Title Insurance Archives - Real Estate News and Commentary

November 8, 2019November 8, 2019

Ask About Closing Fees

To help home buyers understand the costs of buying a home, the Consumer Financial Protection Bureau (consumerfinance.gov) rolled out the Know Before You Owe initiative in 2015. The intention was to help home buyers understand and ask about closing fees. The project actually has deeper roots in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Dodd-Frank created the CFPB and mandated that the Bureau “shall publish a single, integrated disclosure for mortgage loan transactions” in a “readily understandable language” so borrowers can understand the financial aspects of their loan.

Prior to Know Before You Owe the home buyer would receive a Good Faith Estimate from the lender and a proposed settlement statement (which was on the HUD-1 form) from the title company. The pre-HUD, gave a fairly close estimate of the amount they needed at closing but could change depending on final lender charges. If the amount was a little short, the buyer would write a check to cover the difference. Sometimes the buyer would get money back at closing because the amount they needed was less than the amount the title company actually collected. Regulations dictated when the buyer received a lender’s Good Faith Estimate and settlement costs. If the HUD-1 was delayed, home buyers didn’t have much time to ask about closing fees.

But in the aftermath of the financial and foreclosure crises, there was concern that home buyers didn’t get accurate and fair closing costs disclosure. Know Before You Owe changed the process of disclosing closing cost estimates to provide more accurate closing cost figures. A new Closing Disclosure (CD) was devised to be consumer friendly. The process of closing cost disclosure changed such that the lender is now responsible for providing the buyer the CD (in lieu of title company’s HUD-1). However, the role of the title company (or closing agent) is still to conduct the settlement. The standardization of the closing form allowed time to ask about closing fees.

Unfortunately, title insurance and other title related fees (such as water escrows and the property survey) are still often misunderstood and disputed. Although the CD does a good job breaking down closing costs to help you understand what you’re getting, it falls short in explaining title fees and options. For example, in Maryland, the cost for title insurance that is disclosed on the CD is the more expensive enhanced policy. And it’s not just happenstance, Maryland Realtor purchase contracts require that the lender disclose an enhanced title insurance policy on the CD so you know how much the most expensive title insurance will cost. But unless you know to ask, you may by default be purchasing the more expensive enhanced policy. The survey is another title charge that may be charged by default. Although many feel it’s not worth the expense, it may be relevant to your title policy.

Fortunately, your loan officer will review and help you understand your lender fees. On the other hand, the title company will be communicating with you throughout the home buying process. Make sure you read and understand all emails, as they will likely describe your title charges and options.

Life is hectic and it seems as if time is at a premium. And although buying a home can be exciting, it can significantly add to your daily stressors. But if you want to avoid surprises down the line, take the time to understand the process. Ask as many questions as it takes to know what to expect at closing. Have your real estate agent explain to you your purchase contract. And, don’t wait until settlement to communicate with the title company, or ask about your CD.

Original article is published at https://dankrell.com/blog/2019/11/08/ask-about-closing-fees/

By Dan Krell
Copyright© 2019

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

October 27, 2017January 26, 2020

Blockchain, Bitcoin and real estate

Is a Bitcoin mortgage in your future? Probably not. Mortgages will not be in Bitcoin in the near future. But that doesn’t mean that the blockchain technology that underlies cryptocurrency won’t be making the real estate transaction cheaper and more efficient.

Brad Finkelstein reported on the difficulties of a Bitcoin mortgage (Virtually No Chance Soon for Any Bitcoin Denominated Mortgages; National Mortgage News, 2014). Cryptocurrencies have a history of volatility, Bitcoin most recently lost about a third of its value (see: Bitcoin at crossroads after shedding more than $27 billion in value; marketwatch.com; September 14, 2017). Instability of the currency is a major issue for a thirty-year mortgage. Finkelstein stated that such short-term losses could cause the mortgage holder to “lose their shorts,” and cause the borrower to default. He also pointed out that regulatory hurdles will be difficult to transcend, stating that mortgage rules and closing disclosures are calculated in dollars. Not to mention the difficulty of appraising a home’s value in Bitcoin. Additionally, all parties that are part of the transaction (such as appraisers) need to accept payment in Bitcoin.

Finkelstein also pointed out other cryptocurrency flaws. Unlike currencies such as the euro or yen, cryptocurrencies are not backed by a government that guarantee an exchange rate. Because of the lack of government backing, cryptocurrency values are easily manipulated. Cryptocurrencies have also been associated with illicit internet transactions.

Although cryptocurrency mortgages may not be feasible, Finkelstein noted that “cash” transactions conducted in Bitcoin is a possibility. Luke Stangel reported on a Miami mansion recently listed for sale in Bitcoin (Brother, Can You Spare a Bitcoin? Miami Mansion Is Listed for About 1,400 Bitcoins; realtor.com; September 6, 2017). Two real estate agents interviewed about the sale stated that some aspects of the transaction may still be traditional, such as an escrow being deposited as well as title transfer. However, the transferred funds would be Bitcoin.

Stengel’s report suggested that the interest in conducting real estate deals in cryptocurrencies is to speed up the sales process and provide a secure transaction. However, because of the associated processes that occur during a transaction, the timing of such a transaction may not differ much from any other cash transaction. Security is another issue and can be debated as Bitcoin and other cryptocurrencies have had their share of hacking too.

With so many issues and hurdles, cryptocurrency on its own may not be the (immediate) future of real estate. However, its underlying technology is of interest. The technology that makes Bitcoin and other cryptocurrencies possible is called blockchain.

Blockchain technology has the potential to revolutionize the real estate transaction by reducing the time and cost needed for processing a mortgage and title. Blockchain technology is essentially a chain of blocks. Each block records and holds information. When a block is recorded, it is encrypted and cannot be changed. The recorded information can be currency (such as a Bitcoin transaction), records, contracts, etc. The draw to blockchain is that it is decentralized, making it difficult to corrupt and easy to restore. Additionally, retrieving information is much faster because the chain of information is essentially available at your fingertips.

Many are skeptical of blockchain technology. Not so much because of its disruptive potential, but because it is not impervious to problems. Some issues include security, cost and complexity. A revealing critique of blockchain was written by Jason Bloomberg (Eight Reasons To Be Skeptical About Blockchain; forbes.com; May 31, 2017).

However, blockchain advocates still maintain that the technology provides ease of access and secure recording of blocks of information. The touted benefits are claimed to decrease the time of the average real estate transaction, and reduce the cost to the consumer as well.

Original published at https://dankrell.com

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October 22, 2017September 5, 2019

Title fraud protection

In the wake of the largest consumer data breach in history, ads for credit monitoring and other related services are flooding the airwaves. One of these associated services is home title monitoring. These commercials claim that they will protect you from home stealing and title fraud. But what is home title monitoring and is it worthwhile?

According to a FBI report (fbi.gov) “House Stealing, the Latest Scam on the Block,” house stealing is a combination of two popular “rackets:” identity theft and mortgage fraud. The 2008 report described a couple of versions of how the scam is perpetrated. One form of this crime is committed by obtaining a cash-out mortgage posing as you to get a check at settlement. Another form is committed by fraudulently taking title to your home and then selling the home for the proceeds. Although fraudsters frequently target vacant homes, house stealing can also occur while you’re still occupying your home. The FBI describes how scammers perpetrate house stealing and title fraud:

Here’s how it generally works:
-The con artists start by picking out a house to steal—say, YOURS.
-Next, they assume your identity—getting a hold of your name and personal information (easy enough to do off the Internet) and using that to create fake IDs, social security cards, etc.
-Then, they go to an office supply store and purchase forms that transfer property.
-After forging your signature and using the fake IDs, they file these deeds with the proper authorities, and lo and behold, your house is now THEIRS* [*Since the paperwork is fraudulent, the house doesn’t legally belong to the con artists.]
There are some variations on this theme…
-Con artists look for a vacant house—say, a vacation home or rental property—and do a little research to find out who owns it. Then, they steal the owner’s identity, go through the same process of transferring the deed, put the empty house on the market, and pocket the profits.
-Or, the fraudsters steal a house a family is still living in…find a buyer (someone, say, who is satisfied with a few online photos)…and sell the house without the family even knowing. In fact, the rightful owners continue right on paying the mortgage for a house they no longer own.

Both forms of house stealing (or title fraud) are typically intertwined with mortgage fraud. And because of the process, mortgage fraud usually has multiple conspirators carrying out the scam. An example of this is the 2013-2014 sentencing of at least five co-conspirators (including a title company manager and mortgage broker). These criminals perpetrated a complex multi-million-dollar mortgage fraud scheme that occurred in Maryland. One conspirator sold homes that did not belong to her.

According to the FBI report, house stealing is difficult to prevent. However, vigilance on your part is highly recommended. Red flags include receiving payment books and/or late notices for loans for which you did not apply. Additionally, it is recommended to routinely monitor your home’s title in the county’s land records. Any unrecognized paperwork or fraudulent looking signatures may be an indication of title fraud and should be looked into. Title fraud should be reported to the FBI.

Title fraud protection

You can visit Montgomery County’s land records office and get information on searching your home’s title from the very helpful staff. You can also search land records online. However, you should consult a title attorney for a detailed title search.

A problem with searching land records is that it is not always definitive. Of course, accuracy depends on those who prepare and file the documents with the county. Common issues that are found in title searches are misspelled names and aliases. Deeds and other related documents (such as quit claim deeds and mortgage satisfaction letters) are not always filed timely, or sometimes not at all.

After the Equifax breach, millions of consumers’ identifications are available to criminals to perpetrate house stealing/title fraud. Title monitoring services tout their ability to protect you from such scams. Before you decide to enroll, be aware of the fees, the limitations, and how it compares or differs from your owner’s title insurance policy (including cost).

Your title insurance policy may already protect you from title fraud. According to the Maryland Insurance Administration’s A Consumer Guide to Title Insurance (insurance.maryland.gov), “Title insurance protects real estate purchasers and/or lenders from losses that arise after a real estate settlement…A title insurance policy provides coverage for legal defense, as well as the coverage amount listed in the policy, which usually equals the purchase price of the real property.” Basic coverage typically protects you for fraud that occurred prior to settlement. However, enhanced coverage may provide protection for fraud that occurs after settlement.

You should consult with a title attorney about your title insurance coverage and how it protects you from title fraud.

By DanKrell
Copyright© 2017

Original published at https://dankrell.com/blog/2017/10/22/title-fraud-protection

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August 1, 2013June 30, 2019

Title insurance history, perspective, and necessity

Home buyers would like to consider themselves as being financially savvy. Of course, I often hear the question about buying a home without title insurance, which usually arises from the advice they may receive from some questionable source debating the necessity of title insurance. However, the importance of title insurance is highlighted by recent ownership disputes that have occurred in the last five years due to foreclosures, improperly recorded deeds and mortgage modifications.

Historically, title insurance came about as a necessity. According to the American Land Title Association (alta.org), title insurance resulted from a landmark court case in Pennsylvania in 1868, which found that home seller was not be responsible for a erroneous title opinion. Subsequently, the first title insurance company was formed in 1876 in Philadelphia. The company promoted itself by claiming that they would insure “the purchasers of real estate and mortgages against losses from defective title, liens and encumbrances;” thus increasing the speed and accuracy of the property transfer process.

Prior to the availability of title insurance, title examinations were conducted similarly to how they are today with the purpose of ensuring title marketability (ensuring title is free of unpaid liens, mortgages, and other encumbrances). However, prior to the offering of title insurance, property owners were often held responsible for title blemishes. Of course, unresolved tile disputes were often settled in court.

Initially, title insurance was often a local process. However, the title insurance industry surged along with an expanded housing market after World War II ended. Additionally, the use of lender’s title insurance grew along with the secondary mortgage market; because as the number of nationwide mortgage holders increased, lenders found that title insurance was necessary to protect their interests.

Researching a property’s title relies on the “recordation system.” Although the recordation system has been in use in most of United States in some cases before the formation of the country, many countries use a land registration. Land registration systems used in some countries typically do not provide the same recourse as does the recordation system when disputes arise; where the registering government may resolve these disputes.

Title insurance is a result of our recordation system that continues to this day, where property ownership can usually be determined by conveyance. Although the recordation system relies on transfer instruments that indicate a grantor, grantee, and property description; the system is not perfect. Issues can arise from unrecorded deeds, as well as erroneously recorded documents; fraud may also occur by recording falsified transfer documents with a complicit or unsuspecting clerk.

There are two types of title insurance that are offered: lender’s and owner’s. A lender’s policy is usually required by a mortgage lender and is thought to protect the interests of the lender by validating the lender’s validity and enforceability of the mortgage. The lender’s policy is typically issued for the mortgage amount and coverage decreases as the principal is paid down.

An owner’s title insurance policy is understood to protect the owner’s interest in the property, however there may be limitations. You should consult with your title attorney about the policy coverage and limitations. Policy coverage varies– so check with your title agent for pricing and coverage levels.

A Consumer Guide to Title Insurance is available from the Maryland Insurance Administration, the local State agency that regulates title insurance producers (insurance.maryland.gov).

By Dan Krell
Copyright © 2013

This article is not intended to provide nor should it be relied upon for legal and financial advice. Original published at https://dankrell.com

August 18, 2011October 11, 2019

Understanding Title Insurance

The necessity of title insurance has been debated over the years by many home owners. However, foreclosure disputes, between lenders and former home owners, have brought focus on a valuable and often misunderstood protection. Besides the many stories that have been told about how an owner’s title insurance policy has saved or could have saved a home, many home buyers are unaware of how title insurance was conceived. Many have difficulty understanding title insurance.

According to the American Land Title Association (ALTA.org), title insurance came about as a result of a landmark court case in Pennsylvania in 1868, which found that home seller was not be responsible for a erroneous title opinion. Subsequently, the first title insurance company was formed in 1876 in Philadelphia. The company promoted itself by claiming that they would insure “the purchasers of real estate and mortgages against losses from defective title, liens and encumbrances”…”Through these facilities, transfer of real estate and real estate securities can be made more speedily and with greater security than heretofore.”

Like today, title examinations were conducted to ensure that the title was marketable (or defect free). However, prior to the offering of title insurance, property owners were often held responsible for liens and encumbrances left on the title by the previous owner, or when mistakes occurred. Title disputes were often settled in court.

Contrasting to the recordation system has been used in most of the United States (in some cases before the formation of the country); many other countries use a land registration. Land registration typically allows a government to determine ownership when property ownership is challenged; property owners usually have no recourse.

Title insurance is a result of our recordation system that continues to this day, where property ownership can usually be determined by conveyance. Although the recordation system relies on transfer instruments that indicate a grantor, grantee, and property description; the system is not perfect. Besides recordation mistakes and claims from unrecorded conveyances; fraud can also occur by recording falsified transfer documents with a complicit or unsuspecting clerk.

There are two types of title insurance that are offered: lender’s and owner’s. A lender’s policy is usually required by a mortgage lender and protects the interests of the lender by validating the lender’s validity and enforceability of the mortgage. The lender’s policy is typically issued for the mortgage amount and coverage decreases as the principal is paid down.

An owner’s title insurance policy protects the owner’s interest in the property. The policy is typically issued for the purchase price and is usually valid through ownership to cover claims against the title. Policy coverage varies- so check with your title agent for pricing and coverage levels.

When purchasing a title insurance policy, consult with your title attorney about the policy coverage and limitations. Additionally, A Consumer Guide to Title Insurance is available from the agency that regulates title insurance producers – the Maryland Insurance Administration (https://insurance.maryland.gov/Consumer/Documents/publications/titleinsurancebrochure.pdf).

by Dan Krell
© 2011

Original published at https://dankrell.com/blog/2011/08/18/title-insurance-a-misunderstood-safeguard/

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.