Source of Title Blog

A Reminder of Why Title Insurance is so Important

rfranco@sourceoftitle.com (Robert A. Franco) — Sun, 07 Mar 2021 16:30:15 EST

I have been in the real estate business since 1993. I started as a title examiner, then became a title insurance agent, and now I am a real estate attorney. I am no longer a title agent, but I still wholeheartedly recommend title insurance to my clients. Because claims on title insurance policies are rare, some buyers are reluctant to pay for something perceived as "optional." Recently, a good example of why title insurance is so important landed on my desk. This will serve as an example I can share with my clients to explain why they need the protection title insurance provides.

Here is a timeline of events derived from the recorded documents in the chain of title, the Auditor's records, and some of the off-record matters as provided by Google:

January 1997: Frank Johnson acquired title to a vacant lot for $24,000.00.

September 1998: Frank Johnson conveyed the property to Joan Johnson, a related party in an exempt transaction (no price shown on the conveyance).

March 9, 2006: Joan Johnson executed a Durable Power of Attorney, naming Steve Williams as her agent.

Interestingly, this power of attorney was prepared a very good, local estate planning/probate attorney, whom I will refer to as Attorney One. It is noteworthy because of the multiple attorneys involved in the subsequent events.

March 22, 2006: Joan Johnson executed a Notice of Revocation of Power of Attorney. It quite simply stated "... I do hereby revoke the Power of Attorney given to Steve Williams empowering said Steve Williams to act as my true and lawful attorney in fact... and I declare that all power and authority granted under said Power of Attorney is hereby revoked and withdrawn."

March 23, 2006: The Notice of Revocation of Power of Attorney was recorded with the county recorder's office.

This Notice of Revocation was prepared and recorded by a different attorney, Attorney Two. I did not know this attorney, and he has since retired. I get the impression from a Google search that he was primarily a divorce and criminal defense attorney. It is unclear why Joan Johnson would have gone to see another attorney to revoke the power of attorney just a couple of weeks after seeing Attorney One to sign it.

March 20, 2015: Steve Williams, as attorney-in-fact on behalf of Joan Johnson executed a General Warranty Deed conveying the property to Steve Williams, Trustee of the Johnson Irrevocable Living Trust. The Warrant Deed and The Durable Power of Attorney were recorded with the county recorder's office, the same day. The conveyance was reported as a sale for $126,890.00.

The Warranty Deed was prepared by Attorney Three, another very good, local estate planning attorney. Attorney Three also recorded both the Durable Power of Attorney (prepared by Attorney One) and the Warrant Deed. Because I'm somewhat familiar with this particular attorney's practice, as an elder law attorney, I believe that he would have also prepared the Trust Agreement. And, because it was irrevocable, I would bet that it was done for the purpose of Medicaid planning.

January 15, 2017: Joan Johnson died.

Joan's obituary described Steve Williams as one of her "dear friends." If I had to speculate (and this is pure speculation), I would guess that a family member found out that a "friend" had been appointed as Joan's attorney-in-fact and took her to see Attorney Two to revoke it. I doubt Steve Williams or the other two attorneys were aware of that visit to Attorney Two.

May 24, 2018: Steve Williams, Trustee of the Johnson Irrevocable Living Trust, executed a Trustee's Deed to Mary Smith, with fiduciary covenants.

June 5, 2018: The Trustee's deed was recorded with the county recorder's office. The records show that this was a sale for $175,000.00.

The Trustee's deed was prepared and recorded by Attorney One.

August 18, 2020: A local title company issued a title commitment for a proposed sale from Mary Smith to Jack and Jill Brown for $125,000.00. However, the title company reported that title is still vested in Joan Johnson because the conveyance purporting to convey the property to the Johnson Trust was executed using a power of attorney that had been revoked, and therefore the deed is void.

When I was consulted by the Browns, I reviewed the title company's title work and I agreed with their conclusion that the deed to the Johnson Trust was void. Mary Smith did not acquire legal title from the Trustee's Deed. The Browns asked Mary to contact me to discuss how to proceed so the property could be sold. This would require a quiet title action to fix.

My first question for Mary was, "do you have any Owner's Policy of Title Insurance?" The answer was "no." Title insurance insures the owner against "loss from unmarketable title."

Courts in Ohio have defined marketable title as "that which imports such ownership as insures to the owner the peaceable enjoyment and control of the land as against all others." Carr v. Acacia Country Club Co., 2012-Ohio-1940 (8th Dist.), citing, McCarty v. Lingham, 111 Ohio St. 551 (Ohio 1924). Although the ability to obtain title insurance doesn't always mean title is marketable, the inability to obtain title insurance is a pretty good indication that title is not marketable.

Courts have further noted that "it should appear reasonably certain that the title will not be called in question in the future, so as to subject the purchaser to the hazard of litigation with reference thereto." Id. If the attorney-in-fact who signed the deed to the Johnson Trust lacked authority - which seems pretty clear from the recorded Notice of Revocation - the deed was void, or at least voidable. Either way, it clouds the title with uncertainty and potential litigation.

If Mary had title insurance, it would have mostly likely paid the costs of curing this defect. Without it... and this is what I tell my clients that are reluctant to pay for an owner's policy... the only recourse for a title defect is to sue the seller under the warranties of title contained in the deed.

By statute in Ohio, general warranty covenants assure the grantee that "at the time of the delivery of that deed the grantor was lawfully seized in fee simple of the granted premises, that the granted premises were free from all encumbrances, that the grantor had good right to sell and convey the same to the grantee and the grantee's heirs, assigns, and successors, and that the grantor does warrant and will defend the same to the grantee and the grantee's heirs, assigns, and successors, forever, against the lawful claims and demands of all persons."

But, here there were two problems. First, Mary acquired title via a Trustee's Deed with "fiduciary covenants," not "general warranty covenants." Fiduciary covenants provide only that "at the time of the delivery of that deed, the grantor was duly appointed, qualified, and acting in the fiduciary capacity described in that deed, and was duly authorized to make the sale and conveyance of the premises; that in all of the grantor's proceedings in the sale of the premises the grantor has complied with the requirements of the statutes..." It does not appear that there was any question regarding the Trustee's appointment and authority, but rather that the deed to the Trustee was void and he didn't hold fee simple title.

The second problem was that even if Mary did get a General Warranty Deed, Joan Johnson had passed away and there is little recourse that can be had on a claim for breach of warranties.

In order for Mary to sell the property to the Browns, she is going to have pay for the quiet title action. It will likely take several months to get a resolution through the courts, particularly with COVID causing delays to civil proceedings. And, she will incur legal fees, court costs, publication expenses, etc. Ironically, she will also pay a premium for a Preliminary Judicial Report, for the title evidence required by the court to bring the quiet title action. This will all add up to several times more than the $975 premium an owner's policy would have cost when she purchased the property.

The moral of the story is, of course, always get title insurance. But not just because it would cover the costs to mend this broken title. If Mary had asked for title insurance, it is very likely that the revocation of the power of attorney would have been discovered then - before she made the purchase.

Feel free to share your thoughts below.

Robert A. Franco, J.D., LL.M.
SOURCE OF TITLE

Thank you, Fidlar Technologies!

rfranco@sourceoftitle.com (Robert A. Franco) — Sun, 26 May 2019 21:06:21 EST

Last week, I had the pleasure of attending a two-day educational symposium hosted by Fidlar Technologies, for the county recorders who use Fidlar's technology. In fact, it was their 12th annual symposium; the theme was "You are Still the Source." The focus of the keynote presentation was on demonstrating how the county recorders' information is used by the real estate industry, and others. It was a great event - educational and enlightening.

Fidlar was kind enough to extend an invitation to not only me, but also Wanda Steudel, President of NALTEA, and Jill Kissell, Vice President of NALTEA, to take part in a fireside chat to present the perspective of the independent abstractors to the county recorders. The conference was mainly held at Fidlar's offices in Davenport, Iowa. They have a beautiful office building and it was a terrific venue for the event.

I believe that there were about 200 recorders, clerks, and others in attendance. It was a great pleasure to meet them - they were all very nice and genuinely concerned about what abstractors and title companies do.

All abstractors should know that they were well represented by Wanda and Jill, who explained what abstractors do and some of the challenges they face. Some of the topics included the off-shoring of the public records, online searching, electronic filing, etc. But it was more than that - we spoke about how a search is prepared, what other offices abstractors rely on, and how technology has helped and hindered the industry (particularly independent abstractors).

Our panel discussion touched on the effect that online records has had on the independent abstractors, such as a loss of some of the easier searches that can now be done remotely - or even through automated means. Many abstractors now find that their work consists of the more difficult searches that cannot be done online or electronically. We also pointed out that as more experienced abstractors retire, there are fewer new abstractors entering the field - and fewer seasoned searchers available to train newbies. One of these days, it may be difficult to find someone who is able to do a "real search" - particularly some of the more complicated ones involving railroads and rivers, or commercial properties.

We also briefly discussed a concern the entire industry should share - with more and more technology making the job easier to do remotely, what will become of the local title insurance market? We know that more and more of the searches are done without requiring a searcher to step foot in the courthouse. We are also seeing more counties accepting electronic filing. Now, several states are adopting legislation allowing electronic signatures and online, remote notarization. Ohio's remote notary law will allow a document to be notarized online regardless of where in the country the parties are located (in some cases the person signing may even be located in another country).

Once the search can be done from anywhere, the closing can be done over the Internet, and the documents can be filed electronically... will the big regional and national lenders even need a local title company? My guess is they will consolidate all of their title and closing operations in a joint venture that they co-own. And, if nobody needs to physically visit the recorders office anymore, will we even need a local county recorder? Or, will we see politicians attempting to centralize real estate records in a state office - or worse, a federal land records registry? They used to say that "all real estate is local," but I wonder if we aren't seeing that beginning to change.

Like I said... it was enlightening. It certainly gave me a new perspective and something to think about on the long drive home.

Unfortunately, I had to get back and I was not able to stay for the full day on Tuesday. But, it sounded like they had some very interesting topics planned, from funding issues and copy costs, to blockchain. Fidlar did a great job hosting this symposium - and it was not a two-day sales pitch by Fidlar. It was a very educational and informative conference relevant to the jobs of the county recorders.

If any recorders get the opportunity - they should go to a future Fidlar symposium! And, again, a big "thank you" to Fidlar for including us in the event and giving us the opportunity to address the audience.

Robert A. Franco
SOURCE OF TITLE

Removing Standard Exceptions Leaves Agent Liable for Full Amount of Claim

rfranco@sourceoftitle.com (Robert A. Franco) — Sun, 03 Feb 2019 19:26:50 EST

Pitkin County Title, a Colorado title agency, issued an owner's policy to Preston and Betty Henn. The Policy was underwritten by Fidelity National Title Insurance Co. Pitkin deleted standard exceptions from the policy for things that were ordinarily excluded from coverage. As a result, the Henn's owner's policy committed Fidelity to extended coverage for unrecorded easements. Unfortunately, the Henns soon became involved in a dispute over a neighbor's use of a footpath across their property. When the neighbor filed a quiet title action, the Henns filed a claim on their policy.

The Henns requested that Fidelity defend and indemnify them in the lawsuit, but Fidelity denied coverage. Later, Fidelity acknowledged that some of the neighbor's claims were covered, but the Henns rejected Fidelity's offer of partial coverage. Instead, the Henns sued Fidelity in federal court asserting claims for breach of contract and bad faith for failure to provide a defense.

Fidelity sued Pitkin County Title for allegedly breaching its agency agreement and for negligence in issuing the title policy with four deleted exceptions, including the exception for unrecorded easements, without first obtaining written approval. Eventually, Fidelity settled with the Henns and the case proceeded on Fidelity's claims against Pitkin.

The agency agreement contained a provision stating that Pitkin "shall not without prior written approval of Fidelity's corporate underwriting department... commit Fidelity to insure any Extra Hazardous Risk" as defined in the agreement. According to the agreement, Extra Hazardous Risk included "all risks which result in a liability not normally assumed by Fidelity." Fidelity had provided forms to Pitkin that contained certain standard policy exceptions - including one that expressly excluded coverage for "easements, or claims of easements, not shown by the public records."

The court found that Pitkin breached its agency agreement and that it was liable to Fidelity for the full amount of the claim. Ordinarily, Pitkin's liability was capped at the first $5,000 of any loss, but the agency agreement required Pitkin to reimburse Fidelity for the entire amount of any loss arising from its "negligent, willful or reckless conduct."

The policy specifically provided:

In the event that a Loss sustained or incurred for a matter arising under this Agreement resulted or arose from the negligent, willful or reckless conduct of [Pitkin], [Pitkin]'s employees or any independent contractor relied upon by [Pitkin], then [Pitkin] shall reimburse [Fidelity] for the Loss. The instances where [Pitkin] shall be liable to [Fidelity] under this subparagraph shall include, without limitation, the following:
1. Failure of [Pitkin] to comply with the terms and conditions of this Agreement or with the manuals, underwriting bulletins and/or instructions given to [Pitkin] by [Fidelity].

The "loss" was defined as sums paid or to be paid by Fidelity to settle or compromise claims under any policy issued by Pitkin. It specifically included "expenses, costs, attorney's fees actually paid or incurred in connection with investigation, negotiation, litigation, or settlement of such claim which ultimately requires payment of any sum by Fidelity."

The Tenth Circuit Court of Appeals did not discuss the reason that Pitkin decided to remove the standard exceptions from the policy, but Pitkin did not deny that it was a breach of the agency agreement. It merely attempted to argue that its liability should have been capped at the agreed $5,000. What the case makes clear is that it is important for agents to follow the terms of the agency agreement. Any deviation from standard underwriting practices must be approved in writing by the underwriter.

Exploring Blockchain and Its Application to Real Estate Titles

rfranco@sourceoftitle.com (Robert A. Franco) — Sun, 13 Jan 2019 20:16:20 EST

I'm going to admit it -- I do not understand blockchain. And, I do not like it when I don't understand something. I have tried to read some articles and I've watched YouTube videos in an attempt to get a better grasp of the technology. Unfortunately, it remains an elusive concept. My goal this year is to figure it out. If this is going to be a technology that government offices adopt to maintain our public real property records, that has the potential to eliminate title companies and attorneys in real estate transactions, I want to know how it works.

Really. That is the claim.

For real estate, the blockchain has the potential to change the way we do business. We are developing smart contracts, which will enable real estate contracts, escrows, property records (deeds, for example) to be completed and monies distributed without title companies or attorneys. These contracts are often compared to a vending machine concept: You deposit your money, and the machine spits out a product with no human intervention.

One company that has promoted blockchain in the real estate realm, Propy is making similar claims

When transacting on the Blockchain, buyers and sellers can interact directly with each-other in real-time. With the help of a Blockchain broker, they can also transact property in a cost-effective and time-efficient way. Blockchain transactions do not require intervention of third-party entities, traditionally used in property-buying transactions such as: lawyers, multiple brokers, escrow and title companies. This is called, disintermediation.

According to Wikipedia, a "blockchain is a decentralized, distributed and public digital ledger that is used to record transactions across many computers so that any involved record cannot be altered retroactively, without the alteration of all subsequent blocks." On a basic level I can comprehend that this means the information related to a transaction is spread across many computers; thus, "decentralized and distributed." I'm not all that clear on how that is better. But, I'm going to approach this with an open mind.

Blockchain makes "smart contracts" possible; these are contracts that can be self-executing and/or self-enforcing. For example, let's assume a typical land installment contract is created as a smart contract on a blockchain. The terms of the contract would require a record of the equitable interest of the Buyer, and require electronic monthly payments from Buyer's account to Seller's account. It may also require that Buyer maintain insurance on the property and pay the real estate taxes. The insurance and taxes could be linked to the blockchain, also. This contract could be self-executing -- if Buyer maintains his taxes and insurance, and he makes all of the required payments, title could automatically be transferred from Seller to Buyer.

On the other hand, if the Buyer fails in his obligations by defaulting on his payments, for example, the contract could be automatically terminated. Thus, self-enforcing and extinguish the Buyer's interest in the property, clearing the title for another sale.

But, I don't understand how all of this works in practice (or how it would work, if it were adopted for real world use). At this point, it all seems rather theoretical. How do you get all of this information entered into a blockchain? How do you get all of the third parties to participate, or at least verify the triggering events involved in a smart contract? What are the safeguards to ensure that the transactions are correct? What kind of infrastructure is required to make it all possible?

I can see where there could be some theoretical advantages. With the prevalence of escrow theft, it would be great if there was a mechanism that ensured that funds were wired to the correct party at the moment title transferred. It seems that a smart contract would be well-suited for that.

Although it is touted as more secure, efficient and accurate, I wonder if that is really the case. Because of the distributive nature of blockchain, it is very difficult to alter a record, because all (or a majority) of the other servers in the chain would have to agree to it. But, how many instances of title fraud are caused by someone altering an already recorded document? More likely a forged document is introduced into the records and I don't see how blockchain will prevent forgery.

And, no system is hack-proof. Earlier this month, the cryptocurrency Ethereum Classic was hacked for over $1 Million. It was done by re-writing the blockchain - something that is sometimes said to be impossible.

In the most basic terms, the attackers disrupted Ethereum Classic in order to spend the same money twice. They sold Ethereum Classic coins for cash, then rewrote the blockchain so that they came away with both the cash and the coins. In a conventional payment system, it’s up to banks and other central enforcers to stop double spending, but there’s no such figure in cryptocurrency. Instead, transactions are enforced through a distributed ledger, produced collectively by currency miners.

But if miners work together, there’s a way to write transactions out of that ledger. All they have to do is split the blockchain at the right moment, and only build on versions of the chain that don’t include the unwanted transaction. All they need is enough mining power to overwhelm the rest of the mining pool — hence, 51 percent. It’s a fundamental weakness in the way cryptocurrencies work, acknowledged since the earliest writing on cryptocurrency. Bitcoin and its siblings all rely on a critical mass of what Satoshi called “honest miners.”

In this case, the 51 percent attack was used to execute a double-spend: writing a bad check and then muscling it out of the ledger. But that’s not the only bad thing you can do once you’re in control. In a paper last year, NYU cryptographer Joseph Bonneau raised concerns about majority attackers wreaking havoc on a coin’s ledger to crater the price and fulfill a short position, something he called a “Goldfinger attack.”

This is where I think "understanding" is crucial. Some would argue that you don't have to understand how lift overcomes drag in order to get on a plane and fly across the country. I, on the other hand, think that we need to understand how this technology works before we hand over our centuries old public records to a new technology. If a public records blockchain were to ever get hacked, how would we even know it if we don't understand it? And, how could it be fixed? It is simple to understand that if the records in my local recorder's office are compromised, we can get the microfiche reader out and look at the back-up (or whatever back-up may exist these days). What is the blockchain equivalent?

I'm not saying blockchain isn't do-able, or even that blockchain isn't better. I'm saying that before I can get comfortable with the idea, I have to understand it. So, that is my goal... to learn blockchain. I'll keep you posted on my progress and maybe we can all learn something.

I keep reading that blockchain is the future; and, the future may not be far off. An all-blockchain real estate transaction was completed in Vermont early last year. And Vermont and Ohio have passed laws recognizing blockchain records, a necessary step to pave the way for legal transactions. In fact, many states are actively working on legislation related to blockchain.

Maybe what the world needs is a real estate lawyer that is well-versed in this new technology. So... wish me luck!

Ohio Transfer on Death Designation Affidavit: Life Estate and the Remainder

rfranco@sourceoftitle.com (Robert A. Franco) — Sun, 16 Sep 2018 20:28:07 EST

This issue has come up three times over the past couple of weeks and it has me a bit perplexed. Can an owner designate as beneficiaries in his Transfer of Death (TOD) Designation Affidavit one beneficiary to receive a life estate and another to receive the remainder? In two cases, I had clients that wanted such a result, in another someone sent me a TOD Designation Affidavit that purported to designate one beneficiary as a life tenant and another as remainderman. I did a little reading and I'm not certain it works... but I think it probably should.

In Ohio, R.C. § 5302.22 states that "any individual who, under the Revised Code or the common law of this state, owns real property or any interest in real property as the sole owner, as a tenant in common, or as a survivorship tenant, or together with the individual's spouse owns an indivisible interest in real property as tenants by the entireties, may designate the entire interest, or any specified part that is less than the entire interest, in that real property as transferable on death to a designated beneficiary or beneficiaries by executing, together with the individual's spouse, if any, a transfer on death designation affidavit as provided in this section."

Among the requirement for a TOD Designation Affidavit is "if less than the entire interest in real property is to be transferred on death under the affidavit, a statement of the specific interest or part of the interest in the real property that is to be so transferred." The reference to a "part of the interest," sure makes it sound like an owner can designate something other an a fee simple absolute interest - a life estate is a "part that is less than the entire interest" in real property. And, this doesn't seem like an unusual thing to want to do.

Certainly, an owner can make a present transfer of a life estate to one person, and designate the remainder to another. An owner can also make a similar testamentary disposition of the property by will to be effective upon his death. So, why not allow the same thing to be done by TOD Designation Affidavit?

R.C. § 5302.23 specifies that "an interest of a deceased owner shall be transferred to the transfer on death beneficiaries who are identified in the affidavit by name and who survive the deceased owner or that are in existence on the date of the deceased owner's death. If there is a designation of more than one transfer on death beneficiary, the beneficiaries shall take title to the interest in equal shares as tenants in common, unless the deceased owner has specifically designated other than equal shares or has designated that the beneficiaries take title as survivorship tenants." It does not include an option for multiple designated beneficiaries to take take title to different estates, such as a life estate and a remainder.

So, on one hand the statute seems to broadly permit creating such an interest, but on the other it narrowly specifies how multiple beneficiaries take title upon the death of the owner. The two statutes are somewhat contradictory.

Personally, I do not think there should be a problem creating such a designation. It is simple, and apparently people want to be able to do it as part of a probate avoidance estate plan. Maybe this was an oversight when the legislation was drafted, and they just didn't anticipate this creative use. Or, perhaps they did consider it and they decided that this was too complicated to do without the oversight of the probate court. I am not sure.

But, I have decided to err on the side of caution and if I do attempt to create such an affidavit for a client it will come with a stern warning that it may not be effective, which could result in a probate estate. Of course, I will add the same distribution scheme to the will, just in case.

Have any of you seen a Transfer on Death Designation Affidavit creating a life estate and remainder? Do other states account for this in their statutes? Do you think it's authorized by the Ohio statute?

Top Consumer Watchdog Places Bureaucracy Ahead of Consumers... Literally.

rfranco@sourceoftitle.com (Robert A. Franco) — Thu, 26 Apr 2018 11:55:43 EST

The Consumer Financial Protection Bureau (CFPB) was established in 2010 by the Dodd-Frank Act to consolidate much of the responsibility for consumer protection enforcement that had before then been scattered around many federal agencies. The Act gave the CFPB a substantial amount of independence to operate without undue influence from typical political gamesmanship and unscrupulous lobby groups. From its inception until Richard Cordray exited as the agency's director, the CFPB actively investigated consumer complaints and recovered approximately $12 billion for consumers. But, since then, the agency has been a bit lax. After Cordray left, President Trump appointed Mick Mulvaney as the new director, who has publicly criticized the CFPB and advocated getting rid of it.

Under Richard Cordray's leadership, the CFPB filed several enforcement actions each month. The Bureau hasn't filed any in the more than 5 months that Mulvaney has been in charge. That's right, the person that the President placed in charge of protecting consumers has not brought a single enforcement action against anyone for violating consumer protection laws. In fact, he has dismissed an action against payday lenders.

The CFPB has always provided an open, searchable record of public complaints accusing financial services companies of violating consumer protection laws. When a consumer complaint is received, the Bureau forwards it to the company and gives them 15 days to reply. Upon receipt of a reply - or once the 15 days passes - the complaints are published online. To be fair, it also posts the company's public response, if they choose to provide one.

Mulvaney has now said he intends to put an end to that level of transparency at the Bureau. Recently, speaking to a group of banking executives and lobbyists, Mulvaney said "I don't see anything in here that says I have to run a Yelp for financial services sponsored by the federal government."

Although the law requires the CFPB to maintain the database, Mulvaney said "I don’t see anything in here that says that I have to make all of those public."

Perhaps the most obvious sign that Mulvaney lacks concern for consumer protection, he plainly told bankers and lobbyists what they could do to help curtail the CFPB's efforts to enforce consumer protection violations. According to Fortune:

“We had a hierarchy in my office in Congress,”Mulvaney, a former Republican representative for South Carolina’s 5th District, told 1,300 bankers and lending industry officials on Tuesday.

“If you’re a lobbyist who never gave us money, I didn’t talk to you. If you’re a lobbyist who gave us money, I might talk to you,” Mulvaney told attendees of the American Bankers Association conference in Washington.

During his congressionalcampaigns, Mulvaney received nearly $63,000 from payday lenders. In the speech Tuesday, Mulvaney encouraged the financial services industry to make campaign donations, saying he was most responsive to constituents and lobbyists who contributed to his campaign when he was a congressman.

But there is a more subtle action that Mulvaney has taken that demonstrates how he feels about consumers - he has taken to calling the "Consumer Protection Financial Bureau" (CFPB) the "Bureau of Consumer Financial Protection" (BCFP). Literally, placing Bureaucracy ahead of Consumers. The Dodd-Frank Act created it as the "Bureau of Consumer Financial Protection," so he's technically correct. From ABC News:

Mulvaney took over the bureau as acting director in late November, when Obama appointee Richard Cordray resigned. Since then, the bureau has increasingly referred to itself as the Bureau of Consumer Financial Protection, or by the acronym BCFP.

During testimony last week onCapitol Hill, Mulvaney said, "The Consumer Financial Protection Bureau does not exist."

But swapping "Bureau" from back to front is not a simple word shuffle, said Lisa Donner, executive director for the advocacy group Americans for Financial Reform.

"Doing that signals you want to take the emphasis away from serving consumers — which unfortunately is what Mulvaney's been doing in many ways — and put it on 'this is a bureaucracy'," Donner said.

New announcements from the the Bureau seem to be using the new name - including the press release on the $1 billion settlement with Wells Fargo Bank. Only time will tell if the Bureau will survive as a guardian of consumer protection... or just another big bureaucracy that bends to the will of special interest and political expediency.

Ohio Abstractors, Beware the Terminating Homestead Exemption

rfranco@sourceoftitle.com (Robert A. Franco) — Sun, 21 Jan 2018 21:50:46 EST

In Ohio, the disabled and elderly can receive a break on their real estate taxes by applying for a homestead exemption. The exemption is generally available to Ohio residents who are disabled or at least 65 years old, who own and occupy their home and meet certain income thresholds. For a title abstractor, it is important to note on the search that the taxes have been reduced by a homestead exemption so that the escrow agent can calculate taxes properly for a new owner - who may not qualify for the exemption. It is also important to note when homestead may be ending without a transfer of title, such as may happen when a homeowner passes away but their estate has not conveyed the real estate.

Read on for more information about homestead, and an example that can catch an abstractor and escrow agent off guard.

As mentioned above, the homestead exemption is available to Ohio residents who own and occupy their home. But the definition of "owner" is broad enough to include a vendee in possession under a purchase agreement or a land contract, a mortgagor, a life tenant, and a settlor of a revocable or irrevocable inter vivos trust holding the title to a homestead occupied by the settlor as of right under the trust." So, it doesn't necessarily have to be the the record title holder that qualifies for the exemption.

The owner must be at least 65 years old, or turn 65 years old in the year for which they apply, or be totally and permanently disabled as of January 1 of that year. The exemption may also be available to a surviving spouse of a person who was receiving the homestead exemption, if that surviving spouse was at least 59 years old on the date of death.

And for new applicants since 2014, the exemption is only available to those with an Ohio Adjusted Gross Income, including a spouse's income, under a certain threshold. In 2018 the threshold is $32,200. It is adjusted annually for inflation.

Assuming an applicant meets all of those requirements, the exemption excludes up to $25,000 of the market value of their home - including their dwelling and up to one acre of land - from all local property taxes. For example, if the home is valued at $100,000 it will be taxed as if it were only worth $75,000.

Real estate taxes in Ohio are in arrears, so taxes for the first half of 2017 will be due in February or March of 2018. When an abstractor reports taxes on a title search it usually looks something like this: "Taxes in the amount of $633 for 2016 are paid, taxes for 2017 are a lien, not yet due and payable; tax bill reduced by a homestead exemption." And typically the current year's tax information is not available - the abstractor is always reporting last year's taxes because that is what the county is currently collecting.

Conventional wisdom has always been that if a property is on homestead, it will remain on homestead until it transfers. But, that is not necessarily the case. Because homestead is only available for an owner's home that the owner occupies - the exemption will not be applied the year after he dies, regardless of whether his estate has done anything with the transfer of the property.

EXAMPLE:

Joe Smith is 68 years old and receives the homestead exemption. He passes away in December of 2016. Because taxes are in arrears, the exemption will be applied for tax year 2016, which is collected in 2017.

Joe Smith's estate is opened in July of 2017. In November, the executor finds a buyer for the house. The title abstractor reports taxes on the search like this:

"Taxes in the amount of $633 for 2016 are paid, taxes for 2017 are a lien, not yet due and payable; tax bill reduced by a homestead exemption."

The escrow agent schedules a closing for December and knows that taxes will be due soon. So, the escrow agent collects $633 to take to the county treasurer to pay the taxes. A few weeks after the closing, the county has the tax bills ready - the escrow agent takes the check to the courthouse to pay the taxes. Now, it is discovered that because Joe died in 2016 - the 2017 taxes do not get the benefit of the homestead exemption. The tax bill is $1,033. The escrow agent is $400 short.

Although everyone expected that the homestead exemption would continue until title was transferred, it did not. Apparently, in recent years the State has been notifying the county auditors of deaths so that homestead can be removed before title transfers. This particular county notes on their tax screen "Homestead Exempt Ending," but this notation doesn't print with the tax bill. The abstractor didn't think much of it because she was reporting 2016 tax year - not 2017. And, although the abstractor showed the pertinent information from the estate, including the date of death, the escrow agent still assumed that the homestead exemption would continue until the estate sold the property - because the county still showed Joe Smith as the owner.

Fortunately, Joe's heirs were understanding and they paid the additional $400 when they were notified of the error. Otherwise, who would have been liable?

I point this out because this is an unusual situation that can be avoided if you know what to look for. Regardless of whether the county clearly indicates that a homestead exemption is ending - if you find an estate and the taxes show homestead, pay attention to the date of death and expect that the homestead will be ending the following tax year.

The Passing of a Good Friend, Pat Scott

rfranco@sourceoftitle.com (Robert A. Franco) — Tue, 02 Jan 2018 16:59:24 EST

I have gotten to know a lot of people since I started Source of Title in 2002. Many of them I have had the pleasure of meeting in person at the National Association of Land Title Examiners and Abstractors (NALTEA) conferences. One of the most memorable and friendly of the bunch was Pat Scott, and I am very sorry to say that he passed away just before the new year.

Below are some of my memories of Pat, as well as his obituary and a link where you can sign the Guest Book. If you would like to share a story about Pat, feel free to post it below.

Pat volunteered a lot of his time to NALTEA, serving as a past board member and President of the organization, as well as helping out with the committees. I know Pat cared about the title industry and he was very knowledgeable. We had some good discussions over the years on everything from technology to recording statutes. Whether it was a group discussion on a NALTEA conference call, or an in person chat at an annual conference, it was always a pleasure to speak with him. He was funny, practical, and full of common sense... even when I was irritated or on a rant about something that I thought was just plain stupid. On multiple occasions, Pat made me rethink my position or helped me understand something better. I had a lot of respect for Pat and I valued his opinion.

But Pat was not all about work, so don't get the wrong idea. I recall at one of the NALTEA conferences (I believe that it was in San Diego in 2007) Pat disappeared from the conference one afternoon. He ducked out to watch a football game, I believe. It may not have been so noticeable, but he took several people with him. As it turned out, Pat was just the kind of guy that made you want to spend the afternoon relaxing in front of a good game.

He also made it a point to ask about my kids - subtly reminding me that there was much more to life than work. I didn't have kids when I met Pat, and I worked a lot. I now have a greater appreciation for what it takes to balance work and family. I get the sense that Pat had that figured out much sooner than I did.

I'll miss seeing him at the NALTEA conferences. May he rest in peace.

Patrick "Pat" William Scott

June 28, 1964 to December 28, 2017 (age 53)

Patrick “Pat” William Scott, 53, of Fox Lake, formerly of Chicago, died unexpectedly Thursday, December 28, 2017, at his home. He was born June 28, 1964, in Chicago, to the late Patrick Joseph and Mary Ann (nee Warnimont) Scott. Pat married Linda Gleason on May 29, 1993, at St. Joseph’s Church, Medway, MA.

In 1986, Pat received his Bachelor of Arts in Journalism from St. Mary’s College in Winona, MN. He went on to become the sales and marketing manager at O’Connor Title Services in Chicago. An avid fisherman, Pat enjoyed fishing in Hayward, Wisconsin and on the Chain of Lakes. He was an active member of the National Athletic Club/Rod and Gun Club in Fox Lake. Pat was a member, and former president, of the National Association of Land Title Examiners and Abstractors (NALTEA).

Survivors include his wife, Linda; son, Woodrow Thomas Patrick Scott; siblings, Ann (Richard) Torp, Eileen (Paddy) Keady, Mike Scott, and Molly Scott; sister-in-law, Amy (Joseph) Janczy; nieces and nephews, Jack Flatley, Kathleen, Matthew, Michelle, and Patricia Keady, and Laney Janczy; and his dog, Roxy.

Pat was preceded in death by his parents, Patrick Joseph and Mary Ann Scott; and by many aunts and uncles.

A celebration of Pat’s life will be held Saturday, January 6, from 1-9 p.m., with a service at 2 p.m., at the National Athletic Club, 264 Lippincott Ln., Fox Lake. A reception will follow the service.

In lieu of flowers, memorials to the American Diabetes Association, www.diabetes.org, or 1-800-342-2383, appreciated.

If you have a story about how Pat touched your life, please share it below. We'll preserve a spot for him here on Source of Title to remind us all how good "title people" can be.

Here is the link to his obituary if you want to sign the Guest Book, or post a message there: http://www.hamsherlakeside.com/notices/PatrickPat-Scott.

Best,
Robert A. Franco
SOURCE OF TITLE

Ohio Bill Introduced to Abolish Dower

rfranco@sourceoftitle.com (Robert A. Franco) — Sun, 10 Dec 2017 20:42:20 EST

Ohio is one of only a handful of states that still recognizes dower. There has been talk about abolishing it for years, but nothing much has come of it until now. On November 7, 2017, House Bill 407 was introduced and it is currently assigned to the Civil Justice Committee for hearings.

For those who are not familiar with dower in Ohio, it is an inchoate right providing that "a spouse who has not relinquished or been barred from it shall be endowed of an estate for life in one third of the real property of which the consort was seized as an estate of inheritance at any time during the marriage." (see R.C. 2103.02). Essentially, it gives non-title holding spouses an interest in all real estate owned by their other half. Thus the non-title holding spouse must sign deeds, mortgages, and other grants, to release their dower interest - it cannot be separately released. And, typically it can only be terminated by divorce, death, or adultery.

Today its only practical effect (in my opinion) is to provide notice of real estate transactions to non-title holding spouses, and require their consent before real estate can be sold, mortgaged, etc. In my practice, it is not unusual that I see a married couple who buys real estate in the name of only one of them. Sometimes they tell me that one spouse has credit problems and they don't want that spouse to have an interest that can be attached by creditors. Sometimes they tell me that the bank wants it done that way for a loan (although I don't understand the bank's logic in those cases).

I don't worry too much about only having one spouse in title. We can record a transfer on death designation affidavit to avoid probate if the title holding spouse should pass away, and dower provides some protection for the non-title holding spouse. In these cases, both spouses often contribute to the house payments and expenses of home ownership, which would make the home marital property. Because we have dower, the title holding spouse cannot cash-out all of the equity without the consent of the other.

The proposal to abolish dower in Ohio is very simple: "The estate of dower is abolished. However, the abolition of dower shall not affect the dower interest of a surviving spouse whose interest vested before the effective date of this amendment." But this doesn't provide any protections for non-title holding spouses in place of dower. I worry about that.

Consider this, for example:

Jane and John purchase a home together and because Jane went through a previous divorce she has bad credit. They decide that John will be the sole person on the deed. Several years pass, and although Jane's credit is better they never add her to the title. Jane and John equally contribute to the mortgage payments, insurance, the new roof they put on last spring, etc.

John starts drinking and gambling. He takes out a home equity line of credit to tap the equity in their house. Without dower, Jane doesn't have to sign the mortgage. John doesn't tell her about it and has the loan statements sent to his office address to hide the mortgage from her. In a few years, John has gambled away all of the equity in the house.

Jane files for divorce and discovers for the first time that after making mortgage payments for years, they have no equity in their home.

Michigan abolished dower effective April 6, 2017. Michigan's dower was abolished in response to the U.S. Supreme Court's ruling in Obergefell v. Hodges, which essentially legalized same-sex marriages. In Michigan only "wives" had dower interests, not husbands. The uncertainty surrounding the application of dower in the same-sex marriage context was enough to motivate lawmakers in Michigan to abolish dower.

However, there is still a protection for non-title holding spouses in Michigan when it comes to mortgages on a primary residence. Even with the abolition of dower in Michigan, non-title holding spouses must still sign non-purchase money mortgages because of their homestead rights. I'm not well versed in Michigan law, but from my research a refinance or second mortgage is not valid unless both spouses sign. Unlike dower, the homestead rights apply to husbands as well as wives.

Michigan's homestead exemption "applies to any house that is owned, occupied, and claimed as a homestead by a person but that is on land not owned by the person. However, this exemption does not apply to a mortgage on the homestead that is lawfully obtained. A mortgage is not valid for purposes of this subdivision without the signature of a married judgment debtor's spouse unless" it is a purchase money mortgage, or the mortgage has been recorded for more than 25 years without a claim of invalidity. (See MCL 600.6023)

If HB 407 passes in Ohio, dower will be abolished and, unlike Michigan, we won't have any protections for non-title holding spouses. The familiy law lawyers seem to oppose getting rid of dower, and I understand why. This doesn't seem to be a well thought out bill.

Personally, I don't see the problem with dower in Ohio. It applies equally to men and women, so we don't have the Obergefell dilemma that Michigan faced with regard to same-sex marriages. And, although it is no longer necessary to serve its original purpose - to provide for widows, it does a nice job of filling its modern day role - making sure that non-title holding spouses are aware of mortgages and conveyances of the family home (and any other realty owned by their spouse). It doesn't harm anyone, but abolishing it could cause harm to some.

I'm curious... what does your state do to protect non-title holding spouses? Anything?

Can the Government Acquire Property by Adverse Possession?

rfranco@sourceoftitle.com (Robert A. Franco) — Sun, 08 Oct 2017 22:18:16 EST

In Ohio, you can acquire legal title to another's real property if you prove exclusive possession and open, notorious, continuous, and adverse use for a period of 21 years. But, the general rule is that you cannot adversely possess property against the state. So, when a friend here in Ohio emailed me this very interesting question, my first thought was "sure... I think so, if all of the elements are met, why not?" But, the Fifth Amendment to the U.S. Constitution provides that private property shall not be taken "without just compensation." Does that rule out the possibility that the government can take title by adverse possession -- without going through the process of a condemnation proceeding and paying just compensation? Hmmm... it really is an interesting question.

Early cases in Ohio recognized that "no adverse occupation and use of land belonging to the state of Ohio, however long continued, can divest the title of the state in and to such lands." But, early and mid-19th century courts refused to extend such protection to land owned by subdivisions of the state, e.g. townships and municipalities. By 1900, it was held that adverse possession could not be used to acquire title to public roads. One court ruled that a "railroad's encroachment on a county road was a nuisance that could not mature into adverse possession." It also restricted adverse possession against townships and municipalities to situations where large and valuable structures had been erected on public property.

The general rule prohibiting adverse possession against the government has its roots in public policy. The government holds its lands for the benefits of the public. And, courts have held that "the statute of limitations does not apply as a bar to the rights of the public." A governmental entity should not be expected to be as vigilant as a private land owner in monitoring its property for trespassers. Setting aside property for future development is, in and of itself, a valuable use of resources. Thus, it would violate public policy if such property could be lost due to the inattention of the government.

Still, there are exceptions to the rule. Adverse possession can be used to divest a school board of its title to property, but this has been a narrowly construed exception. It has not been extended to park districts, for example. There is also a statute that specifically allows for the adverse possession of a street or alley "that has not been opened to the public." See R.C. § 2305.05.

So, it's difficult to divest the state of property by adverse possession, but does this necessarily mean that the state cannot acquire private property by adversely possessing it for the statutory period? There is very little case law on this topic. But, there are a couple of examples.

In Chesbro v. Board of County Commissioners of Douglas County, 186 P.3d 829 (2008), a Kansas court affirmed a judgment in favor of Douglas County holding that the County had acquired title to the property "by adverse possession through a belief of ownership for the requisite 15 years." Chesbro purchased approximately 174 acres from Alvin Fishburn in 2004; the land abutted land owned by the County that is a part of Lone Star Lake park. Douglas County Road 1-E ran somewhat parallel to the property line of Chesbro's property.

In 1972 Fishbun and the County shared the cost of building a fence along what they intended to be the boundary line between their properties. There was about 10 feet between the public road and fence, which became the disputed land in this case.

A title commitment issued for the sale to Chesbro revealed that the 10 foot strip between the fence and road was included in the property conveyed to Chesbro. But when Chesbro applied to the County for a residential entrance permit to access the county road, it was denied. The County claimed that it owned the 10 foot strip and Chesbro's property didn't abut the road.

The evidence showed that Fishburn and the County intended the fence to mark the boundary line and that the County had always maintained the property on its side of the fence. Finding that the County had a good faith belief that it owned the land and its possession was open, exclusive and continuous, the Court held that the County acquired legal title.

Thus, Chesbro stands for the proposition that a governmental entity can acquire title by adverse possession. But, the Court didn't address whether a taking had occurred and whether the County was required to pay just compensation.

A Rhode Island case, Pascoag Reservoir & Dam, LLC v. Rhode Island, 337 F.3d 87 (Cir. 2003), came close to addressing the Fifth Amendment issue in an inverse condemnation case. The reservoir, also known as Echo Lake, is more than 2 miles long with more than 10 miles of shoreline. Pascoag's predecessor created the lake in 1860; Pascoag acquired it in 1983. The state purchased a lot abutting the reservoir in 1964 and constructed a public boat ramp the following year. Thereafter, members of the public could use the ramp as a point of access to the lake for various recreational activities, including boating and fishing.

In 1997, Pascoag attempted to limit the public's use of the lake by posting "no trespassing" signs. In 1998, the state filed suit in state court claiming that it acquired property rights in the reservoir by adverse possession. Pascoag cross-claimed, alleging that the state's actions constituted a taking without just compensation. But, before the state court could decide the taking issue Pascoag voluntarily dismissed it's inverse condemnation claim.

In 2001, the Rhode Island Supreme Court held that the state had acquired by adverse possession a small portion of the Lake bottom (occupied by the boat ramp) and had acquired, on the public's behalf, a prescriptive easement to use the boat ramp to access the entire Lake for recreational purposes. "The state had begun to use the Reservoir property in 1965 and, under the Rhode Island ten year adverse possession statute, had acquired title to a portion of the Reservoir plus an easement in 1975."

Shortly after the 2001 Rhode Island Supreme Court decision, Pascoag filed suit in Federal Court claiming that, among other things, the state violated the Takings Clause of the Fifth Amendment. The Court, however, found that Pascoag's claim was filed too late and was time barred. Because the state had acquired title in 1975, after 10 years of adverse possession that began in 1965, that was when the taking occured. Under state law in Rhode Island, the statute of limitations to recover on such a claim is 10 years. Therefore, Pascaog would have had to have brought its claim by 1985 -- long before the Rhode Island Supreme Court ruled that the state acquired title.

According to the Federal Court, the state's adverse possession was open an notorious and Pascoag should have known that a taking was in progress and brought suit under state law at that time. "By failing to bring its state claim within in the statute of limitations period, Pascoag forfeited its federal claim," the Court wrote. "The state provided a remedy, but Pascoag failed to pursue it."

Ultimately the case was dismissed and "the question of whether or not the state must pay when it takes land by adverse possession will have to wait for another day."

It would seem that that a state may acquire title to private property by adverse possession, so long as it can establish all of the required elements: open, continuous, exclusive, adverse, and notorious possession for the statutory period -- 21 years in Ohio. It also seems clear that a taking occurs, most likely upon the expiration of the staute of limitations. If an ejectment suit is brought before the statutory period has ran, the private owner would regain possession and the adverse possession would be terminated before it ripens into title. But, once that is no longer possible, title vests in the state -- and at this point a taking has occured and just compensation is due.

This is just my opinion... we are still waiting for a court to confirm that a state must pay just comensation for property acquired by adverse possession.

Positive Changes in Ohio's Budget Bill: Recording Fee Hike Nixed, and more...

rfranco@sourceoftitle.com (Robert A. Franco) — Wed, 28 Jun 2017 21:55:27 EST

Ohio House Bill 49, the FY 2018-2019 Operating Budget, is headed to the Governor's office with a couple of significant, and positive changes. As I blogged a couple of months ago, they tried to sneak a massive increase in recording fees into the budget bill - changing to a flat-fee structure. That entire proposal has been nixed. And, the Good Funds Law is getting a much needed update to increase cash and cashier check limits.

This was a close call. Both the increase in recording fees and the recent changes in the Good Funds Law would have certainly cost Ohio homeowner's more money. It's good to see these items addressed.

As I wrote in The Ohio House Sneaks a Massive Recording Fee Increase into the New Budget Bill, the recording fees would have more than doubled the cost of recording some real estate documents. A 2-page deed would have gone from $28.00 to $70.00.

Obviously, this will make real estate transactions more expensive. For example, if a sale includes a 2-page deed, a 17-page first mortgage, a 2-page second mortgage (using the statutory form), a 2-page assignment of mortgage, and a 2-page release of the seller's mortgage, the total recording fees today would be $268.00 (including 2 marginal notations). Under the new fee structure it would cost $630.00 (with 2 references regarding a recorded instrument).

Thankfully, this was pulled from the budget bill entirely. The idea of flat fee recording costs is not a bad idea, but it should be revenue neutral. Idaho will charge a flat fee of $15.00 to record a deed beginning July 1, 2017 - they designed it to be revenue neutral.

This bill was drafted with the intent to be revenue neutral to the counties and has no impact on the general fund. The 30-page limit and the flat fees outlined in the bill were determined through analysis of public recording information for the types of documents presented in this legislation.

I understand the importance of being able to estimate recording costs for TRID purposes and a flat fee is an attractive option. Let's see a study of recording fees so we can propose a more reasonable flat fee that won't gouge consumers.

The other big change in the budge bill is an update to the Good Funds Law, which just went into effect on April 6, 2017. See In God We Trust... Everyone Else Gotta Pay by Wire Transfer.

Under the new statute, effective April 6, 2017, all funds over $1,000 must be "electronically transferred funds via the real-time gross settlement system provided by the federal reserve banks," commonly referred to as a Fedwire. The only exceptions are for business checks drawn on the trust account of a real estate broker (used for earnest money), and funds from the United States government, the State of Ohio, or an agency, instrumentality, or political subdivision of either.

Under the proposed changes, settlement agents will be able to accept cash or cashier's checks up to $10,000, instead of only $1,000. And over $10,000 funds may be "any other electronically transferred funds." This opens the door to other options besides Fedwires that are comparatively more expensive. This will really help out with local banks that have traditionally transferred funds into the settlement agent's IOTA (Interest on Trust Account) held at that bank.

The Governor hasn't signed it yet, but it's likely that he will.

My First Experience with Inverse Condemnation

rfranco@sourceoftitle.com (Robert A. Franco) — Sun, 25 Jun 2017 22:36:33 EST

Last week I wrote about inverse condemnation: The Supreme Court of Virginia Examines the Limits of Inverse Condemnation. It reminded me of a client I had shortly after I started practicing law, Yetieve. She was in her late 70's and she was taking care of her husband who had dementia. The last thing she needed was to be forced from her home, but after an unfortunate series of events they had to move. A corner of her home was sinking into a 12 foot deep crater and the roof was starting to crack -- it wasn't safe to stay there. What had caused it, and who was responsible? Well, that is an interesting story.

On Yetieve's first visit to my office, she told me that there was an old drainage tile that ran under her home. It had been causing problems for years and she had called the City engineer's office many times. The City investigated and determined that it was a private drain installed by the developer and the City didn't have an easement for it. Thus, according to the City they were not responsible for maintaining it. It would have been expensive to fix, or reroute it around her home.

The drainage tile eventually caused damage to the basement floor and when Yeteive called a contractor to fix it. The contract claimed that he went to the City engineer's office and he was told that the tile was no longer in use and was abandoned years earlier. So, when he poured new concrete to fix the basement floor, he filled the broken tile with concrete. Then... it rained... and it rained hard.

Yetieve's basement floor heaved up several feet and the basement filled with water. When it finally broke out of the basement, it eroded a huge crater around the back corner of the house. It was about 20 feet in diameter and 12 feet deep. I thought that someone dug that pit trying to find the tile in an attempt to fix it, but Yetieve told me that it was caused by erosion from the water draining from her basement, and from water continuing to run out of the tile.

Anyway, she insisted that the City was aware of this problem, from her numerous calls, and that it should be held liable. I was a relatively new attorney and I didn't have much experience suing municipalities. I remembered from law school that they are immune from certain suits for negligence. So I did what I felt was the responsible thing - I referred her to another lawyer with more experience.

A couple of weeks later, Yetieve came back to my office. Once again, she asked for my help. She didn't have much money - and I don't think anyone else was interested in taking on a complicated pro bono case against the City. It was with a heavy heart that I told her I just didn't know where to even start with this kind of case. I didn't have the experience to sue the City for negligence.

But, a couple of days later, I called her and asked her to come back in to meet with me. I told her that I had an idea, and with her permission I wanted to follow up on it. I started by sending a letter to the contractor demanding that he put his insurance carrier on notice, then I called the City.

I started by calling someone I knew and I found out that Yetieve was well known. She had, as she told me, called the City many times over a period of a few years. I was told that everyone wanted to help her, but the City didn't have the budget to fix all of the crumbling infrustructure - and particularly here, where it was not even a City drainage tile.

The contractor's insurance carrier called me and said that they were going to hire an engineer to inspect the problem. Soon, I was contacted by the engineer who confirmed what I had suspected. The drainage tile was a private line installed by the developer, but at some point the City had tied into it somewhere "upstream." According to the engineer, about 10 blocks of runoff was running through the broken tile under Yetieve's home.

I was ready to meet with the City. I called and scheduled an appointment with the law director's office and someone from the engineer's office who was familiar with the situation.

At the meeting, I was told that everyone really felt bad for Yetieve, but because this was a private line the City wasn't responsible for maintaining it. Even if they were responsible for maintaining it, the City was immune from negligence suits.

"I don't know much about negligence," I said. "But, if I have to sue the City, it won't be for negligence - it will based on inverse condemnation." I didn't have much experience with condemnation actions, inverse or otherwise, but it was a very interesting concept that I remembered from law school. Being a real estate law geek, I tend to remember these kinds of things.

"I believe that the City took an easement when it connected the storm sewer lines to that private line and directed all of the City's runoff water from ten blocks under Yetieve's property. The City already has an easement, it just hasn't paid her 'just compensation,' yet."

It was creative. And it was well received. The City engineer wrote a strongly worded letter placing the blame on the contractor. The City investigated and determined that the contractor never checked the records as he claimed. Once the insurance company received it, they offered to buy Yetieve's home and compensate her for the personal property that she lost when the basement flooded. Then, they paid to demolish the house, fix the tile, and plant grass on the vacant lot.

Yetieve and her husband were able to move into a condo. She was very happy with the outcome and although I told her there was no charge for my services, she insisted on giving me a little something for my time.

Shortly thereafter, Yetieve insisted on formally giving the City an easement so they could maintain that line. She didn't even ask for any money from the City; she just wanted to make sure there was an easement so nothing like this would happen again.

Sadly, just weeks after she signed the easement, Yetieve passed away. I will always remember her as one of my favorite clients, who brought me one of the most interesting legal issues I have been involved with.

A Time-Saving Title Search Tool?

rfranco@sourceoftitle.com (Robert A. Franco) — Mon, 29 May 2017 23:27:04 EST

There really haven't been many advances in title searching in a couple of decades - not since the book indices were replaced by computers. Even then, it's arguable whether that was really an improvement. I'm old-school -- I prefer the books. I think it was quicker to search a name in the books, particularly when it was a common name, or one susceptible of several spelling variations. Sure, the digitization of the records has made it easier to remotely access the records, but has it really changed the way we search?

Well, someone has finally improved the way abstractors search titles. Pam Hurst, Hamilton County Tennessee Register of Deeds announced the release of Quick Search, a software program which integrates sales data from the Hamilton County Assessor's Office with her office's remote access system.

The purpose of the software is to accelerate the real property title search process to create a chain of title, Hurst said. She created the rules for Quick Search and programmer Bobby Deberry developed it.

"Chattanooga is a hotbed for innovation, and that includes innovation in county government," Hurst said. "Our office uses ideas and technology to help the legal community work faster and more efficiently. We can help Register's Office customers more easily."

Quick Search offers time-saving features, such as the ability to search chains of title and associated names simultaneously. It allows users to print every deed in the chain of title together in one print job.

Hurst said the original software has received praise since its May 16 release, when her office held a training session for 160 attorneys, surveyors, title examiners and government representatives.

I haven't used Quick Search, so I don't have any first hand data to share. But, I am genuinely excited to see someone use technology to improve the process. The advancement from books to the computer wasn't really an improvement in the process - it was just another example of the digital mimicking the analog. Quick Search, on the other hand, seems to use the data together with records from the tax assessor to provide something new... something better.... that actually makes the job easier.

Back in 2007 I wrote a blog about my vision for what technology could do for abstracting - GIMP (Graphic Index Map Plotting). It was my vision of a perfect indexing system that would allow a completed search to be printed by simply selecting a parcel from a map.

It would require several very skilled abstractors to create the database. Basically, conduct the examination as the records are entered, rather than after the fact.
Imagine an indexing system that was built on a graphical deed plotting system with the capabilities of software such as Deed Plotter. Each document would be examined by an abstractor to make sure that it conforms to all of its legal requirements, i.e. it is signed, witnessed, notarized, etc. Then, the legal description is plotted to give a graphical representation. The party names and dates would, of course, also have to be entered.
Those documents that do not require a legal description would be entered in the standard way they are handled now. They would be indexed by grantor/grantee and date.
Then when searching the database, rather than entering a name, parcel number, or address, you would simply pull up the map and select the parcel you wanted searched. The computer would check all of the parcels in that area and lay them out on the map. Any documents that have been plotted that overlap the selected parcel would be shown on the search. All of the documents that did not have a legal description would be automatically included using the names on those documents that did have a legal description and narrowed by the dates on the documents already found.

The point is that technology is more than just another medium to present the same old information. It can do more, and it should be made to do more. Kudos to Pam Hurst for taking advantage of it. We should see more innovation. And, it's great to see the innovation coming from a county official.

Confirmed... The Ohio Good Funds Law is Harming Consumers

rfranco@sourceoftitle.com (Robert A. Franco) — Wed, 17 May 2017 12:25:10 EST

A few days ago I wrote a blog about wire fraud. I commented that those responsible for the change in our good funds law were at least partially to blame for innocent consumers getting conned out of their life savings. Well, yesterday a local ABC news station has confirmed that I was right.

The headline reads "Perry Twp. homebuyers scammed out of $20,000 say new Ohio law made them vulnerable to wire fraud." According to the article, the couple buying a home received an email that appeared to be from their Realtor instructing them to wire more than $20,000 to a bank in New York. They went to their bank and wired the funds. The next day, the title company closing their purchase called to look for their downpayment.

This is a very sad story. Hopefully, it will lead to a change in the good funds law to allow title companies to use their judgment on how to best ensure they have good funds for closings, while also protecting consumers from potential fraud.

I'm just guessing, but this nice couple has probably never had to wire funds before. In all likelihood, they would have not have wired funds this time, but for an Ohio law that required it. Had they brought a cashier's check to their closing, they would be decorating their new home today. It is not a stretch to blame the Ohio Good Funds Law for this devastating loss.

And, the title company could easily verify that a cashier's check is good by calling the issuing bank - particularly here where it would have been drawn on a local bank.

The article says "the Akron Cleveland Association of Realtors told News 5 the Good Funds law was changed to protect consumers against bad checks in real estate transactions." I do not believe it. This law was meant to protect title companies, not consumers. It actually places consumers in jeopardy.

Email Fraud in Real Estate Transactions is on the Rise

rfranco@sourceoftitle.com (Robert A. Franco) — Sun, 14 May 2017 21:14:42 EST

A scheme that targets real estate transactions can be devastating to potential homebuyers. Such scams are on the rise and changes intended to protect settlement professionals may have made matters worse for many innocent, unsuspecting consumers.

Earlier this month, Minnesota Commerce Commissioner Mike Rothman put out a warning "about a wire transfer scam that targets real estate closings."

Minnesota Commerce Commissioner Mike Rothman is warning home buyers and sellers, as well as real estate professionals, about a wire transfer scam that targets real estate closings. The Commerce Department is currently investigating several Minnesota real estate transactions in which hundreds of thousands of dollars were diverted and stolen as a result of fraudulent wire transfer instructions received via fake emails, according to a news release.

“This scam has been spreading around the country and now it’s begun to hit Minnesotans,” Rothman, whose agency regulates the real estate industry in the state, said in a statement. “Crooks are hacking into computers, getting private information about real estate transactions and using it to rip people off. We want to stop these thefts and make sure Minnesotans are on guard against fraud when they buy their dream homes.”

The scam is fairly sophisticated. The scammer hacks into email accounts of real estate professionals and learns details about upcoming real estate closings. Then, they use the information, and possibly the hacked email account of a trusted participant in the settlement process, to contact a buyer with fake wiring instructions. The email might look legitimate, it could appear to be from their Realtor or the escrow officer at the title company. If the buyer sends the wire, the money goes directly to the scammer's bank account where it's usually withdrawn immediately.

The Fedwire Funds Service is "a real-time gross settlement system that enables participants to initiate funds transfer that are immediate, final, and irrevocable once processed." This is great for escrow agents -- they know that once they have funds from a Fedwire transfer they have "good funds." Nobody can pull a Fedwire back after it's processed. But, this is also what makes this particular variety of scam so dangerous. If a consumer is duped into wiring their life savings to a fraudster instead of the title agency waiting for their downpayment, its permanent.

ALTA recently urged the CFPB to warn consumers about wire fraud schemes when purchasing a home.

“Despite efforts by the title industry and others to educate consumers about the risk, homebuyers continue to be targeted,” said Michelle Korsmo, ALTA’s chief executive officer. “With the spring homebuying season underway, it’s vital to continue raising awareness about these schemes. The CFPB should take this opportunity to protect consumers from criminals looking to steal their money.”

It seems that these scams targeting homebuyers are on the rise. And despite the efforts of the title industry and the CFPB to inform consumers, it is going to get worse. Ohio recently changed its good funds law to require consumers to wire funds for real estate closings. This type of scheme wasn't so easy to pull off when the consumer was told to bring a cashier's check to closing. The scammer can't likely show up at the closing with his hand out to intercept a physical check. But, when the consumer is told that they will be required to wire their downpayment prior to closing, they are more likely to fall victim to a sophisticated scam where the fraudster sends a legitimate looking email containing facts that are pertinent to the transaction.

This may be a bit controversial, but to some degree those who pushed for the change in the good funds law, and the legislature that was quick to accommodate them are partially responsible for more innocent consumers losing their life savings. The title and real estate industry are better prepared to deal with the risks involved in closing real estate transactions.

Counterfeit cashier's checks were a risk for the title agents. I understand why some people believe that requiring wire transfers is the solution to protecting escrow officers and title companies, but the unintended consequence is that it will put consumers at a greater risk of being conned out of very large sums of money.

Protecting the consumer should be paramount. A better solution to the counterfeit cashier's check problem might have been educating settlement professionals. Realtors, title agents, and other industry professionals are more apt to recognize a con than a consumer buying his first home. It seems to me that requiring wire transfers just traded one victim for another, who is even less prepared to prevent the fraud.

I guess all we can do now is try to get the word out and alert consumers of the potential for fraud. Here is a list of tips from Minnesota:

Never send financial information via email, unless it is encrypted.
Never wire money for a real estate transaction based only on an email.
Confirm all money transfer instructions, preferably in person or through a trusted and independently-verified phone number. Don’t rely on a phone number or website address in an email.
Be suspicious of any “last minute” changes in payment instructions.
Do not open an attachment or link in an email unless you are absolutely sure who sent it to you. It may contain malware that allows a hacker access to your computer.
Practice good computer protection. Regularly change your passwords and make sure your computer’s operating system, browser and security software are up-to-date.