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Observations from my short career as a real estate investor

Slade Smith — Wed, 01 Feb 2012 12:20:18 EST

In late December, my brother and I bought a house to fix up and "flip" on the north side of Columbus, Ohio. This is the house:

The house was owned by HUD, which means that the former owner probably defaulted on an FHA mortgage and was foreclosed. I didn't look back through the chain of title to try to figure out the circumstances of the foreclosure or to investigate whether there ws any shenanigans in the foreclosure process. Maybe I should have, being familiar with some of the horror stories about botched foreclosures around the country over the past couple years. We got a title insurance policy, but if our foreclosure sale somehow got tossed out Bevilacqua-style, it would be financially painful for us, as much work and money we've put in the place since buying it. But I don't think that sort of scenario is likely in Ohio, so I'll accept the risk.

The house is in the neighborhood in which I was born and lived the first twenty or so years of my life. This development was built in the early to mid 1960s and represented the finest in Central Ohio white-bread middle class tract home living back in its heyday, before the Columbus suburbs began to explode in the 70s and 80s, spurred in no small part by desegregation and white flight. My dad still lives with my stepmother in the house he bought new in '62, but he is the exception; most homes in the neighborhood are on their third or fourth owner at least. Nowadays, the neighborhood is a little dated looking and rough around the edges-- 1960s tract housing stock is not old enough to be charming, but yet old enough to be run down if it hasn't been maintained well. The yards, approaching a quarter acre apiece, are a little bigger than the typical post-war lots in neighborhoods closer to downtown, and the houses are a little roomier on average too. This particular house, checking in at a little north of 2000 square feet with 4 bedrooms, 2 1/2 baths, a full basement and a 2 car garage, is on the large end of the spectrum for the neighborhood.

The foreclosure crisis has not bypassed Columbus, and most blocks in this development have one or more foreclosure properties. The government agencies favor selling their seized properties to owner-occupants, but most owner-occupants still need a mortgage, and it's not easy to get a mortgage these days, especially on a foreclosure. If no owner occupant buyer steps up, the government agency will accept bids from investors. On the second try, my brother and I had our bid of just under $50,000 accepted-- far under the $85,000 price at which HUD had the home listed. Such discounts are not unusual; inventory has apparently far exceeded investor demand to this point, and those sparse investors out there are apparently putting in lowball offers and hoping to get lucky, it seems. My brother and I were doing the same.

Having pooled our cash to close the deal without a mortgage, the transaction went off without a hitch. We got to work on the place right after Christmas. The simple stuff, my brother and I planned to do ourselves. We hire pros for stuff like electrical work or hardcore plumbing or installing new windows and doors.

The finished basement had water damage and some mold; at some point we figure the power must have been shut off and the sump pump couldn't do its thing. The basement had to be gutted back to the concrete blocks. Once we got the wallboard off, we were pleased to see that the walls were actually in great shape and showed no water damage, so after the big demolition job and trashing it out, it mostly just needed a coat of paint on the walls and floor. The basement has been primarily my job, and I have to admit I underestimated it a little bit. Gutting a full finished basement and hauling all that debris up a flight of stairs with a dust mask and goggles on will kick your butt a little! I am pleased to say that with it trashed out and with a new coat of paint now, it looks great and the job is basically done.

In the main living area, basically every surface-- ceilings, walls, floors-- needed refinished. My brother did most of the painting, but we hired a guy to paint all the trim to save some time, and also had him paint the outside stucco. There was a lot of prep work, scraping off old wallpaper and borders, and fixing close to five decades of minor damage to the wallboard throughout the house. The chimney was damaged, allowing water to leak into a paneled wall around the fireplace in the den. As we removed the paneling, it became obvious that termites had once been at work on the sodden paneling. Fortunately, the termites only were active on the room side of the plastic moisture barrier in the wall and there wasn't any current termite activity, so the studs were okay and we just had to replace the wallboard. Most of the ceiling and wall paint is now done. Tile, carpet, and refinishing some hardwood floors are tasks still to be done. We're having pros do the tile and carpet installation, that'll be a couple weeks yet.

We had all new windows put in, which was a major expense, and had a new water heater put in. New or nearly new appliances will go in the kitchen; we've got em but aren't ready to install them because we haven't replaced the counter top yet. Several doors needed replaced; that's halfway accomplished. New doorknobs, window treatments, lighting fixtures, faceplates, faucets, plumbing back to the walls in kitchen and baths-- about halfway done there. Sprucing up the yard-- halfway done, just need some decent weather on a weekend!

I'm probably forgetting some things, but you get the picture. When we are done-- hopefully by the end of February-- this house will be in move-in-and-don't-have-to-do-a-thing-for-ten-years condition.

Our estimate of $20k for repairs was a little optimistic; it looks like we're going to come in at a little more like $23k. So our cost basis is going to be approximately $73k. I'd estimate that the house would sell quickly in the $110-$115 range, judging by sales of other comparable houses in the area. Subtract out taxes, utilities, insurance, realtor's commission, etc. and I'd estimate we are likely going to each profit in the range of $15k, maybe a little more. Obviously, there are risks involved here that could affect our profit-- the market could fall further, a sale could fall through, maybe nobody puts in an offer, and so forth, but I think my estimates are fairly conservative.

My brother and I are just basically doing this as a side endeavor-- we both have regular jobs and are getting this house prepared for sale in about two months, without really stretching ourselves too much time-wise (though my brother might disagree-- he has two young kids). An investor who does this kind of rehab flip as his or her full time occupation could easily do the same work in two months. If they could find and turn five rehabs like this per year, that would be $30k x 5, or $150k per year, with maybe a month or two break in there somewhere to take it easy. Not too shabby, in a low cost of living city like Columbus!

The main impediment to such a livelihood is capital related-- unless a flipper can completely self finance, they'd have to take out loans or find someone to put in money, which would both cut into profits and add complications. Working in the flipper's favor are low interest rates and low purchase prices.

This has been a fun experience. I live within five miles of this house, so it is easy to get over there in my spare time and do a couple hours of work in the evenings and on weekends. It's satisfying to see the changes for the better that result from your own labor. We've had a couple nice neighbors give us a thumbs up, people seem to appreciate that the neighboring house is being fixed up, and I am sure they look forward to getting a new neighbor.

I keep pretty close track of the housing market, both locally and nationally. There is obviously still reasons to be cautious in the housing market-- the latest national housing indexes have been showing that house prices are continuing to fall; it is widely known that there is still a large overhang of "shadow inventory" consisting of properties that are already in the foreclosure process or likely will be at some point, which will eventually hit the market; unemployment is still high; mortgage credit is still hard for many to get; and so forth. However, I think the prices that can be had on distressed properties, at least in my area, are now providing a high reward, low risk value proposition for investors, even amateur investors like me, and therefore I would be surprised if not shocked if prices on distressed properties went much lower.

New CFPB Settlement Disclosure Form (HUD 1/1A) - Round 3

Wyatt Bell — Thu, 26 Jan 2012 16:41:00 EST

The Consumer Financial Protection Bureau has issued the 3rd round of the proposed Settlement Disclosure Form which will replace the GFE HUD 1/1A.

Here's the latest proposed Settlement Disclosure from CFPB (Consumer Financial Protection Bureau):

Butternut

Hemlock

The Foreclosure Dilema: Decisions at the Expense of One Class

john gault — Wed, 11 Jan 2012 02:23:35 EST

This material looks at favoritism to one class of citizens at the expense of another in

enforcement of Law in regard to foreclosures.

A deed from Adam to Martha is effective upon its delivery to Martha, and not until then. That's a fact. The only thing at all arguable is does this delivery mandate apply to a deed of trust, which is a transfer of an interest in real property. - the DEED in deed of trust.

MERS claimed to be the beneficiary in the deeds of trust, (where it is not claiming agency in lieu of beneficiary) but MERS never took delivery of one single deed of trust. I don't know why the law of delivery wouldn't apply. "MERS" doesn't take delivery of anything, or even do anything except provide a database, collect fees, and appoint anyone it feels like for a fee as an alleged officer to do things they couldn't otherwise and in reality do. It is a shell entity with no employees. It is a computer system used by its members for a fee. The members either with intent or as a result attempt to and are able to avoid any number of legal requirements. Any time a member relies on anything at all as to Mers, it is as to the claimant's employee's alleged status as an officer of MERS by the appt from William Hultman (all 25, 000 of them).
The lack of delivery and possession may undermine a lot of what is passing as "fact" by foreclosing parties.
MERS has no interest in notes and no one should be made at this date to argue this point. It isn't news. MERS itself has made this very clear in MERS v. Nebraska Department of Banking and Finance, A-04-000786, Appellant Brief filed October 14, 2004:

“MERS does NOT acquire loans….”
“There is no rational basis for determining that MERS acquires loans.” P. 9

“MERS has no interest at all in the promissory note…” P. 11

"Mers is not the owner of the promissory note secured by the mortgage." P. 11

Full text of the brief is available here:

http://www.scribd.com/doc/52903486/MERS-Disavows-Interest-in-Loans-and-Notes

Every self-assignment done by a MERS' member which purports to assign the note is imo a false instrument. Such an assignment is contractually and legally impossible. You just can't 'assign' an interest you don't have and to pretend to do so to the (significant) detriment of another crosses the line and becomes criminal according to all states' law.
By all appearances, none of the intermediaries on the note ever took possession of the note on its alleged way to securitization. They didn't have time, they just didn't, for any of those "formalities" otherwise known as law. Did any money actually change hands? I doubt it. That takes time, also.
Someone funded the loan, whether it were the party named on the note or someone else. The next time (or first, depending on your view of this funding issue) the note ever saw any money change hands after its origination was likely from the derivative investors, with no payment by anyone along the road, in stark contrast to the provisions of the UCC. No money = no interest. No possession = no interest.
If Dee 'bought ' a note from joann, but Dee never gave Joann any money nor took possession but then sold the note she hadn't paid for or possessed to Richard, I think under the UCC, there has been no transfer between Dee and Joann, so no transfer from Joann to Richard.
There just wasn't time between origination and securitization for those people to have done what had to be done: pay for-take possession-endorse-deliver, pay for-take-possession-endorse-deliver- and so on. (And none of this considers the constant flux of money, any promised yields in light of that constant flux, and their self-created urgency to get that part - the promised yield - "nailed down", and that may well be at the heart of why laws weren't followed). I, for instance, once lost around 150k for the flux of that money, and I was just a minute fry, a mere speck on 'the freckle of life's complexion'. Any business plan to get loans securitized in a NY minute (pun intended) had to consider that fluctuation and meeting deadlines on commitments. These loans were moved around in huge blocks. Multimillion dollar blocks. Missing any commitment dates would be a very big deal. So did they just record alleged "transfers" of notes in MERS' database and call it a done deal? Sure looks like it.

All these notes had to be paid for and physically transferred and possessed by everyone in the chain, at least that's my understanding of the UCC.
We think of MERS merely as a computer database, a private registry for deeds of trust. I think it's worse than that. I think they skipped all the laws, including the UCC, by only (allegedly)
registering these alleged transfers of notes in MERS' database, which could appropriately be called a private set of books, but significantly, one which has no basis in fact or law and certainly one with no governance. What I'm suggesting is there was no endorsement of the note along the way by design. I'm opining it was not an accident - the 'shortcuts' were part of the plan, their reliance being the blank endorsement, but I think that plan fails for lack of possession and payment. We know there was no assignment of the deed of trust and most likely no possession, either, of deeds of trusts or their assignments. We've all done some reckless things when we're in a hurry. But most of us confine these things to that which we know can be remedied and slap it on tomorrow's calendar. Failure to follow the UCC as applicable as well as other contractual and statutory provisions, however, is fatal.
A million to one there was no (required) delivery and possession along the way of either the note or deed of trust or any assignment of the deeds of trust. There was probably no payment, either. No money changing hands = no interest created or at least no right to enforce. No possession = no transfer.

Now, a promise to pay for the note might transfer interest IF the note is physically delivered. I'm not clear on this one, although I uderstand the significance of the answer. But you can't enforce a note you haven't paid for. Promises to pay don't cut it for enforcement.

After closing, where did the debt and collateral instruments go? If any of them went right to the trust custodian (or were destroyed), then surely there was no possession by anyone whose endorseable or assignable interests were as a matter of law dependent on that possession.
There is a reason there were 'intermediaries' between the originators and the trusts having to do with bankruptcy-remoteness, which discussion is not up my alley. If someone were to put the two together - 1) the no money and no possession arguments and 2) why the intermediaries were necessary (bankruptcy-remoteness), maybe we'd have a shot at arguments and need to know clearances judges could only find reasonable, and in fact indispensable to adjudications.

We'll probably never know, but is the reason they needed those TARP funds because their little private registry either failed in 'system-integrity', in which there could be 'accidents', or for lack of recordation of the collateral instruments allowed one note to be 'sold' multiple times to different entities and or trusts. What is the old saying? "A stitch in time saves nine"?

TARP was meted out ostensibly for the greater good. I can't help wondering if in 2012 it isn't (past) time to consider the economic impact of following the law as to foreclosures, which entails appropriate discovery, because, to borrow a phrase (Olds?), "This isn't your father's car", your honor.

If this necessary discovery results in routine findings of unenforceable obligations to homeowners, wouldn't that be a heck of a stimulus to our sputtering economy? It's the same ship which is sinking, regardless of whether it's at the aft or stern. It would also signal a return to the law and rights on which our country was founded and without which we will not survive.

It is certainly challenging for any of us mere mortals to try to figure out what is actually going on with this whole mess. It's been proven in more than one case, for instance, that a loan was not transferred into a trust by psa cut off dates or at all. Other trusts appear to me messed for other reasons, some of which are decidely over my head. I am a mere-mortal-plebe-, but even as such, I can see problems for the trusts and others with these "fouls". So if I, a plebe, can see this, what is really going on with people who should know more than me, specifically people who are charged with responsibility to protect the law? I think that's a pretty important question. Last I heard, for instance, the IRS was undecided about how it was going to treat income to investors which didn't really qualify for the favored tax status they thought they were getting with their investments. Some trust investors, as we know, are fighting mad over various issues with the bill of goods they were sold, but to my knowledge, none of their suits quarrel about whether or not loans made it into a trust. The suits are centered around the quality and ratings on the loans. Apparently they can't admit the loans didn't make it without conceding the tax consequence of their received payments.

Is this the alleged dilema? Is there a struggle, for one, by and large for the powers that be between the consequences of an acknowledgement these are taxable events to one group, and in order to avoid that acknowledgement with its broad consequences (and this of course includes to people aka Wall Street & Co. who truly should be bearing the brunt of those consequences), blind eyes are turned toward what is wrongful foreclosure, in which case, the homeowner certainly loses? Is there a pi$$ing match of whom should bear the economic brunt of the misdeeds and or systemic failures (this struggle would be true only for those literati with any kind of conscience at all). Better for the governmental literati to sit on the bench and let us all sort it out (but AFTER the TARP hand-outs) as best we can in the interests of "Something", and that "Something" not including the welfare of American homeowners, for whose benefit laws were enacted, and which 'something' in fact must ignore the law? Is there some mass conclusion, some consensus, by those in power that the winner of the struggle should not be the homeowner, who, after all, is perceived to have gotten the benefit of the bargain? Is this our enemy?

Well, if so, that's just wrong and a damn sad commentary.

Title Insurance Employment Keeps Taking It On the Chin!

Wyatt Bell — Sat, 07 Jan 2012 10:55:01 EST

The latest jobs report shows the insurance sector created 3,300 jobs. But title insurance lost jobs and wages decreased.

Friday's US Job Report disclosed there are 64,900 jobs in the title insurance sector. That is a -4.1% decrease according to the figures redone for November 2011. In other words title insurance jobs are continuing to disappear.

The average wages are now $790.83 weekly. That reflects a double-digit decline of -15.7% according to the BLS numbers.

I would speculate that any argument regarding job loss and the redefinition of the title insurance industry doesn't have the job numbers to be persuasive.

HSBC, the banking giant, laid off 25,000 workers. Borders, when it closed, laid off 10,000 workers. Cisco laid off 6,500 workers.

We're a very small industry!

Insurance News

Training the new generation of "closers"- My Big Blue Bird is catching on

CHARLENE PERRY — Fri, 06 Jan 2012 14:44:41 EST

I wish I could share a picture of my sweet big blue bird, Skyler Blue with you here, but suffice it to say, he is beautiful, and he is very smart!! He could easily learn how to "conduct" a closing if I worked with him enough.

Skyler, a/k/a Big Blue Bird, is my sweet 15 year old Blue and Gold Macaw and he is very bright. He has a vast vocabulary and he has learned to mimic many things that I say to him. He calls for his Mommy, he says help me, cookie, cracker, ouch, and about 30 other words and phrases. He has picked all of these words and phrases up simply because he has heard them over and over again over the years. He does understand what some of them mean, for instance, he does know that if he says "Mom", I will come to him, if he says cookie or cracker he will get a snack, and if he says "help me" I will turn off his radio. (I'm not sure how that came about, it's kinda strange really).

My sweet Skyler is learning "sign here" but he can't seem to grasp "initial here", but we're working on that. Why do I bring the Big Blue Bird into this discussion?

I hear more and more tales of "closing agents" being hired to "conduct convenience closings". Many of these "closing agents" have in fact been involved in the title insustry and many of these closing agents may even be licensed title agents. BUT, many of these "closing agents" are notaries public who are trying to supplement their income and who have signed on with firms that offer convenience closings.

There is absolutely nothing wrong with someone trying to supplement their income by offering a service that is demanded by the public. But, as a professional title agent, I just don't think that the consumer understands how very important it is to meet with a professional title agent, in a professional setting during regular business hours who is familier with your closing file and who has the ability to answer questions that may be presented at the closing, or in the alternative get the answer to your questions.

My sweet big blue bird can say "sign here" and he could probably even learn to point to a particular document while saying that; as I said he is very bright! But if he were to be asked to answer a question about any of the documents presented he would likely respond with "help me". And therein lies the crux of the problem with using non-professional title agents to conduct your "convenience closing".

First and foremost, a real estate settlement transaction commits you to financial obligations. It is incumbent on YOU the CONSUMER to know what you are signing before you sign it. Sure, you may be involved in a refinance transaction, and you may think that the signing of the new loan documents is simply a technicality but that small technicality OBLIGATES you to a debt. Do you really want to take on that kind of responsibility while sitting at your local coffee shop or in your kitchen after business hours when there is no one available to answer your questions?

Yes, we can train almost anybody to "witness" closing, but in order for that "witness" to be able to answer your questions they need to be know the business of title specifically and real estate generally.

Call on the services of The Preferred Title Group, Inc. in Maryland for a professional settlement experience. If you are not located in Maryland, call on the services of an Professional Independent Title Agent in your area.

Robo-Signing..it's still alive and well

CHARLENE PERRY — Thu, 05 Jan 2012 13:55:30 EST

But with a twist. Since the explosion of media attention given to the robo-signing debacle lenders and servicing agencies have all said that they have changed their ways and that robo-signing is no longer an issue, UNLESS...

You consider the widening use of electronic signtatures.

E-signatures have been around for a while and many companies are marketing this as the next best thing for the closing process. But, in addition to that, lenders and servicing agencies have discovered that they can get thousands of documents signed without so much as a hand cramp simply by using e-signatures.

Electronic signatures are legal in may jurisdictions, including Guilford County, NC. A recent study done by Jeff Thigpen, Register of Deeds in Greensboro, NC reveals that banks have wised up and rather than having several people signing the same persons name over and again, the banks are now using e-signatures.

According to records compiled by Mr. Thigpen the use of e-signatures has dramatically increased

Since the forgeries were uncovered, Bank of America’s filing activity has shifted more than that of any other bank. According to records compiled by Thigpen, a woman named Bethany Smith signed off on 97 land records for Bank of America in Guilford County between May 1, 2010 and October 30, 2010.
Over the next six months — from November 1, 2010 to April 30, 2011 — Smith approved 1187 documents filed with Thigpen’s office — more than 12 times as many documents as she signed in the six preceding months. Each document appears to have been signed electronically.

There is absolutely no way to tell whether or not the documents that contain an e-signature were ever reviewed by the person whose names appears in the signature line. But, I assume, because the use of e-signatures is allowed in Greensboro, NC as well as in other jurisdictions, there will also be no in which to ever challenge the validity of the documents should that need ever arise.

I have said many times here in this forum and others that I do absolutely love technology. But, with all technology comes the unintended consequences of mis-use as is suggested by Mr. Thigpens review.

Soon, particularly as it relates to the real estate title industry, human beings will not be needed at all; robots can be programed to load documents, enter data and command the computer to print and deliver the documents to the court.

Do you have your resume up to date? Maybe it's time.

First American Title and HARP 2.0 - The newest cost effective way to "insure"

CHARLENE PERRY — Wed, 04 Jan 2012 12:32:13 EST

First American Title announced the availability of its Quick Start HARP 2.0

For those of us who still try to do things the right way be prepared for some major clean up work in the future

The HARP 2.0 program offers many people an opportunity to refinance their current mortgages into a new loan and has fewer restrictions than did the original HARP program. This program looks like it may be more successful than the original HARP program.

First American has been working closely with lenders selling them on their automated technology for delivery of quick turnaround with little cost. Quick Start HARP will offer lenders a title commitment, rather than a non-binding title decision to the lender within SECONDS according to Patrick E. Mclaughlin president of First American Mortgage Services, a division of First American Title Insurance Company and the exclusive provider of Quick Start HARP, allowing closing to occur in as litle as 14 days. The program also provides mobile notaries and the ability to electronically sign loan documents.

Through advanced, accurate title automation and prioritized processes, we were able to achieve above-average results in speed to loan closings for the first version of HARP,” said Robert Camerota, COO of the First American Mortgage Services division

Now don't I remember reading some time ago about FATICO offering a similar program to lenders then refusing to cover the claims that resulted?

I guess in order for me to stay viable and able to compete I have no choice but to offer the same INSTANT title search. I think I will go on line to the state data base, plug in the name of the borrower, find out if there is a deed ANYWHERE in the data base that reflects his/her ownership in the subject property and issue a commitment based on that "search". If I am lucky enough to see a Mortgage or Deed of Trust filed somewhere around the time the Deed was recorded for the subject property then I can go ahead and list the release of that document as a requirement for the issuance of the final title policy. I will certainly be able to rely upon the lender to tell me with certainty which loans securing the property are to be paid off, because they have run a credit report, and we all know that credit reports are always right.

I don't need to bother with running judgments in either State, Federal or local courts, (those are not all available on line in Maryland) I will simply offer an exception to any thing that may be out there; I don't need to search for any divorces that may affect the ownership of the property nor do I care whether or not the legal description is correct or even filed among the land records. I don't need to read anything other than the names of the persons referred to in what may or may not be the title deed and security instrument; I won't need to be bothered with whether or not the State, County or Municipality has filed any liens against the property for environmental issues, open taxes, bills etc, because, let's face it, if there is nothing showing up on line, then there must not be anything there!!

YEP, I can compete with FATICO and offer the same lackluster, I don't give a damn attitude and a title commitment with verbiage that states something along the lines of "subject to all matters of record, including, but not limited to, all recorded covenants, restrictions, conditions, easements, reservations, agreements and rights of way, liens, judgments, encumbrances, and defects, to the extent but only to the extent, that the same are valid and subsisting and apply to the real estate herein described or any part thereof". That's about the best CYA I can come up with on such short notice but I think it just may do the job.

So in the future, if you are pulling title in Maryalnd and you see The Preferred Title Group, Inc. has been involved in the transaction, and if that transaction was a refinance, you are forewarned and thus forearmed that I simply did not give a rat's $#@ about the status of title, I just needed to get the deal to the table in as short a time possible and without having to spend time, money or energy researching anything.

You can be further assured that the excellent title attorneys that I have been using over the last 15 years for title search and examination are scrambling around looking for new business, because with this new environment of anything goes, they simply are not needed!! I can do it all on line all by myself and no body will care whether it's right or wrong. The underwriters will just pass their "magic wand" over my defective titles and grant a Letter of Indemnity to who ever has the bad luck of coming behind my work; and if I remit enough in premiums, well, by God, they will increase my split and maybe even send me some new business since I am so damn good at what I do!!

AND, most importantly, because I have now let my guard down and trashed my own personal ethics and sense of responsibility and professionalism, I think I might finally make enough money and have enough time to GO ON VACATION. After all, that's the end goal, right? Make a lot of money at someone else's expense and live life to the fullest!!

Education in the title industry- a sorely missing component

CHARLENE PERRY — Tue, 27 Dec 2011 15:52:33 EST

25+ years ago when I "fell into" the title industry things were so much different than they are now. Some things I was glad to see change, others, not so much.

I not so fondly remember the days when all title commitments were actually typed on a typewriter, documents were delivered by courier and promisorry notes had to be done over and over again because of "lift off's" Those are the things I don't miss.

I love technology and the relative ease with which we are able to process our closing files now. But with technology came what I consider to be the "dumming down" of the industry in general.

When I first came into the business, I knew nothing of the title business, but I knew how to type, so type I did, for hours on end day in and day out!. Commitments, deeds, Notes, Deeds of Trust, letters, etc. And while I typed, a strange thing began to happen; I started to ask questions, I started to learn the "why's" of what I was typing, what it meant to "take exception" why exception was being taken, what did it matter how I typed the "vesting" in a deed as long as I had the names correct, and so on. And from that point a seed was planted that made me want to learn more! I realized that I liked the puzzles, I liked to read the old handwritten deeds and mortgages, etc. It was almost like a history lesson being taught every day. But, equally as important as my willingness to learn was the willingness of others to teach me!

Today, I still read all of the deeds and mortgages. I read them still because I like the puzzles, and the history, but mostly I read them because I have to in order to do what is ultimately what I am paid to do, which is to offer a policy of title insurance to the purchaser and his/her lender, if applicable.

However, I am in the minority, I fear. Because of technology there is no longer a need for a "processor" to actually read anything! Cut and paste are the rules of the day and even if a document is read it is only given a cursery glance to check the spelling of names at best, or so it seems.

Many of the licensend title agents who are active in today's market never had the opportunity I had to learn from masters of the real estate settlement industry and to learn the "why's" of what we do. Now in order to acquire a license you are made to sit in pre-licensing classes with instructors who may or may not have ever been actively involved in the actual closing and settlement process; take and pass a test, get a bond and viola you are a licensed title agent!! Actual working knowledge of the process is not a mandatory requirement for licensing.

I often relate our industry to that of an accountant or attorney, in that, we are professionals, and as such should be afforded the same respect as other professionals. I cannot imagine asking my attorney or accountant to come to my home in the middle of their dinner hour to conduct a closing so that I would not be inconvenienced, but we title agents are asked to do that all the time. (I personally don't do in home closings for a variety of reasons beside the lack of professionalism associated with that practice; in my humble opinion anyway) but many are asked and many do "conduct" closings in the client's home.

I recently had a discussion with an local icon of the title insurance industry and he and I were discussing the "dumbing down" of our industry and the lack of true education to those just starting out in our industry. We both agreed that it would not be a horrible idea to see educational requirements similar to those that are mandated for attorneys and accountants. In particular, we discussed longer classroom hours, more in-depth study of the industry and title insurance generally, possibly requiring at at least an AA Degree in the field of real estate, AND MOST IMPORTANTLY a requirement that a candidate for licensing be made to do an internership (paid or unpaid) under the supervision of a seasoned title agent before being allowed to go solo.

Today, because of technology, many title agents have never seen any of the documents commonly seen in a chain of title. For that matter many title agents have never seen a chain of title. They see the title commitment (maybe) which commitment was prepared by a ""processor" in India or China or Pakistan or maybe even here in the USA, with information gathered from a public web-site and relied upon as the title report. That commitment may or may not actually reference any or all of the matters that are going to be excepted to in the final title policy; and, if the exceptions were listed, and if the title agent were to be asked to explain what a particular clause in a title commitment means, it is likely that the title agent would not be able to explain the particular clause because they have never read a title policy to see how it relates to the commitment, etc.

It is time for our industry to make change. How can you expect to be treated as a professional if you don't take the time and the steps necessary to BECOME a professional? How can you offer a policy of title insurance to the consumer if you can't explain with clarity the provisions of that policy?

There is a great push for consumer education as it relates to the purchase of real estate. There is the "Know Before you Owe" campaign and others that are specifically targeting the actual consumer, not the real estate agents or lenders. If we are to stay viabile we too must have a campaign in place to educate the consuming public about our WORTH but first, we must demand that those in our industry have the proper education to enable them to be WORTHY of the respect we should all be demanding!

Is That Mortgage Open-Ended?

rfranco@sourceoftitle.com — Tue, 27 Dec 2011 13:28:15 EST

I got a call from a client this morning asking if a mortgage we showed on a title search was open-ended. It is an important question. When we do a search, we report what we find. If the mortgage is open-ended we write "Open-Ended Mortgage." If it is not, we simply write "Mortgage." But, this reminded me of an email I received a few months ago. It seems that an abstractor did not indicate whether the mortgage was open-ended or not. As it turned out, it was open-ended and there was a claim on the title policy because of the discrepancy. The question in the email I received was simply "who is responsible for the claim?"

Why does it matter whether the mortgage is open-ended or not? An open-ended mortgage allows for future advances. Most commonly, these are home equity lines of credit where the homeowner can write checks to draw additional funds on their mortgage. When there is a sale, it is very important for a close-out letter to accompany the payoff. Otherwise, the balance is paid off, but the account remains open and the borrower can continue to write checks, running the balance back up, which is still secured by the mortgage. This can be important in a refinance, too, because those future advances may have priority over the new mortgage. Although in a refinance, it may be possible to argue equitable subrogation saves the new mortgage's priority over the equity line.

This becomes a title insurance claim when the borrower on the equity line, who has now sold the property, defaults on the line of credit secured by the open-ended mortgage, which was paid off but never released. The lender files a foreclosure on its open-ended mortgage and discovers the property has sold; they then serve the new owner with the summons and complaint. The new owner now has a title claim.

The facts as presented in the email were essentially as described above - the open-ended mortgage was shown on the title search as a "mortgage" and it was paid off. But, because the title agent did not realize it was open-ended, no close out letter was provided to instruct the lender to close the account. The borrower then continued to borrow on the account and subsequently defaulted. When faced with a claim on the policy it issued, the agent blamed the abstractor for not noting on the search that it was an open-ended mortgage. The abstractor's E&O carrier was notified that there was a potential claim.

There is certainly a valid claim on the title policy. But is this the responsibility of the abstractor? In the abstractor's view, he showed the mortgage. But was that enough? Was he still negligent for failing to inform his client that it was open-ended?

Maybe. It is the responsibility for the abstractor to accurately show what he finds - given the importance of the fact that this was an open-ended mortgage, the client has a good argument that the abstractor was negligent. However, there are additional facts that would become relevant in determining if that negligence was the proximate cause of the claim and whether the abstractor is liable. Perhaps the client was also negligent.

Often times, a payoff letter from the lender will indicate if a close-out letter is required to close the account. This would be sufficient to put the agent on notice that it was an open-ended mortgage. And, if this was a second mortgage, perhaps the client should have inquired further to find out if this mortgage was open-ended. I would also like to know how long ago the closing was in relation to the default on the line of credit. The title agent should have followed up to get a release - if the mortgage went unreleased for a long period of time, it should have caught the mistake before a large balance was incurred and the borrower defaulted. This could have minimized the risk and exposure of the title agent.

There is most likely enough blame to go around in this scenario. The problem could have been easily avoided if the abstractor had properly noted on the search that the mortgage was open-ended. It is important for an abstractor to understand the significance of the documents he reviews so that they can be accurately reported to the client. Not all mortgages are created equal.

On the other hand, the agent here could have done more to prevent this claim, too. So is it really fair to place the blame on the abstractor? In my opinion, this is a claim that the title company should just cover... that is what title insurance is for. But, since it is arguably a claim related to searching error, there are two E&O policies from which the underwriter can recoup its losses - the agent's and the abstractor's. Regardless of which bears the greater responsibility, there is an E&O claim and the cost of doing business (for all of us) will go up.

What do you think? Who should be responsible for the claim?

The Sincerest Form Of Flattery?

bossman@jbizinfo.com — Thu, 22 Dec 2011 20:34:17 EST

I was originally going to post this to General Discussion, but it somehow seemed more appropriate here. It has come to my attention that a fellow SOT member is truly impressed with the way I write. So much so, that this member has seen fit to plagiarize the content of my advertising from SOT onto another website.

To be clear, we’re not simply talking about a phrase or two here and there, (after all, as God’s Word tells us, "there is no new thing under the sun", Ecclesiastes 1:9). This is blatant “copy-and-paste” plagiarism. This member simply copied and pasted my ad word-for-word, removing my company name and inserting theirs in its place. I won’t mention the name of the website (or the member) just yet, this being the Christmas season, the season of giving. Furthermore, since I’m in such a charitable mood, I’ve also decided to forebear from taking any legal action, (at least for now) to give the guilty party the opportunity to remove the offending verbiage from their advertising.

To the member of whom I speak (and you know who you are), consider this your written public notice: as the author and owner of the content at issue, I herewith demand that you IMMEDIATELY remove from all of your advertising the copyrighted material that you have brazenly and audaciously appropriated from my company. I will wait for a reasonable amount of time, but as it stands, I have plenty of evidence to back up my claims and all legal options are on the table. I await your response.

Cordially,
Scott L. Perry, President
Jireh Business Information Solutions, Inc.

Last Week I Wrote-off Approximately $7,000 In Bad Debt.

rfranco@sourceoftitle.com — Wed, 21 Dec 2011 10:32:43 EST

I have always resisted writing-off bad debt. I know that we have been carrying balances on customer accounts that is uncollectable. But my theory was that if those customers ever called to ask us to do their work again, I wanted to be able to tell them to pay their balance first. So, I just kept it on the books as a reminder. Finally, though, to get a fresh start in 2012, I decided to clean up all of those accounts... some dating back to 2004. I learned a few things, or at least confirmed what I already knew, that I thought would be worth sharing.

First, for the accounting purist out there, let me acknowledge that I am not using the term "write-off" with its precise technical meaning. Like many small businesses, I use the cash-method of accounting. This means that the income is not counted until the payment is received. And, since these payments were never received, there is really nothing to "write-off" (and no deduction on my taxes for these uncollected bills). What I mean by write-off, instead, is that I zeroed out the balances with a notation that it was never collected; just to clean up my books.

The first interesting thing I notices was that collections problems really began in 2004. And, there were a lot of them. This is around the time we really started to notice clients doing things like making partial payments - they would pay the search fee, for example, but not the additional copy charges. It was clear from my review of our files that from 1993 (when I started) to 2004, clients paid our invoices in-full. I'm not really sure why this ever changed. It seems simple enough - we send and invoice and the client pays it. That worked fine for years, but for some reason in 2004, that all changed. It continues to be a problem today, but we keep a much closer eye on it.

The next thing I noticed was that we had added a lot of new clients since 2004. And, it was clear that we had the same problems many others have complained about on the forums - fly-by-night vendor managers who ordered searches for two or three months and then disappeared without paying the bill. Rather than well-established title companies, our clientele had suddenly changed to lots of little vendor management companies. These losses were typically smaller, but there were more of them than I care to mention.

I have said it before, and I will say it again. There are some good vendor management companies out there, but the majority of them are underfunded ( of the we-can't-pay-you-until-our-client-pays-us variety) and they are constantly the ones that seem to have trouble paying their bills on time. Just to be clear, it is not my job to extend lengthy credit terms to you because you can't seem to collect from your clients! Here is my suggestion to them - give me your clients and I will do the work for them directly; let it be my responsibility to collect from them if you cannot handle your business. I have no desire to work for a second rate middle-man who cannot manage his affairs.

The write-offs associated with these vendor management companies mainly fell into two categories: (1) they constantly underpaid their invoices, leaving a balance that never got paid, or (2) they ordered searches that they clearly never had any intention of paying for. My clear conclusion was that vendor management companies have been a terrible thing for independent abstractors!

The last category of write-offs was of a more traditional nature, defalcations. I noticed a couple of well established title companies that have simply gone under (with notoriety). This has always been a risk for independent title abstractors, but has become more common lately than it used to be. Though these are more rare than the typical deadbeat clients, when this happens the balance is usually much larger. And, it really hurts the bottom line. It is particularly more painful now because business is so slow and it is hard to absorb such large losses.

In the end, there is about $7,000 worth of work we have done that we will never see. It could be much worse, I guess. We have always tried to cut clients off before balances got too large for us handle. But, I am still a little angry that things had to change this way. We have always tried to operate in a very professional manner and we do expect the same from our clients, both large and small. Unfortunately, you just cannot count on all of them living up to your expectations these days.

So, what do I plan to do about this? I'm not really sure. Clearly, there is nothing I can do about this $7,000; it is already gone. But, I do plan to take control of the situation in 2012 so it doesn't happen again. I am considering requiring new clients to sign contracts - something I never really felt was necessary in the past. I may require some new clients to sign personal guarantees, so there is a real, live person I can collect from if the "company" goes defunct. I am also considering new clients to submit a deposit, refundable after a certain number of months of on-time, in-full payments. Do I expect that to be well-received? No.

Part of the problem with insisting that clients take responsibility for paying us on our terms, is that it is certainly not "the norm" in this business. It is too easy for them to find someone else to do the work who will not take these kinds of steps to protect themselves. Others will simple take the work... then complain when they don't get paid. That makes it very difficult for any of us to insist on reasonable controls over our accounts receivable.

But, maybe it is better to give up those clients than to get stuck again. Sure, I may lose out of the opportunity to add a good client who doesn't want to jump through those hoops to order a search. It might be worth it to filter out all of the deadbeats who will be more hassle than they are worth, and who will ultimately leave me with a large outstanding balance.

The industry will turn around eventually and work will pick up again. As I rebuild our abstracting business, I want to do it with good, reliable clients. I do not want clients that cannot pay us on-time (Net30). I do not want clients that will not pay our invoices in-full. I do not want clients that plan on running up a bill and switching to a different abstractor when our bills are due. Maybe this is the only way.

My game plan for 2012 is to start running my business and stop letting clients tell me how to do it.

Getting rid of paper for 2012

David Doty — Mon, 19 Dec 2011 12:49:20 EST

Fidelity National Financial has a service division unit that is responsible for all of the document scanning and imaging needs of FNF. They are offering document scanning services to any independent title company for a huge discount if contracted by the end of the year.

FNTI a subdivision of Fidelity has a year promotion called the "Take Flight" program. The program allows title companies to send closed title transaction documents into a Fidelity conversion center and have the documents scanned and indexed for less than $.04 per page. In order to receive this discount there are some hard dates and deadlines title companies must meet. Program details can be obtained from colleen.robertson@fnf.com.

Seller's deed contains a restriction- Does any one care

CHARLENE PERRY — Fri, 16 Dec 2011 14:52:41 EST

In the instant case, the current owner purchased the property from Fannie Mae. In the deed to current owner there is a restrictive covenant

It is ordinary and customary in a Fannie Mae transaction wherein buyer is an investor for Fannie Mae to have a restrictive covenant in the Deed which states as follows:

Grantee herein shall be prohibited from conveying captioned property to a bona-fide purchaser for value for a sales price of greater than $_____________________for a period of three (3) months from the date of this Deed. Grantee shall also be prohibited from encumbering the subject property with a security instrument with a principal amount of greater than_______________________for a period of three (3) months from the date of this Deed. These restrictions shall run with the land and are NOT personal to the Grantee.

In the instant case the deed restriction is clearly in the deed, the grantee signed the deed acknowledging the restriction AND THEN immediately behind the deed is a Money Loaned Mortgage which exceeds the amount named in the restriction!!

I took the file to underwriting counsel for guidance. Underwriting counsel reviews and asks, so, what is the penalty for failure to comply with the restriction and where is that referenced in the Deed?

Now, I have been doing Fannie Mae transfers for more than 15 years, and I will state honestly that I never really gave that a thought! So what? There's a restriction. How do they intend to enforce it? Is there a presumption of reversion? Is there a penalty of some sort? The answer appears to be NO.

So with the blessing of counsel I proceeded to closing on this matter, despite the fact that the prohibition had been violated.

I wonder whether or not anyone has ever had this question posed to them and if so, how did you address it?

New CFPB Settlement Disclosure Form (HUD 1/1A) - Round 2

Wyatt Bell — Wed, 14 Dec 2011 10:01:29 EST

The Consumer Financial Protection Bureau has issued the 2nd round of the proposed Settlement Disclosure Form which will replace the GFE HUD 1/1A.

You may vote your preference at KNOW BEFORE YOU OWE.

Mimosa Example

Sassafras Example

I haven't had a chance to do the math on these. I'll post later with any irregularities.

The white collar criminal mentality

Slade Smith — Thu, 08 Dec 2011 14:48:55 EST

The white collar criminals who are attempting to profiteer from the foreclosure crisis are just like other white collar criminals... they just don't get that they are criminals, just like pickpockets, burglars and muggers.

Geoffrey Goldman, an owner of a real estate investment business in upstate New York who was just sentenced to 4 to 12 years in state prison this week for a fraudulent multi-million dollar foreclosure rescue scheme that caused many innocent victims to be foreclosed and evicted, seems to exemplify this mentality.

"I am a good person," said Goldman at his sentencing, "and although I've committed crimes, I'm not a criminal."

Goldman's victims would probably dispute that.

Goldman and his co-conspirators used a business owned by Goldman, Rivertown Investments, to defraud various lenders, homeowners, and title insurance companies. Co-conspirators acting on behalf of Rivertown allegedly lured distressed homeowners into signing title over to the company by promising to lease the homes back to the distressed homeowner, with a promise that the homeowner would be able to regain title in the future, and that equity built during the lease period would be saved for the homeowner.

Once Rivertown had title to the properties, straw buyers under the control of the scheme's masterminds would purchase the properties from Rivertown, obtaining fraudulent mortgages with false statements inflating the straw buyers' incomes to finance the sham transactions. The straw buyers would then quickly sign their deeds over to a holding company in Rivertown's control. Griffon Title, a title company owned and controlled by Goldman, was used to facilitate the transactions involved in the scheme, concealing the true nature of the transactions from lenders, homeowners, and their title underwriter.

The scheme involved at least 105 properties in New York, Pennsylvania, and New Jersey between 2003 and 2008. Rivertown defaulted on its promises to many of the homeowners properties, resulting in numerous evictions and cases where willing homeowners were unable to repurchase their homes as promised.

Meanwhile, the co-conspirators used profits from the scheme to buy trips to Europe and the Caribbean, vehicles, jewelry, a wine locker, and gambling sprees at casinos.

The crimes caused millions of dollars in losses to the victims, and untold stress and hardship. But at his sentencing, Goldman had the gall to point out that some of the affected homeowners were able to live rent free in their homes as the mess was being sorted out-- as if he was the only one not profiting from the situation.

I'm sure that Goldman truly believes that he is not a criminal... but he is deluding himself. He stole far more money than most common thieves do in their criminal careers.

Enjoy your time in state accommodations, Mr. Goldman. It sounds like you've earned it.