreclosing trusts required to prove that they own the Mortgage and Note in the foreclosure action without reliance on Assignments that misrepresent the date of the actual transfer to the Trust the authority of the signers of the bankrupt original lenders. The problem is complicated by the bankruptcy of the major loan originators, including Option One Mortgage, and Countrywide Home Loans. When these big mortgage companies filed for bankruptcy, they did not disclose the mortgages already sold to the trusts as assets, because the transfers occurred months and years prior to the bankruptcy filing. Years later, when the Assignments were required for foreclosures, a bankruptcy court's permission was needed to Assign billions of dollars in mortgages. Most likely in fear that a Bankruptcy Judge would not rubber stamp such a request, no such permission has ever been sought.

If that isn't enough to worry about, some mortgage servicers were in a position to benefit from increased default rates, which they had control over.

The financial intermediary who had no actual loss also bought credit default swaps for themselves at multiple times the loan amount. There is an inherent conflict of interest in this scenario. The financial intermediaries, who actually have no risk, stand to gain enormously by collecting on the default swaps. As if debt securitization and betting on failure weren't lucrative enough, part of the plan included gaining every possible means of getting more of the borrower's money in fees. But even more important, by controlling servicing, they have the ability to actually control the exact number of defaults within specific pools by simply pushing people into default. The terms of the default swaps were dictated by the financial intermediaries. However, if they could control the performance of the underlying loans, they could manipulate the defaults in the pool. The best way to do that is to service the loan. They comb credit reports looking for changes in the patterns of payments. If they see more use of credit cards, late payments, grocery charges, types of stores and purchases; there antennas go up and they smell a victim in the making. If they suspect you might be running low on cash, they know that you can't put up much of a fight, particularly in a non judicial foreclosure state.

Attorneys I speak with are overwhelmed with cases, on both sides of the argument. Foreclosure defense firms are taking on more clients than they can handle. At the same time, firms representing lenders are inundated with foreclosure cases which are no longer a rubber stamp to completion. I receive a dozen calls per day from attorneys, lenders, and investors looking for documentation on these types of issues. If you are involved with this process, let me know if you have anything to add to this subject.

Dave Pelligrinelli
TitleSearchBlog.com
daveafx@gmail.com
561-228-1397

Is it a valid mortgage or not?

Dave Pelligrinelli — Sat, 06 Feb 2010 18:45:25 EST

Property title claims, and the process of title abstracting are based on the mechanism of "notice." Ownership, mortgage interest, and claim of lien can only attach to a property when there is notice to a person. This notice can take the form of actual notice and constructive notice. Properly executed documents are the most common form of constructive notice, under the premise that a document recorded in the land records is available for any interested party to make them self aware of.

Generally, a party need not investigate all documents of every party. Most standards place the threshold of constructive notice of claims made for or against those apparently within the chain of title. In other words, a person is not bound to search records for those not in title. However, should a person discover actual knowledge of a potential claim to a third party outside the chain of title parties, they would be required to investigate further.

Constructive notice has its loopholes in the law. In the following three actual cases, consider whether as a professional abstractor you would have listed these mortgages on a title abstract, either directly or as a footnote.

Case 1. In the first case, a homeowner had refinanced a mortgage several times over several years. The last time, the mortgage was inadvertently not recorded by the lender. A short time later, the borrower filed bankruptcy. The schedule of assets and liabilities for the bankruptcy listed the mortgage, although it was still unrecorded in the land records.

The bankruptcy trustee moved to disclaim this mortgage as a liability in order to release more net assets to other creditors. The mortgage lender claimed that the bankruptcy petition itself represented notice of the mortgage. The trial court and appeals courts both agreed with the trustee, that the unrecorded mortgage was invalid against the bankruptcy assets. In a case of tragic irony, the bankruptcy filing was an involuntary action against the borrower, by one of its creditors. Guess which one? The answer and more details on the case are here.

Regardless, if you were an abstractor running a search for the bankruptcy, would you list the mortgage on the search since you had seen it on the BK schedule, or leave it off because it was an unrecorded instrument? This case also demonstrates the duty of a bankruptcy trustee to vigorously defend against claims to the assets, and how this "strong-arm trustee" philosophy is generally supported by the courts.

Case 2. A property owner is in the process of constructing a home on a parcel of land, already financed by a private mortgage from the seller. This mortgage was not recorded, unintentionally. This project eventually needs more financing, so the owners apply for a mortgage from Gerrity Financial. The borrower forged a purchase agreement as part of the application process, but did state an amount of "downpayment," considerably less than the property value.

Of course, the Gerrity loan goes into default, and the original seller who provided financing is precluded from collecting proceeds since the instrument was not recorded in priority. This party appeals, under the premise that "Gerrity's knowledge of the reference in the purchase and sale agreement to a mortgage, standing alone, was sufficient to establish the priority of their mortgage."

Here's another curve ball: the law firm which performed the title search for the new lender, Gerrity, had notarized the original purchase money mortgage. So should the purchase money mortgage have priority over the new mortgage?

The court said no: "Gerrity had no obligation to go beyond the registry record and make inquiry of the Moores about any reference in the purchase and sale agreement. Consequently, Gerrity cannot be charged with "actual notice" of the terms of the unrecorded mortgage referred to in the altered purchase and sale agreement. In notarizing Delaney's signature, the attorney did not read the mortgage above the signature line. That being so, his firm had no knowledge about the unrecorded mortgage that could be imputed to Gerrity."

Case 3: In this case, a mortgage was actually recorded in the land records. However, the signature on the document was not properly notarized.

Of course, the property was foreclosed, and subsequent lenders disputed the validity of the mortgage based on its being improperly executed. Should an abstractor show this mortgage on a search? (It should be noted that this case was in Ohio, which is more of a "pure race notice" state than others may be.)

Surprisingly, the appeals court, held that the recording of a defectively executed mortgage does not establish lien priority over subsequently recorded properly executed mortgages, even though the recorded document represents actual rather than constructive notice. It brings up some interesting considerations.

In a pure race state, an unrecorded mortgage is ineffective against any subsequent rights, whether the party had notice or not. Notice is irrelevant. The mortgage was signed by the borrower, notarized, and presented to the records office. There was no fraud or forgery. In practical terms, the parties intended for the property claim to attach, and there is a public record of it. However, a technicality invalidates it, and even trumps actual notice.

These outcomes cases may be exclusive to the time, location and circumstances of the events, but they are interesting for consideration. If nothing else, they demonstrate the importance of not making assumptions with searching title records, and thinking of possible and unusual results. Each case also has additional details that are worth reading.

Your comments and opinions are requested.

Dave Pelligrinelli

Title errors from the housing bubble are starting to emerge

Dave Pelligrinelli — Mon, 25 Jan 2010 11:58:03 EST

The title errors from the housing bubble starting to become evident. In two cases this month, the issue of broken chains of mortgage assignments are creating questionable ownership rights. The routine practice of securitized loan instruments created a number of methods of transferring mortgagee interests, some without specific recording. Nominee trustees and mechanisms such as the Mortgage Electronic Registration System (MERS) were intended to streamline the process. Instead, these methods created confusion and ambiguity. It is becoming more common that a foreclosing lender realizes that their interests is not clear in the land records, and rushes to record an assignment to them self at the last minute. In some cases it comes too late.

Just this week, in Massachusetts, a judge invalidated a foreclosure because the assignment was recorded after the foreclosure was commenced. Any reasonably informed title abstractor would know this would be a problem, but some attorney went ahead with it anyway. "First in time, first in right" is one of the basic premises of records priority in searching.

From the article:

“In transferring that interest (the mortgage payments), the bank is responsible to assign its interest at the Registry of Deeds by recording an “assignment.” However, due to the complexity of secondary-mortgage financing, recording an assignment becomes daunting to an investor. As a matter of fact, these notes/mortgages are packaged and sold on Wall Street, thus complicating the problem.”

“Massachusetts Land Court Judge Keith Long invalidated a foreclosure that took place in Springfield. In his decision, he reasoned that since an assignment was recorded after the foreclosing documentation, the foreclosing attorney did not file the foreclosure correctly, thus creating an invalid foreclosure.”

“In the Springfield case, the foreclosing attorney started the foreclosure proceedings without recording the assignment(s). In technical terms, the foreclosure that took place was on behalf of the wrong bank (investor) because the assignments were not recorded at the Registry. As a matter of fact, the foreclosing attorney recorded the assignments after the property was foreclosed on. In his ruling, the judge commented that “the problem the lenders face is entirely of their own making …

This problem is not exclusive to the single family residential market. A multi-million dollar property in Manhattan is tied up in litigation over the same process.

“Defendant Adrian George, appearing pro se, defaulted on a mortgage payment for the building located at 34 West 128th Street in Manhattan. The mortgage was issued by Credit Suisse First Boston Financial Corporation in 2005 (Notice of Motion for Reargument, Exhibit B). At the time that defendant George defaulted on the mortgage, the loan was held by Mortgage Electronic Registration Systems, Inc., as nominee for Credit Suisse First Boston Financial Corporation, its successors and assigns. By decision dated January 6, 2009, Judge Carol Edmead denied both plaintiff’s motion for summary judgment, and defendant George’s cross-motion. The denial of plaintiff’s motion was predicated on a claimed failure to address Adrian George’s claim that plaintiff no longer holds the note and mortgage for the subject property.
“The papers submitted in this action indicate that plaintiff was assigned the mortgage at issue on February 27, 2008, and that the assignment of the mortgage was recorded on March 7, 2008. The instant action, however, was commenced on February 21, 2008, roughly a week before the assignment took place and more than two weeks prior to its recording. Although plaintiff claims that it was always the holder of the subject mortgage, there are no documents annexed to any of the current or prior papers submitted in this action substantiating this claim. In the absence of this type of documentation, plaintiff, contrary to its contentions, fails to demonstrate an entitlement to a judgment of foreclosure as a matter of law because it appears that they did not hold the mortgage and note when they commenced this action on February 21, 2008.”

I expect that this pattern of out-of-order recordings will plague the clear determination of ownership claims for years, and expert abstractors will be needed to untangle the chain of assignments, and even property transfers.

Real estate title issues in the next decade

Dave Pelligrinelli — Thu, 31 Dec 2009 11:33:17 EST

The past decade, from 2000 to 2009, has seen the most developments, and activity in the real estate industry; and by extension the title industry. After a slow escalation in volume which started in 1999, the first few years of the decade exploded into a frenzy of activity for those who search, examine, insure, or process title work. Only a handful of years later this trend reversed course, reverting back to the capacity of the 90's, and lower.

It wasn't just the volume that changed during that time. The nature of the activity, and the structure of the transactions taking place did not resemble the landscape of the past decades, even the past century. The history of the '00 decade will affect real estate records, title searching, and the status of properties forever. For 50 years or more, those involved in the business of dealing with property title will be cursing this decade for its complicating of title records.

To see where these complications will lie, let's go back a few decades to observe the changes to the nature of residential real estate ownership and transfer. In the 1950's and 1960's, ownership of single family homes became commonplace for the first time, due to the advent of planned subdivisions, returning GI's starting families, and overall prosperity after WW2. Title issues were typically simple: guy buys house, maybe financed through builder or local bank. Guy keeps house for 25 years+. Abstracting a clear picture of title history was simple because of the uncomplicated nature of the transactions.

The 1970's showed the first glimpse of some changes to American demographics. People began to move more frequently, and own their properties differently. Several government programs began to influence the real estate market in the 1970's. Incentive programs for ownership, as well as the government's involvement in the secondary mortgage market began to kick in during the 1970's, with the expansion of Fannie Mae and then Ginnie Mae. The result was the first significant change to the pace and type of activity in real estate records recording.

In the 1980's, Americans began to be more creative with their ownership and financing of real estate. Lower downpayments and PMI became more popular, along with 2nd mortgages. It was the beginning of the idea that residential real estate could be used as a business venture. Selling a prior residence to move up, or to a different location became less risky, and even profitable. The "yuppie" years in the mid 80's also fueled this trend.

In the 1990's, a floodgate opened up, of mechanisms to turn loose fast transactions of real estate. Automated loan underwriting, a liquid secondary mortgage market, and rapidly appreciating prices created an environment very appetizing to consumers. During the early part of the decade, losses from the stock market, and higher interest rates kept the stampede at bay until in the later part of the decade everything opened up.

By 2000, the phenomenon of flipping houses, tapping home equity lines, and "investing" in real estate was mainstream. The absurd proliferation of "Flip This House" shows on TV made the less-silly real estate infomercials from the 80's look tame by comparison. (Remember Tom Vu and Dave Del Dotto?) A frenzied rush into real estate, by individuals of many backgrounds outside of the industry created a volume of activity never seen before. Besides the sheer volume, the nature of the transactions was different from past decades. The mechanism of MERS and other nominee trustees, along with serial refinancings, second, third, and HELOC mortgages, make the search process, abstracting, and examination of title more complex than looking at a simple purchase and sale from a typical title chain in the 60's or 7o's.

The title business in the next decades will not be for the faint of heart, or inexperienced. Serious abstracting of title records will become the norm. Electronic title searches will be insufficient for genuine interested parties, although "insuring over" will become more accepted. Sorting through the myriad of records in a title chain from this past decade will be complex. MERS nominees, foreclosures, loan modifications, short sales, 2nd, 3rd, HELOCS, MBS's, flipped ownership, straw buyers, will muddy the title waters. Not to mention the sheer volume of recordings, and serious shortfalls in municipal budgets, which can erode the integrity of the title records themselves.

Some questions which may affect title opinions in the future may become more commonplace. If a foreclosure was found to be handled improperly, can a prior borrower claim against the title? If a lender was found to have not completely owned the loan? What if proper notices were not given to the mortgagee? What happens if it is discovered that a lender rejected a government mandated modification improperly? Will case law result in mortgage broker fraud invalidating a lien? In some recent cases, judges have invalidated mortgages when they did not like how the lender handled the foreclosure, in a new form of "judicial activism." A searcher and/or examiner can cancel off a mortgage with this "release", and not show it on an abstract. But should they? What type of asterisk notations will need to go on title reports in the future? We are already seeing conflicts in the order and priority of payoffs on refinancings with multiple prior loans and multiple new loans. This is just a small part of the future problems to be resolved.

The craft of understanding property title is a matter of "I's dotted and T's crossed." In the past 10 years, there were so many more "I's and T's" that the error rate, and amount of ambiguity is bound to be higher. Many in the real estate industry, from brokers to agents to abstractors had less experience in the industry as many new representatives entered the business to fill the demand. At the same time, even seasoned professionals were not used to some of the mechanisms of transactions, since many were new to the era.

Skilled expertise will be necessary to sort out the chaos of the 2000's decade. Even with that, some of the issues will just end up being insured over, or resolved through litigation. The real estate industry will require assistance from title abstractors with extraordinary skills and expertise. While electronic searching will replace the need for amateur records-fetchers, hands-on examination and knowledgeable understanding of documents cannot be replaced when the title history is complex. I expect a two-tier pricing model to become more common for title searching. One price level for "easy" searches, and another for those properties with complex records.

There are lots of those ready to come out of the woodwork.

Dave Pelligrinelli TitleSeachBlog.com daveafx@gmail.com

$600 Million title claim

Dave Pelligrinelli — Tue, 17 Nov 2009 14:46:33 EST

A failed Las Vegas casino project has resulted in hundreds of millions on contractor claims against the title insurer.According to the story, Fidelity National leads a group of insurers in defending the title, and is countersuing associated corporations. The basis for the suit is that the parent corporation should be held liable for the losses of the subsidiary. While the lawyers for Soffer, the parent corporation claim that the Las Vegas venture is a separate entity, the attorneys for Fidelity see it differently.

“These corporate and partnership entities are a fiction created to deceive lenders, title companies and members of the public, and to hide assets and avoid liabilities,” it says in their suit. While corporate entities normally shield principals and other entities from liabilities, this case appears to have factors which could threaten the corporate veil.

The Miami judge in the underlying bankruptcy case learned that the Vegas casino project transferred nearly $5 million to lenders on the eve of filing for bankruptcy protection. “It certainly smacks to me of a fraudulent transfer,” Judge A. Jay Cristol said.

Regardless, it is an interesting case to watch, as it has several important subjects; a large title claim, corporate protection issues, and bankruptcy issues.

Dave Pelligrinelli

TitleSearchBlog.com

Misleading foreclosure records

Dave Pelligrinelli — Mon, 20 Jul 2009 13:25:22 EST

It has been relatively well-known that many municipalities do not consider the sale prices on foreclosures when calculating property values, for the purpose of taxation. The position of assessors in often that these transactions are "distress sales", and do not represent the true nature of an arms-length exchange.

Recently, foreclosures have come to represent a much larger share of the volume of recorded transactions. In some cases, "foreclosure" properties sustain more than half of all sales in a municipality. When this happens, are they still "outlier" numbers, which should be discarded? It is easy to agree that a run-down, damaged property sold at a courthouse-steps auction may not bring a price representative of the true market.

However, the common practice is now that a property is taken back by a lender, reviewed by a property manager, cleaned and repaired, and then marketed through the traditional Realtor/MLS system. I'd like to hear opinions as to whether you think a property sold in this scenario should still be rejected as a market indicator for taxes.

I also just became aware of a procedure in some counties where the sale of a foreclosure property is listed in the "online" records using the historical transaction price of the original foreclosed borrower. Consider this scenario:

Joe Spender buys a property in 2005 for $495,000.
He defaults on the mortgage, and is foreclosed.
The lender sells the property in 2008 to Sally Saver for $292,000.

When the property is researched using the online records, the sale shows up as:

Sally Saver, 9/25/2008, $495,000.

This would be so misleading to potential buyers in the area and other interested parties that you might not believe it could happen. Believe it. According to this Miami Herald article, the buyer even went to the trouble of contacting the records office for clarification. The article describes the event:

"Assuming it was a simple data-entry mistake, she called the county Property Appraiser's Office. It wasn't an error, she was told. Because the sale was a foreclosure, and the Property Appraiser's Office isn't recognizing foreclosure sales, the new sales price wasn't listed and the old, previous price and date remained -- with her name attached to it."

There are several issues for the title professionals to weigh in on here. First, the approach taken by the assessor. Not to be overlooked is how this affects the accuracy of the online records. (In this case the sale record only exists in the assessors records, not in the recording index. ) I'd like to hear opinions from readers, as well as other examples of this you may have seen in your area.

Dave Pelligrinelli

TitleSearchBlog.com

Mechanics liens require local knowledge

Dave Pelligrinelli — Mon, 08 Jun 2009 10:57:46 EST

A few months ago, I wrote a blog post about the problem new home buyers can face with mechanics liens, especially with more builders having financial problems.

There has been some recent news reporting on the subject, but an article written this week points out how the public, and even the press is not completely correct in their understanding of the problem. In t his article from the ABC affiliate in Philadelphia, a homeowner faces the prospect of a lien being filed from an unpaid subcontractor on his home. Pennsylvania's mechanics lien law has a specific provision which invalidates a lien waiver from a contractor if the general contractor has not posted a bond to cover their payment to subs. Contactors have up to 6 months to record a lien, so subsequent homeowners can be affected. Many home buyers would not be aware of the need to verify the existence of a payment bond, to validate the lien waiver.

In PA, second-tier subcontractors can also file mechanics liens, so even if a homeowner is give a stack of waivers from all of the primary subs, a direct vendor to one of these can still pop out of the woodwork.

There are also requirements for the contract for work be filed with the prothonotary office within 10 days of commencement of work or delivery of materials. This recording requirement also stipulates indexing in the name of contractor and owner.

This is just one example of the specific technical knowledge of a single aspect of title searching in one state. The point of this is to show that property rights can be affected by mechanics liens in ways which would not be readily apparent, unless searching is done by an experienced abstractor, with substantial local knowledge. The affects of mechanics liens on properties follow different rules in different states, which is another reason that thin searches, short searches, or online searches are not appropriate in every situation. For example, in Florida, a process exists for a contractor to protect their anticipated rights in advance, by filing a "Notice of Commencement", prior to engaging construction activity. This self-releasing document puts the public on notice that a vendor may be accruing rights to claim against a property if not paid.

What are the unique mechanics lien provisions in your state?

- Dave Pelligrinelli

New twist on deed fraud: duplicate corporation name

Dave Pelligrinelli — Mon, 01 Jun 2009 09:53:58 EST

Over the years I have written several articles about instances of deed fraud. In these cases, a person intending to commit fraud executes a deed transferring a property into their name without the knowledge of the true owner. The most common method used is to find a vacant and un-mortgaged home, and then forge the signature of the current owner on a quit-claim deed. Once this fraudulent deed is recorded, the criminal can sell, mortgage, or rent out the home and pocket the proceeds.

In a recent incident from California, a slightly different variation of the trick was used. In this case, the true owners apparently vested their California property into a corporation which the couple uses to do their real estate business. The company was named “California Housing Association LLC”, although it is domiciled in Nevada. This transaction was executed in 2007.

Fast-forward to 2009, where a person named Raymond Tate allegedly forms a CA corporation with the same name, and then proceeds to sell the property to an apparently innocent third party. The original owners discover this unknown person living in their home, and the scheme is uncovered. The local county sheriff has some trouble figuring out what to do, and it takes some time to backtrack the process. Fortunately, the title insurer states that the new deed out of the CA corp is invalid. It would be easy to determine this if the corporation was not in existence when the property was vested into it in 2007.

With this advice from the title insurer, the sheriffs department arrested Tate and charges him with attaining property by false pretenses, attempting to record a false document, filing a forged document and making a false statement to a notary. The story gets more interesting, Tate goes on to claim that he had the right to sell the house. When contacted by the press, he insisted he believed the property had been vacated and that California records show that the company that owned it did not exist. He said the state gave him the authority to create that company. The person arrested is Raymond Tate III, age 37 of Santa Cruz. Additional researching located a real estate agent named Raymond Tate, with offices in Nevada and California, the two states connected to the story. However, the photo of the real estate agent appears to be of a man older than 37.

As deed fraud continues to be a problem, some states are drafting legislation specifically targeting the crime. A Tennessee bill is working through the legislature largely in part of the efforts of Adbul Zaif of Memphis. His home was stolen using deed fraud and eventually was partially burned, with broken Windows and used syringes strewn about. Weeks earlier, there was a report of a robbery, shooting, and rape at this home, before squatters were evicted. Two were arrested and firearms were discovered, including one previously stolen from a state trooper. TN Rep. Henry Fincher states that this legal loophole should be closed. “I don’t care if it’s a deed or a check. We prosecute people for worthless checks, the general sessions courts are full of them. We need to be prosecuting people that are forging deeds too,” Rep. Fincher said.

Back in California, a Monterey County man is under investigation for combining deed fraud with a foreclosure-rescue scam. Over the past few months, 11 homes have been deeded to Antonio Gomez. All of the homes were in foreclosure, and several of the prior owners claim to have never signed deeds, and some have claimed to have given Gomez cash to “fix their credit”, in one instance $50,000. The pattern was noticed by the county assessor who saw the multiple deeds with prices far below market value. He turned them over to the District Attorney who is investigating.

- David Pelligrinelli

AFX Corp., LLC

Longer road to closings

Dave Pelligrinelli — Tue, 26 May 2009 14:29:45 EST

It is common knowledge that real estate purchases and refinances are in much lower volume today compared with just a few years ago. The volume of interested buyers has evaporated, and the number of borrowers qualified with credit and equity are both a fraction of what they once were.

For some individual title abstractors, this has resulted in a lower volume of search orders in the marketplace. To make matters worse, an additional obstacle to completed transactions is becoming more commonplace. When a willing buyer or borrower has executed a sales contract or loan application, met the qualification criteria of the lender, and the property appraised, it was usually likely that the transaction would close.

More frequently, loan underwriters are throwing last minute stipulations back at the borrower. Loan officers and appraisers are reporting that lenders are suddenly requesting specific items before funding.

Recent examples have included a letter from the borrower explaining why his income went from $70,000 in 2007 to $68,000 in 2008; a notarized letter from a borrowers employer verifying their job title; a 3rd review of appraisal by a 3rd appraiser; and copies of insurance policies on a separate property, one not being financed. These were on separate transactions. In addition, parties to the transaction figured that the lender had all of this confirmed earlier in the approval process.

In the current lending environment, it is certainly reasonable for mortgage lenders to request these verifications. However, title abstractors should be aware that if their arrangement with their client is to only be paid for “closed files” that they be aware of this accelerating trend. More importantly, it is another good reason for any abstractors who still maintain this arrangement to seriously look at transitioning clients away from it. In the worst case, abstractors should not be afraid to ask their client about how solid the deal looks, and if they think the lender will have any additional last minute conditions to be met. It may not help if the current deal falls apart, but it may let your client know that you are keeping abreast of developments in the industry, and have them think about managing their future title orders more closely.

One real estate agent in South Carolina has seen an increase in the number of “dry closings“. The parties all sign their documents but everything is held in escrow until the funding arrives from the lender, after the last-minute condition is met. There is a number of reasons why these can turn into problems, not the least of which is when one does not ever get funded. In addition, the accruals and per-diems can change, making the prior HUD inaccurate.

It used to be that the vast majority of non-closed files were eliminated in the approval process, before title was ordered. In more cases, condition requests from loan underwriters are coming at the last minute. To date, many of these can be met, with the only consequence being a delayed closing. There is a definite uptick in the number of deals that fail because of these issues, however. In one case, a borrower lost his job in the week it was taking him to get a reappraisal. As it is not likely that this trend will decline in the near future, which may even result in closing agents to try and install the practice of paying for closed files more frequently.

It is tempting for individual abstractors to look for any new business that comes their way, but taking bad business is even worse in a bad economy.

- Dave Pelligrinelli

AFX Corp., LLC

Houses stripped and demolished before foreclosure

Dave Pelligrinelli — Fri, 27 Feb 2009 13:05:09 EST

Foreclosures now represent nearly half of real estate transactions nationwide. According to the National Association of Realtors, distressed properties already make up 45% of transactions, and climbing. Home prices continued to decline at a record pace last month, with no sign of stabilizing. further price declines could result in even more foreclosures, as homeowners are unable to refinance out of unaffordable ARM's, or just simply realize they are extremely out of equity, and walk away from the property. Borrowers are even blatantly advertising to sell fixtures on Craigslist. One owner leveled his home with a bulldozer a few days before auction.

When borrowers do leave their property, they do not always simply "walk away." Last week, a home in Monsey NY was completely demolished just a few days before the scheduled foreclosure auction. The property owner Samuel Fisch later admitted to tearing down the structure. A neighbor who had helped out by paying the property taxes initially received a summons for not obtaining proper demolition permits, but it was later determined that he was not the owner. Abraham Miller said he never owned the house at 1 Carlton Road, and was only doing the owner a favor by paying the property taxes. "A gentleman bought this property two years ago and he couldn't pay his taxes," Miller said yesterday. "He asked if I'd borrow him the money to pay the taxes. That's my whole connection to this whole thing."

Most distressed properties do not meet this extreme fate, but more often homeowners damage or strip out properties before being forced out due to foreclosure.

In Fort Myers, about 20 people did $75,000 worth of damage to an abandoned home in foreclosure. People living in the area said they had seen numerous cars going down the dirt road to the secluded house on many occasions since the home was foreclosed upon last year. An inspection of the home’s interior showed every room had some type of destruction, from broken windows to smashed in plaster to paint which was tacky to the touch, reports say. After the party, windows remained broken, huge holes were punched in walls throughout the structure, graffiti and expletives were spray painted on the walls and ceilings and two Budweiser beer cans were hung on a living room wall. Debris was scattered outside the house, but remarkably the inside — minus all the damage — appeared to be relatively clean. Deputies estimated the multi-story structure is about 4,000 square feet.

Some teenagers take advantage of foreclosed properties in less destructive ways. Skateboarders from as far away as Europe are flocking to Florida and California to enjoy the multitude of empty swimming pools, which make extraordinary skating venues. “We have more pools than we know what to do with,” said a skater who goes by the name 'Mr. Peacock'. Thousands of homes, many with pools behind them, are in foreclosure. “I can’t even keep track of them all anymore” he said. Skaters are finding a surplus of deserted pools in which to perfect their acrobatic aerials. In these boom times for skaters, Mr. Peacock travels with a gas-powered pump, five-gallon buckets, shovels and a push broom, risking trespassing charges in the pursuit of emptying forlorn pools and turning them into de facto skate parks.

More often, however, it is the property owner doing the damage. Borrowers will tear out anything not nailed down to try and sell it cheap for cash. Appliances, cabinets, garage doors, even electrical fixtures are removed and sold. I have seen ads on Craigslist all over the country where the appliances for sale show a photo of built-in appliances or cabinets, with listing advises that the buyer needs to remove the items. With these instructions, and pictures of almost new appliances, it is not likely that the seller is simply "upgrading." One Craigslist ad in California lists items such as outlets and the shower stall in addition to appliances.

This ad in the Miami Craigslist is for the AC compressor unit:

I am loosing my house to foreclosure and wanting sell the 4 year old 3 ton HVAC compressor before I do.
Compressor is like New and is pictured in this ad.
Still has freon charge so will have to be drain before moved.
I work nights and am off on Fridays and that is the best day to pick it up!

There is usually no legal action taken against the suspected strippers, who are generally assumed to be the homeowners who defaulted on their mortgages. That may change with the case of an Independence Township home, valued at about $2 million, which was stripped of a long list of items in January. “It could be a larceny charge and malicious destruction of property,” said Sgt. Matt Baldes of the Oakland County Sheriff’s Independence Township substation. “I’ve been at houses where they’ve stripped the whole kitchen out and then try to sell back the cabinets to me,” said Realtor John Graham, who lists several foreclosed homes in Oakland County. He’s also been through foreclosed homes that have price tags on things such as furnaces and plumbing. “I’ve seen it before — price tags on things, and then they let people come through and buy them,” he said.

Is it legal? “If you have a dishwasher that’s a built-in, it stays. If it’s on wheels, you can take it with you,” said Phil Seaver, owner of Seaver Title in Bloomfield Hills. Real estate lawyer John Talpos of the Troy-based Talpos & Arnold law firm agrees with him. “You can’t take down a door on the basis (that) it’s removable and you can take it off at the hinges,” Talpos said. He added the terms of most mortgages likely prohibit any destruction of the home. “You’ve got a co-owner, so to speak, and you can’t do anything to diminish the value of the co-owner’s interest,” he said. “(The lender) probably has the right to come in your house and just look at it to make sure.”

That did not stop John Burgur's landlady from stripping his rental property last year. She took fans off the ceiling and the knobs off the doors, carted out the refrigerator and yanked up a toilet. She even pulled the plates off electrical outlets and unscrewed the faucet handles. His coffee maker and shower rod were gone. "I'm going to strip this mother," the 70-ish property owner raved to Burgur, as she ripped apart the 950-square-foot unit on Island Way. Welcome to a dark corner of the foreclosure business: People who lose their homes to foreclosure and in a pique of revenge strip the homes before the bank takes them back.

With home prices and sales continuing to plummet, this is not the last we will hear about this.

TitleSearchBlog.com

Dave Pelligrinelli

County recorders offices not immune to budget cuts and layoffs

Dave Pelligrinelli — Tue, 17 Feb 2009 15:47:01 EST

Consistent operation of the county recording clerks office is critical to the public’s access to accurate information. Budget deficits at the state and local levels are resulting in cutbacks in municipal services. Until now, most of the services being cut were not critical to everyday commerce. We are just now starting to see cutbacks in departments which could result in serious problems for residents.

In Colorado Springs CO, the county clerks office has been instructed to stop answering the phones, as they are understaffed. County clerk Bob Balink was forced to lay off 19 staffers late last year.

The recorders and assessors offices in Fresno CA have two weeks to dispute why they cannot make further cutbacks in their departments. Riverside County CA is planning on layoffs of 250 people, including 50 in departments such as assessor-clerk-recorder’s. The county is facing a $60 million budget deficit.

Ada County Idaho is cutting back its development services department to a “skeleton crew”, as a result of the real estate downturn. The county recorder’s office will cut two full-time clerk positions in response to the fewer real estate transactions needing to be recorded.

Lorain County OH Clerk of Courts Ron Nabakowski had to close a title office and lay off 11 employees there and in the legal divisions. In that county, only five sheriff’s deputies patrolling the roads the night of Dec. 28 when a burglar managed to break into a Carlisle Township development and steal two toilets and a bedroom set because there weren’t deputies available to respond to a call about suspicious circumstances.

Fifty employees in the Snohomish County WA clerks office will be taking a 10-day unpaid furlough this year, to help reduce the county budget deficit. The County Council voted 5-0 on Monday in favor of furloughs for the clerks’ association.

As these layoffs and cutbacks become more severe over the next year, it is likely that abstractors will notice deficiencies in the currency of recorded documents. In 2006 Wayne County Michigan made national headlines when it built up a backlog of deeds yet to be recorded. The lag was reported at one time to have been 4 to 6 months behind.

TitleSearchBlog.com

- Dave Pelligrinelli

Land records are not "data"

Dave Pelligrinelli — Fri, 13 Feb 2009 10:20:20 EST

When approaching the process of searching title records, a helpful idea is not to look at property records as data. Whether you are an experienced abstractor, or a private citizen looking to find out information on a property, understand that property records are a collection of contracts. Each document filed for a property is a record of a specific event, and is a legal contract describing that event.

While each contract may have some numbers on it; (purchase price, mortgage amount, lien amount, date, address, etc. ) the numbers are not the most important reason for the document to exist. The document describes the intention of the parties to agree to a certain transfer of property rights. The recorded contract has hundreds or thousands of words, and only a handful of numbers. The words describe in detail the specific terms and conditions of the transfer.

In most cases, the language on the document is boilerplate text, identical or similar to hundreds of other documents. When searching title, it is tempting to overlook the language of the document, figuring it is the same as all the others you may have seen. It is important to double check to make sure that there is no details such as a remainder interest, contingencies, exceptions, or other conditions which might not be typical of the deed or mortgage.

More importantly, looking at land records as contracts and not data will help avoid trying to use simple “data” (such as online records) to do a good title search. It is a subtle difference in a point of view, but can make all the difference in crafting an accurate and complete title abstract.

Researchers who have only used electronic records may not have a deep understanding of how documents relate to each other, and what other records are referenced on the primary deeds and mortgages.

Seasoned professionals who can’t afford to risk a loss because of missed records or incorrect search results get a complete title search by looking past the data points on the records, and reviewing the documented contracts by hand.

Dave Pelligrinelli

TitleSearchBlog.com