Sample Claim – Fraudulent Power of Attorney

I am the Claims Liaison for the FNTG NY Agency Department. As a liaison between our agents and the FNTG claims department, I analyze and investigate many claims. Since claims prevention is always our goal, I thought it would be helpful to review a sample claim involving a fraudulent power of attorney:

Facts: Brother and Sister owned the property. Brother, using a Power of Attorney, conveyed the property to himself, and entered into a cash-out refinance of the property. Within a month after the closing, he conveyed the property back to himself and Sister. Sister claimed that the Power of Attorney was a forgery, and provided proof that she was out of the country at the time the Power of Attorney was allegedly executed by her.

Amount of Loss: The Company suffered a loss of $340,000.00, including litigation expenses.

What Went Wrong: First, the chain of title raised some red flags. In the immediate years prior to the insured transaction, there had been several unexplained no-consideration conveyances back and forth between Brother and Sister, with Sister being taken out of title and being put back into title after financings had occurred. This would have been revealed if the agent did not erroneously rely on a last owner search. Second, the most recent conveyance was a conveyance by the donee of the power for no consideration, which should have immediately called for further investigation by the agent.  Here, there was no documentation in the agent’s file to indicate that any investigation had been performed.  Finally, the power of attorney had not been recorded prior to closing. After the closing, the power of attorney was rejected by the recorder because of deficiencies in the form.

Underwriting Issues:

A.  Powers of Attorney

  1. It is important to ask the question: Does this transaction make sense from the standpoint of the donor of the power of attorney?
  2. A standard exception (frequently not read by the parties or otherwise ignored) states that any power of attorney utilized at closing must be submitted for consideration prior to closing. If it is being submitted for the first time at the closing table, it may be too late to conduct an adequate investigation into the bona fides of the power. Under such circumstances, agency counsel must be consulted before the closing can proceed.
  3. Additionally, inquiry must be made (1) that the donor of the power was competent at the time of execution of the power; (2) that the power has not been revoked; (3) that the power is still in full force and effect; and (4) that the donor is still alive at the time of closing. An affidavit by the donee is generally inadequate to satisfy all of these requirements.
  4. Also, the power of attorney form being used must be reviewed for legal sufficiency, and to assure that the donor has given the donee the authority to enter into the transaction that we are now asked to insure.
  5. Lastly, powers of attorney often give the donee the authority to make gifts to others or even themselves. We regard such transactions as highly suspect, and a thorough investigation into the facts must be made before we are willing to accept such a conveyance for insurance purposes.

B.  Last Owner Searches:

1.  This type of search is inappropriate when the last deed of record is a conveyance for no consideration.

If you have any claims-related questions or comments, I encourage you to respond to this post. You can also contact me at dana.zimmerman@fnf.com or (914) 682-3904.

Authenticate Your Policy

The Department of Financial Services recently approved the TIRSA Policy Authentication Endorsement. Let’s take a look at what the endorsement does and how it should be used.

The endorsement says:

“When the policy is issued by the Company with a policy number and Date of Policy, the Company will not deny liability under the policy or any endorsements issued with the policy solely on the grounds that the policy or endorsements were issued electronically or lack signatures in accordance with the Conditions.”

This allows insureds, particularly lenders, to receive, store, and transmit policies electronically without having to worry about an original signature in case of a claim. This should result in the lender getting their policy more quickly and keeping track of it more efficiently. For us, that should mean lower costs for paper, postage and time spent producing duplicate originals when policies have been lost. It will also mean less time spent signing policies.

Does this mean that you no longer have to sign policies? That’s correct. As long as your policy is numbered and dated and includes the Policy Authentication Endorsement it is not necessary to sign it. Before you start sending out policies without signatures, think about your customers. If you have been in the business for a while you probably remember when we started printing policy jackets from our own printers instead of using nicely colored, numbered, pre-printed jackets. It took a while for our customers to understand that policies with black and white covers that looked like photocopies were the original policies. You will probably get the same reaction when you start sending unsigned policies. It will take a few phone calls or emails to educate some of your customers that this is in fact the policy and it does not have to be signed.

Be careful if you issue a Pro Forma policy. If it is not intended to be the final version of the policy do not date it, do not include the policy number and most importantly, do not include the Policy Authentication Endorsement. You do not want to create multiple versions of the final policy.

 

Hot topics of the week

I have fielded a number of questions this week on the same or similar topic so I thought it would be timely and appropriate to recap those issues here and provide you with some general rules.  As you know, each situation has its own set of facts and therefore the analysis may need to be adjusted accordingly; but this will, at least, provide you with some general guidance.

Effect of Renunciation on a Federal Tax Lien

A beneficiary of a disposition or distributee of an intestate share may renounce all or part of their interest. Once properly filed, the renunciation has the same effect as though the renouncing person predeceased the testator/intestate. It should be noted that the renouncing party cannot and will not receive any consideration for doing so (unless authorized by the court). Although the effect of renunciation treats the renouncing party as having predeceased, this does not apply to federal tax liens. Such a lien cannot be defeated by a renunciation of the property because it attaches to the real property at the moment of death.

Severing a Joint Tenancy

A joint tenancy can be unilaterally severed by any joint tenant without the consent of the non-severing joint tenant(s) by execution and delivery of a deed provided that the deed is recorded prior to the death of the severing tenant in the county where the real property is located (RPL 240-c).

Revocation of an Irrevocable Trust

An irrevocable trust by its name seems to suggest that you cannot revoke it. However, if the creator of the trust and all the beneficiaries join in to revoke then revocation of an irrevocable trust is possible pursuant to EPTL7-1.9.

Certification of Title in the Name of a Trust

A deed into a trust should be into the trustees of a trust and not the trust name alone. Exception to this rule is found in EPTL 7.1-18- if the donor is the sole trustee then title can be conveyed to the trust.

Deed required from Specific Devisee

A person who receives real property under a decedent’s will is called a devisee. In order to be characterized as a specific devisee the decedent must specifically identify the property to be received by the devisee. When a specific devise has been identified the deed must come from the specific devisee not the executor (unless it can be established that the property which is the subject of the specific devise must be sold to pay the debts of the decedent’s estate [EPTL 11-1.1(5)]).

Improper Reliance on the Mutual Indemnification Agreement

Getting a fee policy is not a cure-all for defects found in your title report. There is a list of “covered defects” in the agreement. If the defect you are raising as an exception is not listed under the “covered defects” provision of the agreement then you cannot rely on the policy to omit your exception.

As with any title you are reviewing please always feel free to contact Company counsel with the specifics of your transaction.

It’s A Judgment Call – A Continuing Dialogue On The Impact Of A Money Judgment On Real Property

In a prior Blog entry, I offered a “Question & Answer” format with regard to the impact of a money judgment on a real estate transaction.  At this time, I would like to continue the dialogue, with some additional entries.  Thank you.

  1. How long is a money judgment enforceable against a judgment debtor?

A money judgment is enforceable against a judgment debtor for a period of twenty (20) years.  This enforcement period pertains to the personal liability of the judgment debtor.  This is separate and apart from the time line that is applicable to the lien of a money judgment on real property.

 

2.   How long is a money judgment a lien on real property?

A docketed money judgment is a lien on real property for a period of ten (10) years from the date of perfection of the judgment, unless renewed or extended.  As to the mention of docketing and perfection in my within response, please refer to my earlier blog entry that discussed the distinction between docketing and perfection.

 

Please look for further Blog entries on this topic.  In the interim, your comments and/or questions are welcome.

TITLE “WOLF PITS” IN THE BANKRUPTCY LANDSCAPE

A “wolf pit” is a conical hole, concealed under a layer of soil, with a sharpened stake hammered at the bottom. It is best avoided. Bankruptcy poses certain pitfalls to the title insurer, also best avoided.  Learn to Identify and steer clear.

The most common pitfalls are 1. an open bankruptcy, 2. a violation of the automatic stay, 3. a prior fraudulent and/or preferential transfer, 4. failure to record a mortgage within 30 days, and 5. the assumption that a discharge in bankruptcy removes liens and judgments from the debtor’s real property.

A bankruptcy is generally commenced with the debtor filing a petition listing all assets and creditors.  Filing puts all debtor’s property, whether or not listed, under the control of the Trustee in Bankruptcy. After filing, neither the debtor, nor her creditors, can reach her property.

Open Bankruptcy

Title may not be insured until the case is closed (a discharge is not sufficient), or there is a court order to sell. However, even with an order, you must wait until the appeal period has expired, without an appeal having been filed. (Consult with underwriting counsel when the bankruptcy is a Chapter 13). This applies even where only one spouse has filed and title is held as tenants by the entirety. It also applies to property that the debtor did not schedule as an asset, or property inherited during the pendency of the bankruptcy.

Violation of Automatic Stay

Filing a petition triggers an automatic stay, which bars creditors from enforcing their liens against debtor’s property until the case is closed or the automatic stay lifted. In a foreclosure, actions taken in violation of the automatic stay are generally void ab initio. Therefore title coming through a foreclosure, where proceedings were had in violation of the automatic stay, may not be insurable.

Gift transfers, Fraudulent Conveyances, Preferential Transfers

A fraudulent transfer is one made for inadequate or no consideration, either with the intent to defraud (actual fraud), or which rendered the grantor insolvent (constructive fraud). A preferential transfer is made by a debtor, prior to filing for bankruptcy, which gave a preference to one creditor over another.  A deed by a settlor to his living trust, a deed given to one’s children, reserving a life estate, a deed between spouses, all are vulnerable to being avoided by the trustee as fraudulent transfers.  Deeds in lieu are an example of transfers which can be both preferential and fraudulent and which also can be avoided by the trustee. In New York, a trustee can challenge a fraudulent conveyance for six years from the transfer, and a preferential transfer made 90 days prior to filing, unless the transferee was an insider, in which case there is a one year statute of limitations.

Failure to record a mortgage within 30 days

A trustee can avoid a mortgage which was not timely recorded.

Judgments

Judgments are not automatically removed as liens against real property as a result of debtor’s discharge. The debtor will no longer have personal liability for the judgment, but the creditor will retain a lien against her real property, except in those rare instances where there is an order returning the bankruptcy estate to the debtor “free and clear”.  In such a case, only those debts which were scheduled will be removed as liens. Always discuss “free and clear’ orders with underwriting counsel, and notwithstanding the court order, never omit open real property taxes

TIRSA Owner’s Extended Protection Policy (TOEPP)

The TIRSA Owner’s Extended Protection Policy (TOEPP) provides the most comprehensive title coverage for purchasers of one-to-four family residences in the State of New York.  In addition to the coverages provided by the Standard ALTA owner’s policy, the TOEPP policy also provides enhanced coverage against certain covenant, condition or restriction violations, encroachments, certain post policy matters as well as limited zoning and building coverages.  Some of the enhanced features that are included in the TOEPP are:

An automatic increase in the amount of insurance by 10% per year for the first five years following the date of policy.
Expanded access by including Vehicular access to and from the land (other than to a Condominium Unit)
Insurance that the residence with the address shown on Schedule A is located on the land at policy date.
Coverage for Certain Post-policy matters.
Certain Limited Zoning and Building Coverages.*
Protection against actual loss sustained by the forced removal or correction of a violation of a covenant, condition or restriction affecting the land, the violation of which was not excepted in your policy but existed at policy date.
Protection against the loss or taking of your title because of a violation of a covenant, condition or restriction, the violation of which was not excepted in your policy but which occurred before you acquired title.

 

* Subject to deductibles and maximum liability amounts

Please visit the Media Center  on our FNTG agency website (www.fntgnyagency.com) where you will find additional information on the TOEPP. There  you will find seminar materials (including audio) that discuss the TOEPP policy in detail.

Law Reflects Advances in Technology

Shortly after the financial crisis in 2008, many homeowners were faced with foreclosure. Around the same time, and perhaps as a result of the unprecedented amount of foreclosure actions that were commenced, it was discovered that many of the foreclosing entities could not prove themselves to be the owner of the mortgage to be foreclosed. Many of the loans that were in foreclosure had been bundled as securities to be sold to investors; investigations showed that, in selling off these bundles, many of the assignments of the individual mortgages had been “robo signed”, i.e., they were not signed by an officer of the assigning lender and the note (if it could be found) had not been endorsed and delivered to the assignee. The situation was further exacerbated when lenders commenced foreclosure actions, alleging themselves to be the owner of the note and mortgage, when in fact the loan had not been assigned to the foreclosing lender until after the action had begun.

In response to all of this, legislation was passed, court rules were promulgated and lack of standing became the standard defense for borrowers finding themselves in the unfortunate situation of foreclosure. The law became clear that a lender seeking to foreclose would establish its standing by proving that it was in physical possession of the endorsed note prior to commencement of the foreclosure action even in the absence of an assignment of the mortgage.

Recently, in the case of New York Community Bank v. McClendon, the defendant’s motion to dismiss the complaint for lack of standing was granted by the Supreme Court but reversed on appeal. The note (eNote) secured by the mortgage was signed by the defendant electronically. AmTrust, the original mortgagee, was closed and the FDIC, as receiver for AmTrust, sold the mortgage to the plaintiff. In opposition to the defendant’s motion to dismiss, the plaintiff submitted a copy of the eNote, the eNote Transfer History and an affidavit of its assistant vice president.

In reversing the lower court, the appellate court looked to various sections of 15 USC 7021 and the Uniform Commercial Code Section 1-201 regarding transferable records. The court determined that the eNote is a transferable record. The eNote transfer history established that the plaintiff acquired the note prior to the foreclosure action. The eNote and the transfer history were sufficient to review the terms of the transferable record in order to identify the entity having control of it and thus establish plaintiff’s standing. Unlike the rules for paper documents, delivery, possession and endorsement of the eNote were not required.

While the advent of electronic signatures does not abrogate the need for a plaintiff to prove its standing, it does change the type of proof that is presented to establish a plaintiff’s standing.

Underwriting Tip: Standing is an affirmative defense which, if not raised, is waived. However, if you are insuring out of foreclosure and the defendant defaulted, plaintiff’s lack of standing should be raised as an exception to coverage, particularly if the property is occupied and/or the defendant was not personally served.

To comment or ask a question please contact Judith Lanahan at Judith.lanahan@fnf.com.

Sample Claim – Improper Reliance on the Mutual Indemnification Agreement

I am the Claims Liaison for the FNTG NY Agency Department. As a liaison between our agents and the FNTG claims department, I analyze and investigate many claims. Since claims prevention is always our goal, I thought it would be helpful to review a sample claim involving improper reliance on the mutual indemnification agreement:

Facts: Agent was asked to insure a purchase. The title report revealed an open mortgage given by the seller.  Agent requested clearance from the prior title agent, and was provided with information that the prior agent had relied upon to omit the mortgage under the Mutual Indemnification Agreement (“MIA”).  It turns out that the prior agent was involved in a fraud and never paid off the seller’s prior mortgage when this agent had handled a refinance transaction. The holder of the prior unpaid mortgage started a foreclosure action. We made a claim against another underwriter under the MIA. The other underwriter denied the claim, asserting that the documentation furnished by its agent, in particular, the type of check allegedly used to pay off the mortgage, did not comply with the provisions of the MIA, and thus claimed that our agent was not entitled to rely on the MIA in clearing the open mortgage.

Amount of loss: $370,000.00 plus $106,000 in litigation expenses.

What went wrong: The prior agent that had committed the fraud gave our agent a number of documents to show that the prior mortgage was paid off. Among the documentation was a check drawn on a certain corporation’s business account. The other underwriter asserted that this does not fulfill the requirements of the MIA, which requires, in part, that the new title company (that is, the “Indemnitee” under the MIA) obtain a copy of “the certified, bank or attorney(s) escrow account check(s) issued for payment of the amount stated in the payoff letter as due”. (See Second Amended and Restated Mutual Indemnification, Section 3(h)(ii).)

Underwriting Issues: The MIA is not a cure-all for clearing any and all open title objections. The provisions of the MIA must be strictly followed.  Not only must the exception(s) requiring clearance be included in the list of “Covered Defects”, but the manner of clearing any particular defect must also be followed.

In addition, just because there has been a prior policy issued on the property in question does not mean that you are necessarily entitled to rely upon it for the exception(s) in question. If you have any doubt about whether the MIA applies to a pending transaction, please contact one of our underwriting counsel.

Please let us know if you need a copy of the full Mutual Indemnification Agreement.

If you have any claims-related questions or comments, I encourage you to respond to this post. You can also contact me at dana.zimmerman@fnf.com or (914) 682-3904.

Change is Good

As title people we are creatures of habit. We do not embrace change quickly or without angst. We take comfort in doing things the way our mentors taught us; the same way that their mentors taught them and their mentors before that. How many things do we do on a daily basis simply because that is the way it has always been done; the same way that it was done 100 years ago? Sometimes we need to look at those things and ask ourselves why they are done that way. If we do some digging we might find a good explanation. Sometimes we find an explanation that no longer makes sense. Maybe the law has changed, or local contract requirements have changed, or the underwriter has changed its position on something. Occasionally technology allows us to do something better than what came before. If we can make something better we need to embrace change.

One thing that title people hate to change is that wonderful old legal description that has been carried through from 1870. You know the one. It starts at the old walnut stump at the side of the road and then goes sixty chains more or less to the creek, then up the creek to the deer path next to the old barn that burned in 1850, then along the deer path to the stone wall and along the wall back to the road. In 2016 the surveyor actually manages to find evidence of all of those landmarks and gives us nice accurate measurements between them with his laser measuring devices, yet chances are the deed to the purchaser will be recorded using that same old description from 1870. And someone will insure it! This is the time when we need to embrace change. Do your due diligence. Make sure that what the surveyor is showing fits with the neighboring descriptions and lines of occupation. Draw up a description that is modern and accurate and makes sense. Making a change makes it easy to know exactly what is being insured.

Sometimes we need to break away from old ways of doing things in order to make it easy to know exactly what we are not insuring. Think about the survey exception. What do you put in your survey exception? Did your mentor teach you to exhaustively list every detail that you see on the survey? Are there things that are shown on the survey that should be exceptions from coverage, but don’t really seem like exceptions when they are just part of the laundry list of things that are shown on the survey? When you look at your exception, is it clear what you are excepting from coverage? For every item that you put in your survey exception you should ask yourself if you are putting it there because you want to except it from coverage and whether you have shown it in a manner that makes it clear that it is an exception to coverage. We might think that we have correctly excepted something because it was in our survey reading. A title person would know that. But the insured is not a title person and the judge that handles the lawsuit probably will not be one either. If the survey exception contains a long list of things that are not exceptions, how will they know what items are not covered by the policy? Since the insurer drafted the exceptions, any ambiguities will be interpreted against us. It’s time to change our ways and start rethinking our survey exceptions. The only things that should be in a survey exception are the things that we choose to except from coverage.

Case and Point

Case and Point

I previously published a blog post discussing the importance of our underwriting guidelines with respect to using a power of attorney when insuring transactions. Borders v. Borders (128 A.D. 3d 1542) is a case decided in May of 2015 setting aside a deed where a power of attorney was used.

In this case, the parties are siblings. The father who owned the property executed a power of attorney in favor of two of the siblings (defendants) granting them the power to dispose of his property.  The plaintiff (who lived with the father) had several judgments against him.  In an effort to keep the plaintiff from obtaining title to the property and then using the property to satisfy the claims of his creditors, the defendants used their power of attorney to transfer the property for no consideration to themselves and reserving a life estate for the father.  That deed was recorded on 11/20/08.  Unbeknownst to the defendants, the father executed a separate deed that was recorded 11/26/08 which conveyed title to the plaintiff while also reserving a life estate for father.  The court, on appeal, reasoned that the transfer made by the defendants creates a presumption of impropriety that can be rebutted only with a clear showing that the principal intended to make the gift or that the gift was in the principal’s best interest.  Here, since the father transferred title to the plaintiff, he demonstrated that he did not wish to give the defendants the property. And since there was no consideration for the transfer in defendant’s deed, the defendant’s intent was not to protect their father, but rather, to protect defendants’ future inheritance from the plaintiff and his creditors. Therefore the 11/20/08 deed transferring title to the defendants was deemed null and void.

This case is a classic example of the perils involved in dealing with powers of attorneys. Always contact company counsel when a power of attorney is used for a “self-serving” transaction.  I also recommend reading (or re-reading) my previous blog from 10/27/2015 which is accessible under the “posts” section of our blog page.

Case law relied upon in this case: Mantella v. Mantella, 268 A.D.2d 852-853, N.Y.S.2d 715, Semmler v. Naples, 166 A.D.2d 751, N.Y.S.2d 116, and Matter of Ferrara 7 N.Y.3d 244, 254.