Title Agents As Collections Agents

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Title Agents As Collections Agents
by Robert Franco | 2007/03/13 |

Title agents routinely payoff liens in order to clear the title for their insureds. If the title search shows a lien, the agent requests a payoff, pays the creditor out of the proceeds of the sale, and obtains a release. In effect, the title agents have become collections agents for the IRS, the state, credit card companies, contractors, and anyone else who successfully obtains and files a lien against the property. The closing process is a collections mechanism. But what happens when a lien is missed on a title search and the system fails?

Liens get missed. If they didn't, title insurance would be practically worthless, except in the most rare of circumstances. I remember when I first started in this business as a title examiner; the first time I missed something on a title search I was told by my client that "everyone makes mistakes. Anyone who tells you that they have never missed anything is either lying or they just started yesterday." If we are lucky, like I was, it gets caught elsewhere in the process before the closing and we have an opportunity to make it right. But that isn't always the case.

Yesterday, I received a call from a good client who had a friend in his office with a problem. He had a mechanic's lien that was apparently missed; the property was sold and his lien was never paid. He said that he called the title company (not mine, thankfully) and they offered him $500 of the total $3,000 lien amount to sign a release. This didn't seem fair to him so his question was simple, "the title company missed it, so they are responsible for paying it now, right?" Well, the answer wasn't so clear to me.

Of course, I advised him to contact his attorney. His attorney would be able to review the lien to make sure it was valid and could then proceed to enforce it.

This is certainly not a good situation for the title agent and it presents some interesting questions. What is the title agent's responsibility to pay off a missed lien?

From my perspective, the only duty of the title agent, technically, is to the insured. Title agents are not liable to every creditor who files a lien, are they? Even if it was their fault that lien was not discovered and paid?

In my opinion, there is no liability to pay anything unless the insured has a loss. But certainly there is the potential for loss if there is a lien that has priority over the insured's interest in the land. What would happen if the lien-holder would decide to hire an attorney and foreclose on the lien? The title insurance would then require the underwriter to defend the title, incurring legal costs, and if the lien is valid it would have to be paid. But this would require the creditor to incur legal fees as well. This is probably what leads the title agent to attempt to negotiate a settlement for a lesser amount. But, is that fair to the creditor who had a perfected lien? Didn't he have a valid expectation that he would finally received what he was owed?

The title agent is probably required to notify the underwriter and their E&O provider of the potential claim. However, $3,000 is probably less than the deductible on the E&O policy and who wants to call their underwriter and tell them about a minuscule claim like that? It seems that even though there is no duty to pay the creditor, at least not yet, the only course of action that makes sense is to pay it.

The question I pose to all of the title agents out there is how would you handle this situation? Would you try to negotiate with the lien-holder in hopes that he would rather accept a smaller amount to release the lien than hire an attorney to foreclose? Would you pay the full amount, if he refused to settle for less, or would you call his bluff and wait for him to file a foreclosure? At what point would you notify your E&O provider and underwriter, or would you?

Perhaps the amount of the lien aides in making these decisions. If it is nominal, less than your deductible on your E&O policy, perhaps it is better to try to handle it yourself. The larger the potential claim, the more dire the need to bring in those other parties. So, what is your limit? Where do you draw the line?

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

Source of Title Blog ::

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Categories: Small Agents

1028 words | 2255 views | 1 comments | log in or register to post a comment

	I would contact my underwriter imme...
	I would contact my underwriter immediately and let them decide how to handle it.
	by Diane Cipa \| 2007/03/19 \| log in or register to post a reply

Source of Title Blog

Robert A. Franco The 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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