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.

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.

FNTG Claims Facts & Figures

As many of us know, the process of insuring title is centered on claims avoidance. However, despite our professional and best efforts, claims do occur.

Claims predominantly occur as the result of: (1) Search and examination errors, (2) Improper Settlement Procedures, (3) Post-closing / Recording Errors, and (4) Fraud and Forgery.

Here is a breakdown of FNTG’s 2014 Claims nationwide and for New York:

    1. In 2014, FNTG spent $307,771,899 on claims nationwide (loss/expense totals). Of the claims nationwide:
        1. Approximately 25% was spent on claims involving search and exam errors;
        2. Approximately 13% was spent on claims involving improper settlement procedures; and
        3. Approximately 12% was spent on claims involving fraud and forgery.
    2. In 2014, FNTG spent $22,136,938 on claims in New York (nationwide, New York had the 2nd highest amount spent on claims; second to California
    3. The percentage allocation of claims nationally is typically similar in New York. However, in 2014, FNTG paid a large loss on a New York claim involving fraud and forgery. Therefore, of the $22 million spent in New York in 2014:
      1. 23% was spent on claims involving fraud and forgery;
      2. 19% was spent on claims involving underwritten risk (“Underwritten Risk” involve true insurance risks – risks we take with every policy even if everything is done absolutely right);
      3. 18% was spent on claims involving search and exam errors;
      4. 10% was spent on claims involving post-closing and recording issues; and
      5. 8% was spent on claims involving improper settlement procedures.
    4. The remainder of the New York claims involved: missing interests, survey issues, gap coverage, defalcation, access/easement, mechanic’s liens, enhanced/expanded policy and local law issues. 

      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.

CLE Corner

FNTG cordially invites our agents to attend an upcoming CLE Seminar on Wednesday, July 17th – “eRecording through ACRIS” presented by FNTG and CSC (Corporation Service Company).  The seminar will be held at the Holiday Inn in Westbury, Long Island.  Registration is 11:45-12:00 and the seminar will be from 12:00-1:00.  Lunch will be provided.  The seminar is free of charge and will provide .5 credit hours in Professional Practice and .5 credit hours in Law Practice Management.

Come learn about the statutory framework around electronic recording in NY and the benefits of eRecording with ACRIS.

Please RSVP by July 12th to lorna.cunningham@fnf.com to reserve your spot.

Please feel free to contact me at dana.zimmerman@fnf.com if you have any CLE-related questions.  You can also check out the NYS Unified Court System website.

CLE Corner

 

As FNTG’s CLE Coordinator, I invite you to check out the “CLE Offerings” section in the bottom left corner of the home page of the new FNTG NY Agency website.  It contains links to (1) “Courses Available” (a list of CLE topics presented by our agency underwriting counsel over the past few years); (2) “Facilitation Options” (explaining how you can use FNTG’s NYS CLE accreditation to help your business); and (3) “CLE Request Form” (an easy way to contact us to inquire about co-sponsoring a CLE program).

Please feel free to contact me at dana.zimmerman@fnf.com if you have any CLE-related questions.  You can also check out the NYS Unified Court System website.

CLE Corner

  

Many of you may not be aware that Fidelity National Title Group is certified as an Accredited Provider by the New York State Continuing Legal Education (“CLE”) Board.

FNTG is approved to provide traditional “live” classroom format CLE courses as well as “live simultaneous transmission” CLE courses including by teleconference, webconference and webinar.

I am FNTG’s CLE provider representative.  Please contact me at dana.zimmerman@fnf.com if you have any CLE-related questions.  You can also check out the NYS Unified Court System website.