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Top 10 Title Insurance Claims for DC (1-5)

August 28, 2009 Leave a comment

Title insurance claims arise more often that you might think. Below is a list of the most common title insurance claims for the District of Columbia, compiled by Elisabeth Zajic, vice president and senior counsel for First American Title Insurance Company in D.C.

For further reading, the Underwriter Bulletins contain a wealth of information geared more toward the industry but still valuable for anyone who’s planning to buy a home.

1. Fraud.

I. Uninsured recent no-consideration “gift deeds” to a family member may be forged or obtained through undue influence, enabling the grantee to sell or arrange for a cash-out refinance of the property and abscond with the cash value of the equity. Fraudulent intra-family conveyances represent a large percentage of claims in the District of Columbia.

II. Mortgage foreclosure “specialists” scout out properties for which a foreclosure notice has been filed but with a lot of equity, often titled in elderly persons. They offer to “save” the home and end up taking a deed to the property.

III. Flip transactions, both legal and illegal, remain extremely popular in D.C. Remember that even if your flip transaction is not otherwise fraudulent, there must be full disclosure to all parties of all pertinent details of the transaction.

IV. When a property is acquired without purchase money financing and the new owner subsequently refinances, taking out the cash value of the equity in the property, pay special attention. This is unusual and the refi frequently follows a deed which was forged or fraudulently obtained.

V. Don’t forget the basics. Compare the signatures on your documents against signatures of record and on ID. Give careful scrutiny to powers of attorney and be sure to verify the signature of the principal. Don’t blindly assume that all notarized documents are valid.

VI. Trust your instincts. If the deal doesn’t “feel” right, it probably isn’t.

2. Recording. The failure to record promptly is a major cause of claims.

3. Real Property Taxes. In ascertaining tax status for a D.C. closing, you should proceed as follows:

I. In addition to ordering a tax certificate, you should now check the D.C. Tax Rates and Revenues website for every closing, and document your file with printed copies of the account information. The site information for receivables is updated regularly, with effective dates displayed. Your last check of the site should be done just before closing.
II. The date shown on non-real property tax receivables is particularly important because the Office of Tax and Revenue (OTR) has reached an agreement with the D.C. departments and agencies generating these receivables whereby, unless the liens are either recorded or posted on the website prior to transfer of the property, they will be unenforceable against a bona fide purchaser and will become a personal liability of the seller instead of a real property lien.

III. Order tax certificates. Although the website is a great resource, it does not, at present, create a legal estoppel as to unreported taxes and assessments, as does the tax certificate. The turn-around time for tax certificates is very good at present.

IV. Investigate charges or assessments incurred by previous owners before paying them. OTR is presently seeking to collect a number of previously unbilled tax and assessment liabilities, including, but not limited to, vacant and abandoned property liens, homestead audit liens and Clean City liens. If the taxes were previously unbilled and the property has transferred to a bona fide purchaser, OTR will not enforce the liabilities against the present owner. Instead, the tax will become a personal liability of the former owner responsible for the delinquency, and OTR will provide you with a corrected bill waiving charges.

4. WASA. Claims on D.C. Water and Sewer Authority liabilities have risen dramatically in recent years. One reason for this unfortunate trend is the WASA procedure, which dictates that a new account be established for any given property each time that a final bill is requested. The new account will be opened regardless of whether the old account(s) are paid or not.

I. When handing a sale, order a final bill from WASA. Do not rely on verbal information given to you by WASA. Expect a written response in five business days or more.

II. Never rely on WASA receivables posted on the tax website. The website will show lien amounts only, not account balances. Even the lien amounts cannot be used as payoff figures, as they do not include current penalty and interest charges.

III. Do not rely on a D.C. Tax Certificate for WASA receivables. WASA does not recognize any legal estoppel for water and sewer service charges. Because of problems in this regard, WASA charges will henceforth be specifically excepted to in Tax Certificates.

IV. In the event that a WASA lien has been filed at the Office of the Recorder of Deeds, order a separate payoff statement for the WASA lien. Do not assume that the lien payoff amount will be included in the WASA response to your request for a final bill.

V. WASA must also be contacted for lien payoff balances.

More Info: Water & Sewer Authority Charges

5. Tenants first right of purchase under TOPA. The Tenant Opportunity to Purchase Act gives a tenant or tenants’ association a first right of purchase in connection with any sale of residential real property.

Generally, title insurance protects against loss arising from real property interests, constructive notice of which is imparted through recording. TOPA rights are not a matter of record, and traditionally, title insurance would not provide protection against loss or damage arising from the their exercise.

However, under TOPA, a tenant or tenant organization claiming non-compliance with the Act will seek to set aside the transaction. If they are successful, the result will be a total failure of the title. Purchasers and lenders look to the title insurance industry for protection from this risk, and we have endeavored to meet this need, on a “special risk” basis only.

More Info: Under TOPA – A New Law and Underwriting Guidelines
More Info: D.C. Tenant’s First Right of Purchase under TOPA

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Top 10 Title Insurance Claims for DC (6-10)

August 26, 2009 Leave a comment

Title insurance claims arise more often that you might think. Below is a list of the most common title insurance claims for the District of Columbia, compiled by Elisabeth Zajic, vice president and senior counsel for First American Title Insurance Company in D.C.

For further reading, the Underwriter Bulletins contain a wealth of information geared more toward the industry but still valuable for anyone who’s planning to buy a home.

View the Top 5 >>>

6. Mortgagors holding over after foreclosure. A claim will almost invariably arise when title derives from foreclosure and the mortgagor (borrower) whose property interest was extinguished in the foreclosure sale remains in possession of the property. The claim is precipitated when the successful bidder at the foreclosure sale seeks to evict the former owner/mortgagor in an action for possession, who will respond with a plea of title seeking to invalidate the foreclosure sale. The plea of title gives rise to a duty of defense and indemnification to the foreclosure sale buyer who purchased an owner’s title insurance policy.

Because of the near certainty of litigation giving rise to a duty of defense under the title policy issued, First American Title Insurance will not insure title out of foreclosure when the mortgagor remains in possession of the property. Foreclosure requirements listed in your commitment for title insurance should be amended as follows:

I. Recording of Notice of Foreclosure in the Office of the Recorder of Deeds for the District of Columbia pursuant to which captioned property is sold to the proposed insured.

II. Proof of mailing of the notice by certified mail with return receipt to the record owner, complying with the District of Columbia Code and the terms of the Deed of Trust relating to notice of sale.

III. Proof of Publication of Notice in the Washington Post of other English language newspaper with general circulation in the District of Columbia. The proof also must establish that the notice was published five times within a 10-day period.

IV. Certificate of Sale and Auctioneer’s Report

V. True copy of Deed of Trust note.

VI. Copy of Affidavit in compliance with Soldier’s and Sailor’s Civil Relief Act of 1940.

VII. Proof of notice of the sale to all junior lienholders known or of record.

VIII. Proof that possession of the premises has been surrendered to the insured owner/or assigns.

More info: Mortgagors Holding over after Foreclosure

7. Survey issues. A surprising number of claims in D.C. are caused by survey issues. They frequently involve bitter disputes between neighbors, resulting in lengthy and expensive litigation.

In D.C. survey coverage is not given to owners based on a house location survey except with special approval. When a house location survey is provided for closing, the general survey exception should remain in the owner’s policy, including Eagle policy. You should read the plat into the owner’s policy as well as the loan policy, taking specific exception to matters adverse to title shown on the plat. The survey should be reviewed with the buyer(s) by the settlement officer, who should point out those survey matters which exception is taken. The buyers should sign off on a copy of the plat to be maintained in the settlement file.

8. Disclosure issues. Recently, there has been a surge of litigation stemming from claims of breach of the duty of reasonable care by settlement attorneys who fail to advise purchasers of real property of the title consequences of certain matters of record. Various types of historic preservation easements given by prior owners of record have proven to be particularly problematic. These are not title insurance claims, but claims of negligence on the part of settlement attorneys.

Without going into lengthy discussion of the duty of care of a settlement attorney or settlement company, all of you should be sensitive to directing attention to matters of record which will affect the use and enjoyment of the property by the new owners, such as survey matters, easement issues and restrictive covenants. If possible, it is a good idea to send a copy of the title insurance commitment and survey to the buyers in advance of closing.

If, for whatever reason, you are not providing title insurance coverage for matters which a buyer could reasonably expect such coverage, you must disclose that fact and get a written waiver of coverage. These matters could include TOPA rights, mortgagors holding over after foreclosure, title to parking spaces, easement rights, pending litigation and unpaid taxes and assessments, although this list is by no means comprehensive.

9. Parking space claims. We have dozens of them!

For example, a parking space is listed in the contract but overlooked in the title order and neither conveyed nor insured. If the contract references parking, we have a claim even if the space is not included in the legal description in the policy.

OR – limited common element parking spaces are not properly assigned by amendment to the condo docs and the appropriate exception is not taken in the policy.

OR – the A & T number for the parking space is not included in the FP-7C and the tax bills continue to go to the prior owner, who does not, of course, pay the bills or forward them. The parking space is then sold at tax sale, and we have a claim.

*Pay attention to parking spaces! In many areas of D.C. they are now worth a small fortune!

10. Eagle policy schedule of caps and deductibles. Don’t forget to include it when issuing Eagle policies! If the schedule of limitation of liability is not included with the policy, the argument can be made that there is no limitation on liability, thereby drastically increasing the potential amount of coverage for certain risks.

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