ALTA’s Board approves revision to Best Practices

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Change would require ALTA ID

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The Board of Governors of American Land Title Association approved a motion on February 21 to revise the Title Insurance & Settlement Company Best Practices to include a requirement for companies to be listed in the ALTA Registry. The amendment is under a 30-day review period ending April 12. Comments may be sent to bestpractices@alta.org.

The proposed amendment to Pillar 1 of Best Practices includes the following requirement:

  • “Establish and maintain a unique ALTA Registry Universal ID (ALTA ID) using the ALTA Registry platform for each settlement office location (subject to those business entity types supported by the ALTA Registry).

ALTA, the national trade association of the land title insurance industry, formally launched the national ALTA Registry in 2017, allowing title insurance agents and settlement companies to communicate with underwriters to confirm their company name and contact information.

Using the ALTA Registry, lenders and their vendors are able to identify title agents, title underwriters and other participants in the closing process and communicate in a timely and consistent manner throughout the mortgage transaction.

Because there has been no unique ID number used across the industry to help match provider records in different databases, communication has often been difficult and costly for the title industry and its customers. This is especially important with new regulations driving vendor oversight requirements and the need for collaboration.

The ALTA Registry is a free, searchable online database of underwriter-confirmed title agent companies and underwriter direct offices. The registered information includes the title agent’s legal entity name, location and contact information. ALTA offers a unique 7-digit identifier, the ALTA ID, which is automatically assigned to each new database record as a permanent ID number and is never changed, reassigned or reused. ALTA ID numbers are available free of charge to title agents and real estate attorneys.

ALTA’s Best Practices is designed to assist lenders in managing third-party vendors. Pillar 1 requires title companies (closing attorneys in South Carolina) to maintain licenses for doing business in the title industry. This includes the license required by the South Carolina Department of Insurance and the ALTA policy forms license. The registry helps lenders determine they are working with legitimate title providers.

You learn something new every day!

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Question gives insight into IRS collection procedures against JTROS properties

In August of last year, an excellent South Carolina real estate lawyer raised this issue with Underwriting Counsel in our office:

The property owners are Sally Seller and Samuel Seller, as joint tenants with right of survivorship. Sally Seller died January 7, 2017. A federal tax lien was filed against Sally Single, Mrs. Seller’s maiden name, March 3, 2014. Mr. and Mrs. Seller were married in April 20, 2015. Please confirm that we should either pay off this lien at closing or obtain a release from the IRS.

Title insurance underwriting is all about pre-closing risk prevention and risk management, and I always joke that underwriting is more of an art than a science. This is true, in part, because few issues in the law are black and white. Most lawyers will confirm that a fair amount of gray area exists in most legal questions. But I digress.

The truth is that when a trusted, intelligent real estate lawyer calls her friendly South Carolina title insurance underwriter and says, in effect, “I should deal with this title problem at closing, shouldn’t I?”… that is an easy answer! Unless the Underwriter knows of a magic solution to eliminate the title issue, the friendly title insurance Underwriter will almost always respond, “Yes, please take care of that issue at closing.”  That’s exactly what our Underwriter did in this case last August.

Around Halloween, a follow-up question was raised:

The sellers’ attorney has been working on obtaining a satisfaction for the IRS lien, but the IRS has told him that the lien will not be released or satisfied because the taxpayer is deceased. IRS Agent Arnold Adams (IRS ID#10000797284)* referred me to Notice 2003-60. The IRS agent further said it will not file a release of lien for the convenience of title insurance companies and mortgage lenders**, but that the tax lien upon the death of a joint tenant is extinguished and not collectable on the basis of U.S. vs. Craft*** and its application.

The IRS notice linked above is entitled “Collection Issues Related to Entireties Property”. Every South Carolina dirt lawyer knows that we do not have a tenancy by the entirety form of ownership in South Carolina. If we don’t have that form of ownership, then does this IRS Notice have any application in South Carolina?

Married couples in South Carolina can own properties as tenants in common, joint tenants with right of survivorship or joint tenants with an indestructible right of survivorship under Smith v. Cutler.****

Several years ago, my friend and fellow South Carolina dirt lawyer, Paul Dillingham, called me to twist my arm to write an article with him for the Bar’s South Carolina Lawyer magazine, linked here, about a couple of deed drafting traps that were troubling him. In that article, we questioned whether Smith v. Cutler had created, in effect, a tenancy by the entirety form of ownership. That case dealt with property owned by couple pursuant to a deed with this language:

“for and during their joint lives and upon the death of either of them, then to the survivor of them, his or her heirs and assigns forever in fee simple”

The case held that property owned pursuant to the quoted language cannot be partitioned. If the property cannot be partitioned by the creditor of one owner, then the IRS Notice would have application in South Carolina. Apparently the IRS agent who was questioned for this closing believes the notice does apply in the Palmetto State, but please note that the question before the IRS agent didn’t deal with the Smith v. Cutler form of ownership. It dealt with a standard joint tenancy with the right of survivorship.

Did the IRS Agent give our South Carolina good advice? Would all IRS agents give the same advice? Can we ignore this IRS lien for the purposes of closing? What do you think?

This is fictitious name and number. Don’t try to contact this IRS agent!

** That wasn’t very friendly!

*** 545 U.S. 274 (2002)

**** 366 S.C. 546, 623 S.E.2d 644 (2005)

Dirt Lawyers: Make sure you conform(a) with your pro forma policies

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Commercial real estate lawyers are routinely asked to issue pro forma title insurance policies. A friend who routinely acts as lenders’ counsel recently told me he sees lots of pro forma policies coming from borrowers’ counsel, and they are not being handled appropriately. For that reason, I thought I’d list a few reminders for all of us.

What is a pro forma policy? It is a sample policy provided to the customer and customer’s counsel in advance of closing. It outlines the actual language and format the final policy will contain, in the event the transaction actually closes and the policy is actually issued. A pro forma policy is not intended to serve as a promise to issue the final policy. And it is definitely not a substitute for a commitment.

One excellent process is to never send out a pro-forma policy independently. When I was in private practice, I issued a pro forma as an attachment to a letter which said, basically, “A policy in the form attached may be issued when the requirements in Commitment #_____, dated _____ have been satisfied.” My lenders’ counsel friend nails this matter down further by issuing the pro-forma policy as an attachment to the commitment with a note in the requirements section to the effect that upon satisfaction of all applicable requirements, a policy in the form set forth in Exhibit ___ will be issued.

A note to this effect be added to the policy:  “NOTE: This is a Pro Forma Policy. It does not reflect the present state of title and is not a commitment to insure the title or to issue any of the attached endorsements. Any such commitment must be an express written undertaking on appropriate forms.”

The pro-forma policy and all endorsements should be clearly marked “Pro-Forma Specimen” or “Sample” and should not be signed.  Many lawyers have a large “Specimen” stamp to use in these situations. My lenders’ counsel friend told me he actually stamps pro forma policies coming from borrowers’ counsel. Not all lenders’ counsel are that accommodating.

Where the policy date and policy number are requested on the form, supply the note “None”.

These rules are very simple and comply with common sense. A pro-forma policy is not a policy and should be clearly shown in every instance as a sample. Following these very straightforward rules will keep you and your title company out of trouble. And, as always, call you underwriter if you have questions or concerns!

New DOI rule: SC title insurance agents must be fingerprinted (Lawyers included!)

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Listen up, South Carolina dirt lawyers!

All title insurance agents must be fingerprinted for their next license renewals! The Department of Insurance has passed a new rule, effective January 1, 2017, requiring fingerprinting for all resident producers.

The DOI published a bulletin which you can read here. South Carolina Law Enforcement Division has established a contract with IdentoGo by MorphoTrust to handle the fingerprinting process. All title insurance agents will need to go to this company’s website, www.IdentoGo.com, to set up an appointment to be fingerprinted. Your zip code will be used to find the most convenient location.

fingerprints

It is important that you do not wait until the month your license renews to begin this process. The bulletin advises that scheduling and processing may take up to ninety days. The cost for fingerprinting is $50.50.

Every lawyer’s first question is going to be, can’t they use my fingerprints from my Bar application?  The answer, we have been told verbally, is absolutely not. The DOI is emphatic that it will not accept fingerprinting from any other agency nor any other vendor. Every lawyer’s second question is going to be, does this apply to my staff members who are licensed agents?  It does.

Nonresident producers are not required to be fingerprinted.

As a reminder, licenses are renewed in your birth month. If you were born in an odd-numbered year, your next renewal will be in 2017.  If you were born in January or February of an odd-numbered year, you may be late if you haven’t already begun this process.  For those born in even-numbered years, you are safe until 2018.

Good luck!  Call your title insurance company if you have questions or need assistance.

A Certain Path to Disbarment:

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Fake a title insurance agency and ignore a real estate practice!

In the Matter of Samaha* is a South Carolina Supreme Court attorney disciplinary case that resulted in disbarment.

This lawyer was creative; you have to give him that!

For starters, he witnessed and notarized the signature of his client’s late wife, who had died seven years earlier. He typed, witnessed and notarized a revocation of a durable power of attorney for an 83 year old retired paralegal with cognitive and physical limitations.

Perhaps the most interesting violations, however, had to do with the title insurance. (What? It’s tough to make title insurance interesting. Trust me. I try and fail on a daily basis. This stuff is only interesting to title nerds like me!)

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A relationship with a title insurance company is essential to a real estate practice in South Carolina. The closing attorney must either be in a position to issue his own title insurance commitments and policies as an agent, or to certify to a title insurance company as an approved attorney to obtain those documents.

Consider the activities of  Mr. Breckenridge, the lawyer who was publicly reprimanded this spring for allowing non-attorney entities to control his real estate practice.** During oral arguments, he stated that he preferred to handle closings in the customary manner in South Carolina, where the attorney acts as agent for a title insurance company as well as closing attorney. But he had been suspended by the Supreme Court for a short time and, as a result, had been canceled as an agent by his title insurance company. He said he was then forced to work for an entity that hires lawyers to attend closings only.  When a problem arose with the disbursement of one of those closings, he found himself in front of the Supreme Court again.

Mr. Samaha had also been canceled by his title insurance companies. That did not stop him and his staff from proceeding full steam ahead with closings in the customary manner.  Although he originally denied any knowledge that documents had been forged in his office, he ultimately admitted that closing protection letters had been forged and issued to lenders.

A mortgage lender later uncovered not only forged closing protection letters, but also forged title insurance commitments and policies. It was not possible for Mr. Samaha to obtain any of these documents legitimately during this timeframe, because his status had been canceled as an approved attorney as well as an agent. The Court commented that, absent the forgeries of these documents, the lawyer’s real estate practice could not have functioned.

(This is not the first disbarred lawyer in South Carolina to have included the forgery of title insurance documents in his repertoire of misdeeds.***)

The Court stated that Mr. Samaha allowed his staff to, in effect, run his office. He failed to supervise them and failed to supervise and review closing documents.  He, in effect, completely ignored his real estate practice.


He also committed professional violations of a more mundane but equally scary nature. For example, he made false and misleading statements on the application for his professional liability insurance.

red card - suitHe failed to pay off four mortgages. By his own calculations, the loss was more than $200,000, but the Office of Disciplinary Counsel stated that his financial records and computers had been destroyed, making it impossible to prove the true extent of the financial mismanagement and misappropriation.  Apparently, the money from new closings was used to fund prior closings, up until the date of Mr. Samaha’s suspension from the practice of law.

 

*In the Matter of Samaha, South Carolina Supreme Court Opinion 27660 (August 24, 2016)

** In the Matter of Breckenridge, South Carolina Supreme Court Opinion 27625 (April 20, 2016)

*** In the Matter of Davis, 411 S.C. 209, 768 S.E.2d 206 (2015)

CFPB Announces TRID Clarity in the Works

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Cordray signals notice of new rule expected late July

cfpb-logoIn an April 28 letter addressed to several industry trade groups and their members, Director Richard Cordray of the Consumer Financial Protection Bureau, said his agency has begun drafting a notice intended to provide “greater certainty and clarity” in the Know Before you Owe Rule.

The letter stated the CFPB is working hard to understand industry concerns and recognized there are places in the regulation text and commentary where adjustments would be useful.

In a press release, also dated April 28, American Land Title Association said its primary goal for the proposed adjustments is to insure consumers receive clear information about their title insurance costs on the Closing Disclosure. As we have all experienced, TRID requires a very odd negative number as the cost for owner’s title insurance in most situations. ALTA has been arguing against this strange result for many months.

The Director’s letter stated that the Bureau has begun drafting a Notice of Proposed Rulemaking (NPRM) that should be available for comments in late July. It also suggested that one or two meetings will be arranged with industry participants before the NPRM is issued. In the meantime, the letter encouraged continued feedback.

The text of the letter can be accessed here.

Malpractice Case Questions Delegation of Responsibility for Title Work

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SC Supreme Court decides client’s informed consent is required.

The South Carolina Supreme Court has ruled that a closing attorney cannot delegate the ultimate responsibility for delivering clear title to a purchaser without the purchaser’s informed consent. Johnson v. Alexander is an attorney malpractice case decided on July 29. This case involved Amber Johnson’s 2006 closing of a home in North Charleston.  Ms. Johnson alleged that her closing attorney, Stanley Alexander, breached his duty of care by failing to discover the house had been sold at a tax sale in 2005.

shutterstock_113463292The title examination had been performed by another attorney, Charles Feeley at the request of Ms. Johnson’s previous attorney, Mario Inglese.  Mr. Alexander purchased the title work from Mr. Inglese and relied on the title examination, which concluded that no back taxes were owed on the property. Ms. Johnson stopped making mortgage payments when she learned she didn’t have title to the property, and the property went to foreclosure.

At trial, Ms. Johnson moved for partial summary judgment as to Mr. Alexander’s liability. At the summary judgment hearing, an affidavit of the Delinquent Tax Collector for Charleston County was proffered to prove the availability of the delinquent tax records during the time when the title would have been examined.  Mr. Feeley’s affidavit indicated he could  not remember the specific title work, but that he always searched titles the same way, and he always checked delinquent taxes for a ten-year period. His notes showed that he found no outstanding taxes. Further, Mr. Feeley attested that the tax sale would not have appeared in the chain of title because the tax sale deed was actually recorded after the closing.

As a side note to abstractors: recent tax sales often do not appear in chains of title because the deeds are not yet recorded. Title examiners should check for payment of taxes for a ten-year period to uncover ad valorem tax delinquencies.

The trial court granted Ms. Johnson’s motion on Mr. Alexander’s liability.  On appeal, the Court of Appeals reversed and remanded, holding the lower court incorrectly focused its inquiry on whether an attorney conducting a title examination should have discovered delinquent taxes from 2003 and 2004 and the tax sale from 2005. Instead, the appellate court held the proper question was whether Mr. Alexander acted reasonably in relying on the title work and reversed and remanded the case for trial.

The Supreme Court reversed and remanded for a determination of damages. Ms. Johnson argued that the Court of Appeals erred in holding the correct inquiry is whether an attorney reasonably relied on another attorney’s work where that work is outsourced. She contended that an attorney should be liable for negligence arising from tasks he delegates unless he has expressly limited the scope of the representation. The Supreme Court agreed.

The Supreme Court said the Court of Appeals erroneously equated delegation of a task with delegation of liability. The opinion, written by Justice Hearn, stated that while Feeley’s negligence was the issue, that does not displace Alexander’s ultimate liability.

The opinion states, “while an attorney may delegate certain tasks to other attorneys or staff, it does not follow that the attorney’s professional decision to do so can change his liability to his client absent that client’s clear, counseled consent.”

The Court cited Rule 1.8(h) of the Rules of Professional Responsibility which indicates a lawyer shall not make an agreement prospectively limiting the lawyer’s liability to a client for malpractice unless the client is independently represented in making the agreement.

Notice that the Court makes no distinction between delegating a task to staff and delegating it to another attorney. Mr. Alexander had argued that because Ms. Johnson knew he did not personally examine the title, its accuracy was not within the scope of his representation to her. The Court clearly held that the scope of representation can only be limited through the clear, counseled consent of the client.

Many residential closings are handled in South Carolina by attorneys who have nothing to do with the title examination. This case clearly states that those attorneys should limit the scope of their representation and obtain their clients’ clear, counseled consent. Otherwise, the title work is the ultimate responsibility of the closing attorney regardless of who performs it.

shutterstock_233295964And on a related topic, it is my opinion that any title examination that covers less than a full-search period or is based on a prior title insurance policy should be used only after consultation with the client and obtaining the client’s informed consent.  Many residential and commercial closing attorneys rely heavily on prior title policies for back title, and they may want to tweak their practices after they read this opinion.

Closing attorneys’ files should be papered with those informed consents confirmed in writing!

BB&T Follows the Lead of Other Large Lenders

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It will produce and deliver Closing Disclosures

BB&T logo 2BB&T announced on May 26 that it will be responsible for completing and delivering borrowers’ Closing Disclosures after the Consumer Financial Protection Bureau’s (CFPB’s) TILA-RESPA Integrated Mortgage Disclosures (TRID) rule becomes effective on August 1.

By making this announcement, BB&T joins Bank of America, Chase, Citi, Wells Fargo, SunTrust and Freedom Mortgage in removing the responsibility for preparing the borrower’s settlement statement from the hands of settlement agents (closing attorneys in South Carolina). Closing attorneys will prepare the seller’s CD as well as other forms necessary for disbursement. It is clear that the borrower’s CD will not contain sufficient information for disbursement, which will continue to be the responsibility of the closing attorney.

Like the other lenders, BB&T confirmed in its announcement that it will continue to work with closing attorneys to determine the fees and other information required for the Closing Disclosure.

stay tunedBB&T also announced, like several other large lenders, that it will use the web-based portal, Closing Insight™, to gather the information and data required to complete the CD. Closing attorneys were encouraged to register with Closing Insight™ immediately.

BB&T promised to provide further communications and training to settlement agents prior to August 1.

Heads Up Residential Dirt Lawyers: Use Engagement Letters!

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August 1 changes will make them even more important.

Lenders will no doubt be more in control of the closing process when the CFPB rules take effect in August. Several major lenders have announced that they will produce and deliver the borrower’s Closing Disclosure, the form that will replace the HUD-1. This form will be delivered to borrowers at least three business days prior to closing. This change may limit the closing attorney’s involvement with clients early in the closing process.

house parachuteResidential real estate lawyers will need to use engagement letters more than ever to establish that important attorney-client relationship, to explain the new closing environment and to quote fees and costs. These matters are too crucial to leave in the hands of lenders!

Also, a major change in the treatment of owner’s title insurance by the CFPB will require that attorneys explain the importance of the one document in the stack of closing papers that protects the purchaser. An engagement letter sent early in the process is the ideal place for this essential explanation. The closing table may be too late!

The CFPB will require that the full premium, not the discounted simultaneous issue premium, must be disclosed for the loan policy on the CD. The owner’s policy premium will be shown in the “Other” section of the CD and will be reflected as “Optional”.  The cost of the owner’s policy will be the total premium discounted by the cost of the loan policy and adding the simultaneous issue premium.  Some lenders may even show the full premium for the owners and loan policies on page two of the CD and a “rebate” for the discount on page 3. Confusing?  Definitely!

Purchasers strapped for funds may be tempted to skip this “optional” charge. Attorneys will need to explain how title insurance protects their clients. Savvy attorneys realize that owner’s title insurance protects them, too. It has even been suggested that it may be malpractice for an attorney not to recommend owner’s title insurance.

In this environment, I’m providing my dirt lawyer friends with a couple of paragraphs that can be edited to explain the importance of owner’s title insurance in engagement letters:

house protection hands“Title insurance protects the ownership of your home. The purchase of a home may be the largest transaction you’ll make during your lifetime. For a relatively low, one-time premium of $____, you can be protected against legal problems over property rights that could cost thousands of dollars, and even result in the loss of your home.

Lender’s title insurance is required for this transaction, but it does not protect your equity. You must purchase owner’s insurance for that valuable protection. We will perform a title examination for you, but the most thorough and competent title examination cannot protect against loss from hidden title defects created by misfiling and misindexing in the public records. Risks not created in the public records, such as fraud and forgery, are also covered by title insurance. Dollar for dollar, an owner’s title insurance policy is one of the most cost effective forms of insurance available to homeowners. I highly recommend that you purchase an owner’s policy and will make it available to you unless you let me know otherwise.”

When the closing process changes, let’s make sure important relationships are established and clients are protected early in the closing process!

Lenders’ Closing Plans Solidify As August 1 Approaches

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news news newsCitibank recently notified settlement agents (closing attorneys in South Carolina) that they will be requested to register with the FPSDirect Vendor Website at the time they agree to handle a Citibank closing. This website was created to provide the bank’s settlement agents with an easy and efficient method of loan document delivery, closing date confirmation and funding approval, among other matters. The memo stated the bank’s goal is to save the time of faxing and the insecurity of email.

Wells Fargo issued a Settlement Agent Communication on March 16 indicating that, like Bank of America, it plans to integrate with Closing Insight™ with a goal of improving the way instructions, fees and other information is shared. The memo stated: “Unlike today where we typically use email to pass these important details back and forth, Closing Insight™ will support an interactive, online collaboration that includes a full view of information from both parties, and provides an audit trail and quality checks to reduce errors.”

We have learned and the Wells Fargo communication states that many closing attorneys will be able to access Closing Insight™ through connections with their existing software packages. Wells’ communication also states that attorneys without closing software packages will not be left out because a secure web portal will be available. Wells reiterated its goal of continuing to do business with local service providers, but emphasized that it expects closing attorneys to be ready, willing and able to comply with requirements and closing instructions.

Wells Fargo also answered four recent FAQs:

“If co-borrowers plan to sign the loan documents on different dates, which date applies for compliance with the three business day receipt requirement of the CD? The borrower’s CD must have been received not less than three business days before the earliest signing date. This question highlights the importance of communicating specifics about signing plans to your Wells Fargo closing contact, including cases when a mobile signing agent or mail away signing is being requested.

Will Wells Fargo be providing loan closing documents to the settlement agent at the same time the borrower’s CD is delivered? Our goal is to provide the closing documents to the settlement agent shortly after the borrower’s CD has been finalized and provided to the borrower. In most cases, you should receive the closing documents earlier than in the past.

Will Wells Fargo permit any other party to deliver the borrower’s CD to meet the three business day closing requirement for a rush closing situation? No. We have determined that we must be responsible for delivering the borrower’s CD to meet and track the three business day receipt requirement for all transactions We will continue to encourage all parties involved to stay in close communication and work together proactively to minimize the need for expedited CD delivery.

Is my company required to be ALTA Best Practices Certified by August 1 to continue to close Wells Fargo loans?  No. Completing your certification by August 1 will not be a Wells Fargo requirement. However, we hope that if your company is not yet certified you will – at minimum – have already completed a self-assessment and addressed any identified gaps. As communicated in our March 6, 2014, newsletter, Wells Fargo supports the ALTA Best Practices as sound business practices that should ideally already be in place for businesses providing title and closing services to our customers.”

Wells Fargo also stated that it has entered into a business arrangement with ClosingCorp, a leading provider of fee management solutions, to obtain actual fee information from selected settlement agents who closing a high number of Wells Fargo loans.