© 2012 Default Attorney Group www.defaultattorneygroup.org

Real Estate Default Symposium

Clearing Title

What We’ll Cover Today

 Title Insurance  The Title Commitment  Clearing Title  Title Claims  Other Title Issues  Condo and HOA Associations  Mobile Home Basics

Title Insurance

 What is it?

 Owner’s Policy  Insurance for the fee owner  Lender’s Policy  Insurance for the lender  Why is it necessary?

 How do we use it?

Type of Search/When do you use?

 Title Report/Ownership & Encumbrance Report  Foreclosure Report  Title Insurance Commitment

The Title Commitment: Basic Sections

 Schedule A  Fee Simple Owner  Property Description  Schedule B -Requirements  Schedule B - Exceptions

Differing Title Interests

  Fee  Interest held by the owner (borrower or REO lender after foreclosure)  Types of Concurrent Estates Mortgage  Interest held by the lender  Other Interests  Others who claim an interest in the property

Fee Interests

 Types of Estates  Joint Tenancy  Tenancy in Common  Tenancy by the Entireties  Life Estate  Correctness of Descriptions  Proper Recording  Office Public Records

Mortgage Interests

 Recording  Acknowledgement  Completeness  Assignment  Priority  Subordinate vs. Superior

Other Interests

 Judgments  Construction/Mechanic’s Liens  Tax Liens  Superior Liens vs Subordinate Liens

Determining Priority

 Depends on type of Recording Act  Race ○ Person who wins the race to record prevails  Notice (IL) ○ Last BFP for value without notice prevails  Race-Notice (MI) ○ BFP for value who records first prevails

What Constitutes Notice

 Actual Notice  Constructive Notice  Recording of document  Inquiry Notice  Odd documents  Possession

Super Priority Items

 State Specific  Property Taxes  Run with the land  Tax Foreclosure/Forfeiture  Water Liens  Condo’s and HOA’s  Federal Tax Liens

Clearing Title

 Non -Judicial Foreclosure  Does your State have an MIA?

 Lien Releases  Corrective Documents  Title Claim  Judicial Foreclosure  Reformation Count  Quiet Title Action  Title Claim

Mortgage Recording Issues

    Mortgage must be of record before commencement of the foreclosure proceedings If mortgage unrecorded highly recommend filing an Affidavit of Interest in order to cloud title and prevent borrower from selling the property to a Bona Fide Purchaser Claim should be filed immediately with the underwriter to ensure that the mortgage is properly recorded and to request the policy limits if another mortgage or interest has been recorded in the interim A mortgage recorded with an incorrect legal description can affect mortgage priority

Mutual Indemnity Agreement (MIA)

 State Specific  An agreement between most title underwriters where issues predating the recording of the mortgage to be foreclosed will be removed as exceptions from the foreclosure title commitment if a clean title policy has been issued

General Title Resolution Under the MIA

• • • Common Issues Cleared Under The MIA Prior Mortgages Prior Interests Prior Liens • • • Common Issues Not Cleared Under MIA Missing Deeds Fee Simple Interests Gap Mortgages* • Lis Pendens • Future Advance Mortgages Gap Period is anything recorded within 8 months of the mortgage. Ordinarily a title claim will be necessary to clear up a lien recorded within the gap period .

Title Claims

Generally: Any issues not cleared under the MIA or obtaining proper releases/corrective documents can be cleared by filing a title claim with the agent/underwriter who was paid to issue title insurance provided the issue is not an exception on the final policy

Making a Title Claim

   Who do you make the title claim with?

What documents do you include in your claim?

 Policy  HUD Statement/Commitment  1 st Lien Letter  Loan Application/Appraisal  Closing Protection Letter  Closing Instructions from Lender ○ Payoff certain mortgages/liens ○ Obtaining Releases Copies of Prior Liens and supporting documents

General Title Resolution

Resolution of Title Claim Indemnity Resolving the Issue Litigation Seeking a Discharge Subordination Obtaining Deed

Title Claims

    Issue is listed as an exception on Final Policy, what do you do? Obtain Origination File  Determine whether a first lien letter or other evidence that the prior lien should not have been listed as an exception exists. Claim can be renewed based upon such evidence.

Research prior lien or interest to determine whether it has been paid off or discharged.

If evidence exists that the mortgage to be foreclosed should take priority over the prior lien, litigation could be filed to establish priority.

Other Title Related Issues

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Condominiums

State Specific Priority determined by state statute or bylaws Generally, association has limited priority as to the first mortgage of record  In Michigan, state statute limits the amount a foreclosing lender of a first mortgage of record owes to the foreclosure date  In Illinois, Condo Liens usually have priority over all Jr. mortgages even if the Jr. mortgage is recorded first

Construction Liens

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When a Mechanic/Construction Lien Can Take Priority Over The Mortgage

If visible work in conjunction with the construction contract is performed on the property prior to the execution and recording of the mortgage If claim of lien is filed within 90 days of the completion of work The Lien may take priority over the mortgage being foreclosed even if the claim of lien is recorded after the mortgage so long as the lien is perfected properly The Lien Claimant has one-year to pursue litigation from the date of the recording of the lien

Specific Title Related Issues

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Title Claims Regarding Construction Liens

In the event that a construction lien has been properly perfected and has the potential to establish priority over the insured mortgage a title claim should be made The Closing Agent should ensure that any potential liens for on going construction are subordinated to the mortgage Obtain Affidavit at closing from the borrowers stating that there are no construction projects recently completed or on going for which a claim of lien could be filed

Mobile Home Basics

 A Manufactured Home is treated like a motor vehicle  Therefore, a vehicle “certificate of title” is issued….it is considered personal property  Note: Be careful to distinguish a mobile or manufactured home from a modular home!

Discovering a Mobile Home

 County Tax Assessment  Deed Language/description  Loan Appraisal  ALTA 7 Title Policy

To Convert to Real Property

Most States Require 4 Things:  Proper Physical Attachment  Real Property Taxation by County  County Land Records  DMV Retirement Must achieve both “physical” attachment and “legal” conversion

Proper Attachment

   Varies by State: No Wheels No Axles Secured to Foundation

County Tax Office

The mobile home has to be taxed as part of the real property and be valued as part of the land

County Land Records

 Most states require that you record something in the land records to indicate the ‘intent’  Affidavit of Affixture  Declaration of Intent to Affix (DOI)  Statement of Ownership and Location  Some states/counties require that the DOA be approved by a building inspection to confirm the “physical” requirements

DMV Requirements

States vary here: 1. Create title first….in order to ‘cancel’ 2. If never created…simply ‘retire’’ - Some states require submission of deeds, DOI’s, etc to show proof of ‘affixation’

Thank you for your time.

Questions?

© 2012 Default Attorney Group www.defaultattorneygroup.org