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Source of Title Blog

Lou The Mortgage Broker
by Robert Franco | 2007/10/23 |

Lou was a mortgage broker with a decent size business. He found a niche with several of the slum lords, helping them buy more dilapidated properties. Lou also had an appraiser in his pocket who helped the slum lords obtain financing, often for double the "real value" of the home. With this extra money, they were supposed to fix up the properties and sell them for a nice profit. Unfortunately that never happened.

One of the slum lords, when he could no longer qualify for financing, even with Lou's help, found buyers for the properties he wanted to purchase. He convinced buyers to take out mortgages with Lou with the understanding that he would fix up the properties and get them rented to provide income to the buyer. However, none of the work ever got done. The slum lord found buyers to take out mortgages for twice the actual value of the homes and he simply kept their money and forced many buyers into foreclosure and bankruptcy.

A friend of mine was a contractor who did some work with a few of the slum lords. Through them, he was introduced to Lou. When he refinanced his house, he went through Lou. He didn't borrow more than the value of his home, everything seemed to be kosher. However, when it became apparent what Lou and the slum lords were up to, he went to a local bank and refinanced his mortgage. Lou was paid off.

Shortly thereafter, Lou went to prison where he resides today. His company is now defunct. So why am I writing about Lou today? Well, Lou never released the paid-off mortgage and my friend is in the process of selling his home. He was told that there is an unreleased mortgage and the title company will not close unless he can obtain a release. Obviously, there is nobody around from Lou's mortgage company to issue a release - in fact, the company doesn't even exist.

In this real estate market, it is a shame to lose a willing buyer because of a title problem. It is unlikely that anyone would be willing to accept the property with the cloud on the title; surely it would be a problem for them any time they refinance or when they are ready to sell years from now.

This made me wonder about all of the lenders that have gone under during the subprime bust. According to The Mortgage Lender Implode-O-Meter, 172 major U.S. lending operations have "imploded" since late 2006. Could problems like my friend's become even more common? More than likely, yes. Unreleased mortgages, or missing assignments, will be more difficult to correct. Many borrowers who thought that they escaped the devastation of the subprime market may find out that they too are in a jam.

What options are available to my friend? It seems that the only way to clear the title will be a quiet title action. Surely that will work, and it really isn't that complicated to take care of. However, it will take time. The adverse party must be notified and most likely, publication will be required. He will have to wait for any answers before a judge can clear his title. Will his buyer wait? Who knows. With so many homes available right now for buyers, many sitting vacant ready for immediate occupancy, buyers don't have to wait.

While Lou is most certainly getting what he deserves, my friend doesn't deserve this. He is yet another casualty of a defunct lender. While Lou's problem wasn't caused by the subprime market collapse, he was just another crook, there may be others out there that will be jammed up by the vast number of imploded lenders.

Robert A. Franco
SOURCE OF TITLE
rfranco@sourceoftitle.com

Source of Title Blog ::




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Categories: Crime, Mortgage Industry, Subprime Lending

832 words | 3300 views | 9 comments | log in or register to post a comment


I think the answer to your question...
I think the answer to your question is a resounding yes. This is an issue we talk about at my office on a weekly basis.

It seems that every title that comes through our doors has a major problem. We all know that these closing factories weren't taking the time to clean up titles. Some title companies just didn't care while others probably didn't have anyone on staff who knew how to clear up a title issue.

I can't help but to put a good deal of the blame on the title insurers. They knew which agents were writing over title defects, but they looked the other way because of the large remittance they received from these firms.


 
by Shane Kane - TitleSuccess.com | 2007/10/23 | log in or register to post a reply

Was Lou getting gassed appraisals f...
Was Lou getting gassed appraisals for loans that he was funding? Because it sounds like he was a hard money guy, that part doesn't make sense.

More to the point, though, this is a good reason for every state to have a version of two instuments authorized by statute in Minnesota: the certificate of satisfaction and the certificate of release. The Certificate of Satisfaction is effective when there is a missing assignment and the instrument names the original mortgagee and is executed by the purported assignee. The Certificate of Release allows a title agent duly appointed by a title insurer to release a mortgage it paid off, but makes the agent/insurer liable for losses caused by a wrongfully released mortgage.

Real estate purists may not like these instruments, but they are godsends for just such circumstances as your friend's. I have yet to hear of cases being litigated involving either being used wrongfully, much to my amazement. Furthermore, at least in the case of non-revolving loans secured by a mortgage, it seems a far more economically efficient way of dealing with loose ends than needing a quiet title to deal with lienor interests where on-going corporate authority for back-end processing of documentation is often inadequately provided for.

I assume that, without this tool, your friend has to have a quiet title done on his behalf, and either wait for completion of the action (and lapsing of appeal periods) - the traditionalist title insurance model of not closing until the known specific risk is eliminated, or have a title company insure over the mortgage.

In this sense, I'm much more of a Chicago Schooler than an old schooler - economic efficiency should be a large part (not the only, however) of the policy that informs the law. In fact, i would argue that the original notion of title insurance was exactly that, it was an economically efficient alternative to having the government run conveyancing, either through its bureaucrats, or through its officers of the court (lawyers).

That said, I just saw FirstAm's brochure on the "FACT" policy. It's not the first time I've heard of the program, but some of the details fill me with wonder.
 
by John Povejsil | 2007/10/23 | log in or register to post a reply

I'm not sure where Lou got his fund...
I'm not sure where Lou got his funding. One possibility is that these loans were funded by private investors that were promised great returns. These loans weren't particularly large, so that would have been possible. He was charging some pretty steep fees, all paid with the proceeds of the fraudulently inflated loans. He could have kept the investors happy for a while. Most likely he defaulted to his investors as well and that is probably what got him caught and locked up.

The concept of a certificate of release sounds interesting. In this situation though, it seems the quiet title action is the only way to get this one taken care of.
 
by Robert Franco | 2007/10/23 | log in or register to post a reply

Pennsylvania has something similar ...
Pennsylvania has something similar to what John described, called a Settlement Officer Satisfaction, (SOS). It's part of Act 197 (the Mortgage Satisfaction Act) which became effective in February 2003. Act 197 permits settlement officers to record mortgage satisfactions under limited circumstances. While there is a series of steps that must be followed before a settlement officer may file an SOS, it does provide an alternative method of clearing the title. It may not be much help in your friend's situation, but maybe with all these lenders going belly-up, maybe other states will enact similar laws. 
by Scott Perry | 2007/10/23 | log in or register to post a reply

Although it has been some time sinc...
Although it has been some time since I have been on the closing side of real estate transactions, I remember problems in title could be handled sometimes with an Estoppel letter from the underwriter who underwrote the mortgagee policy on the new loan. This is of course if they received title insurance on the new loan. The theory was that it is the Title Companies obligation to make sure the satisfaction is received and no doubt was a condition on the commitment. I would go back to them and demand they clear this up. 
by Kim Cowles | 2007/10/23 | log in or register to post a reply

Connecticut has a similar provision...
Connecticut has a similar provision as the Minnesota certificates of satisfaction as well as other judicial remedies.

If the lender is defunct the seller can release the mortgage by recording an affidavit swearing that he has paid the mortgage in full. The buyer's closing attorney will probably want to see evidence of the sworn statement at the closing table...such as cancelled checks and/or mortgage statements. I have seen a number of these while performing title searches. Although this is not the best release that a buyer could hope for...it is a viable alternative.

Alternately Connecticut has an expedited procedure for discharging invalid mortgages/liens through an application to the Superior Court. The case is on a fast track, and it usually takes only a few months to obtain the discharge. The statute also allows for the recovery of the plaintiff's legal expenses and attorney's fees.

There is also the longer process of an action to quiet title. However, the defendant may be defaulted for a failure to appear or to plead. In which case it would also only be a matter of a few months to quiet the title.

If your state has similar provisions, it would appear that your friend is not without recourse.
 
by Kevin W. Ahern | 2007/10/24 | log in or register to post a reply

To my knowledge, Ohio has no such a...
To my knowledge, Ohio has no such alternative to releasing a mortgage. One underwriter advised that it would be possible to file an affidavit of facts to explain the loan was paid off and that the lender is now defunt. However, that doesn't clear the title - it merely provides an explanation. Even if a title agent was inclined to accept the affidavit and insure over the transaction, it would still leave a cloud on title that would most likely be a problem for the new buyer. That is probably not the best solution.

I believe that my friend is contacting a good real estate attorney to file the quiet title action. His buyer has moved in to the home and is currently renting. So, perhaps they are in no rush to get it taken care of. It is unfortunate that my friend has to spend the money for a quiet title action, but at least it will take care of the problem and provide the buyer with clear title.
 
by Robert Franco | 2007/10/24 | log in or register to post a reply

If the mortgage has not been comple...
If the mortgage has not been completely paid, it is an asset to which either the original mortgagee or assignee encumbers title. It would seem strange that there would be no attempt to foreclose if the mortgage/note were non-performing. If the mortgage were not privately funded by a mortgagee, there should be some method of tracking the mortgage holder through a state regulatory agency. In Connecticut that would be the State Banking Commission.

I did a title search a few years ago which disclosed a very old mortgage that had never been released. The original bank had gone under during the bank failures of the late eighties. There had been no assignment recorded. A call to the Banking Commission disclosed the successor lending institutions that held the mortgage, and we were able to secure a release from the current successor bank.
 
by Kevin W. Ahern | 2007/10/24 | log in or register to post a reply

In Virginia the setlement firms hav...
In Virginia the setlement firms have available the certificate of satisfaction option , providing they were the ones that actually paid off the loan, and have followed the procedures required, which is giving the lender a time limit to produce a release , which is 60 or 90 days, after which, if none was provided, they can create a C/S for the trust and record it, and that takes care of it for good. 
by Steve Meinecke | 2007/10/24 | log in or register to post a reply
Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco
SOURCE OF TITLE

 

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