Collaboration is King!

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ALTA’s CFPB webinar emphasizes that the exchange of data will be the biggest challenge to the closing process after August 1, 2015.

American Land Title Association’s value to closing attorneys grows each day as August 1, 2015 approaches. Closing forms will change dramatically later this year, and ALTA is valiantly attempting to keep those of us who plan to remain in this game ahead of the learning curve.

pawns king crown - small featheredSouth Carolina has strong representation in ALTA! Cynthia Blair, a real estate attorney in Columbia, sits on ALTA’s board and participated in this webinar. Each time Cynthia said, “In my state” we knew we were about to receive information specific to us. This local support at this critical time is invaluable, and I strongly encourage South Carolina closing attorneys to join ALTA.

Yesterday, ALTA hosted an excellent webinar entitled “5 Key Areas to Prime Your Operation for the New Closing Process”. The webinar was attended by more than 1,100 of us! The strong message was “Collaboration is King”.

Closing attorneys and lenders will work more closely together than ever to manage and share information. Some lenders have indicated they will deliver the Closing Disclosure to the borrower, but others will require the closing attorney to deliver it. The seller’s form will be prepared by the closing attorney, and a copy of it must be provided to the lender.

The underlying information for the closing documents will be located in two systems: (1) the lenders’ loan origination systems (LOS) will contain the loan-centric information; and (2) the closing attorney’s systems (sometimes referred to as the “title platform”) will contain the property-centric information. Large lenders are likely to utilize entirely electronic systems that will avoid rekeying of information to reduce the possibility of errors. The two systems will talk to each other via platforms that are now being developed.

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Attorney Fakes Title Insurance Documents and Gets Disbarred

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Think you’ve heard it all? Listen to this!

The South Carolina Supreme Court disbarred a lawyer last month for fraudulently producing title insurance commitments and policies.*

By way of background, the vast majority of real disciplinary actionestate lawyers in South Carolina are also licensed as title insurance company agents.  In other parts of the country, lenders receive title insurance documents directly from title companies’ direct operations.  In South Carolina, title companies run agency operations, supporting their networks of agents, almost all of whom are South Carolina licensed attorneys.

Lenders require closing protection letters for closings involving agents.  Stated simply, these letters inform lenders that the insurer may be responsible in the event a closing is handled improperly by the closing attorney.

Title insurance company agents also produce title insurance policies and commitments, following the guidelines of their insurance underwriters, and using software programs designed to support the production of these documents.

Some closing attorneys are not agents but instead act as approved attorneys for title insurance companies. Approved attorneys can obtain closing protection letters from their title companies, but they are not able to issue their own title insurance documents. Instead, they certify title to a title insurance company or to a title company’s agent.

If an attorney cannot provide lenders with closing protection letters, that attorney generally cannot close mortgage loans in South Carolina.

 red card - suitIn 2007, Mr. Davis was canceled as an agent by his title insurance company.**  After that cancelation, he was able to legitimately obtain title insurance commitments and policies through an agent. In 2011, however, Mr. Davis was canceled as an approved attorney.  He didn’t let that fact stop him though. He began to fraudulently produce title insurance documents, making it appear that the title insurance company was issuing closing protection letters, commitments and policies for his closings.  He also collected funds designated as title insurance premiums, but he never paid those premiums to the title insurance company.  He continued to handle closings using fraudulent title insurance documents until his actions were discovered and he was suspended from the practice of law by the South Carolina Supreme Court in 2013. In 2015, Mr. Davis was disbarred.

I suppose I should close by saying don’t do this!  Please!

* In the Matter of Davis, S.C. Supreme Court Opinion 27480 (January 21, 2015)

** In the interest of full disclosure, I work for that company.

Closing Attorneys and Paralegals: Want to toss and turn at night?

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Read about this costly law firm mistake.

(This case makes my stomach hurt because a developer client of mine once declared bankruptcy. Everything I had done for that client for the prior three years was scrutinized, and I spent some sleepless nights!)

On January 21, 2015, the Second Circuit Court of Appeals Pepto in Manhattan decided a direct appeal from a U.S. Bankruptcy Court involving a mistaken UCC-3 termination statement.* This case involves the General Motors bankruptcy.

The facts concern a 2008 payoff by GM to JP Morgan Chase of a $300 million synthetic lease. GM contacted its outside counsel to prepare the necessary documents. A partner assigned the work to an associate and instructed him to prepare a closing checklist and drafts of the necessary documents. The associate asked a paralegal who was unfamiliar with the transaction to perform a UCC search that search identified three UCC-1s. Two of the UCC-1s related to the subject loan. The third, however, was related to a term loan between the same parties. The law firm prepared UCC-3 terminations for all three financing statements.

No one at GM, its law firm, JP Morgan or its law firm noticed the error. When the loan was paid, all three
UCC-3s were filed.

The mistake was not noticed until GM filed bankruptcy in 2009.

In litigation with the unsecured creditors, JP Morgan argued that the third UCC-3 was unauthorized and ineffective because it intended to terminate only the liens that related to the synthetic lease. The Bankruptcy Court agreed on the grounds that no one at JP Morgan or its law firm intended to terminate the third UCC-1.

The Second Circuit certified a question to the Delawarecourt money 4 Supreme Court, asking, basically, whether a termination is effective when a lender reviews and knowingly approves a termination statement for filing or whether the lender must intend to terminate the particular security interest. The Delaware Court replied that intent is not necessary, stating, “If parties could be relieved from the legal consequences of their mistaken filings, they would have little incentive to ensure the accuracy of the information contained in their UCC filings.”

The Second Circuit agreed, indicating JP Morgan authorized the termination even though it never intended to.

Lawyers and paralegals: be careful, be careful, be careful! And now try to get a good night’s sleep!

* Official Committee of Unsecured Creditors of Motors Liquidation Company v. JP Morgan Chase Bank, N.A.,U.S. Court of Appeals for the Second Circuit,  Docket No. 13-2187, January 21, 2015.

Good News for Small Lenders

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changes comingCFPB proposed rule change may also benefit South Carolina closing attorneys.

On January 29, the CFPB proposed its ability to repay and qualified mortgage rules to facilitate additional mortgage lending by credit unions and community banks. South Carolina closing attorneys who handle transactions for small lenders could benefit from these proposed rule changes because the business coming from these lenders would increase in volume.

Comments are due on the proposals by March 30. South Carolina closing attorneys should consider commenting positively on this proposal.

“Responsible lending by community banks and credit unions did not cause the financial crisis, and our mortgage rules reflect the fact that small institutions play a vital role in many communities,” said CFPB Director Richard Cordray.

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Credit unions and other small lenders have been lobbying for flexibility under the new rules, and this development is considered to be a victory for them.

The proposed rules would expand the definition of “small creditor” by raising the limit on first lien-mortgages from 500 to 2,000, excluding the mortgages held in the portfolios of the creditor and their affiliates. The CFPB said that this change would increase the approximate number of small lenders from 9,700 to 10,400.

Small lender status allows these lenders to make loans where the homeowner’s total debt payments exceed 43 percent of pretax income.

The proposal would also extend the ability of small creditors in rural or underserved areas to issue loans with balloon payments and still have them qualify as qualified mortgage loans. The definition of “rural” was extended to any census block that is not in an urban area as defined by the Census Bureau.stay tuned

A copy of the proposal can be found at the Consumer Financial Protection Bureau’s  website, or by clicking here.