The Life Cycle of Bankruptcy – Chapters 7, 11, and 13

On January 24, 2012   /   Blog, Title Insurance  

Even though bankruptcy filings are becoming more and more commonplace, the process itself is still not easily understood by most people. In general, the bankruptcy process is intended to ultimately give debtors a fresh start. But the path to that fresh start depends on many factors. In the lifecycle of bankruptcy flow chart below, you’ll see the most common paths taken for the 3 most common types of bankruptcy : chapters 7, 11, and 13.

Download a printable version of this chart.

Click the image below for a printable version of this chart.
Download Life Cycle of Bankruptcy Chart here.
Click here to view a printable version of the lifecycle of bankruptcy infographic

General Notes:

  1. Creditors or Partners can file an involuntary petition asking the court to place the Debtor in bankruptcy against his/her/its will.
  2. Any sale or financing of real property is subject to the approval of the Bankruptcy Court.
  3. Judgements and Liens remain attached to the property until specifically released by an order to sell the property free and clear of specific liens and judgements; or an order avoiding the specific lien or judgement, which could be limited to the amount of the homestead exemption and therefore still attach to the property for the amount, if any, in excess of the homestead exemption.
  4. Warning! This chart is intended as a general overview of the process.

Life Cycle of Bankruptcy infographic- Chapters 7, 11, and 13

Please share your questions or comments below!

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The trouble with a non arm’s-length short sale…

On January 19, 2012   /   Blog, Escrow  

The Backstory

An investor opened several short sale transactions, acting as the buyer in each. One–by–one the short sale transactions began to cancel for one reason or another, leaving the escrow branch disgusted with the amount of work they put into each one without remuneration. The next deal in line came extremely close to closing – until the real buyer was discovered.

Non Arms Length Transaction

An all cash short sale

After preparing numerous estimated settlement statements and providing a preliminary report, one of our sister branches’ New Communities office in Riverside, Calif. finally received a short pay letter from Bank of America. Bank of America was the short pay lender on the first and second loans. They included the shortage amounts they would be willing to accept on a single short pay letter. The bank was due almost $490,000 but they were willing to accept $260,000. The transaction was an all–cash short sale in the amount of $280,000. The closing documents were drawn and executed by the buyer and seller. All that remained for the transaction to be complete was the buyer’s down payment and closing costs.

Will the real buyer please stand up…

The buyer was an entity by the name of Willowbrook Financial, Inc. and the buyer assured a wire would be forthcoming. The seller was a Ronald and Michelle Aksland. Maggie Vega, an assistant escrow officer, was leery due to all the previous transactions that had fallen apart just prior to closing with Willowbrook but, ‘lo–and–behold, the wire transfer arrived at the bank! Maggie received notification from the accounting center of funds wired in the amount of $280,000. Maggie reviewed the incoming wire and noticed the funds came from an account in the name of Gary Aksland. She called the investor/buyer to find out who Gary Aksland was and why he was depositing the funds to close. The investor told her Gary was the current owner’s father.

The missing affidavit

Maggie reviewed the short pay agreement issued by Bank of America and found the following condition, “#2. The approved buyer(s) is/are WILLOWBROOK FINANCIAL, INC. RICHARD MERCADO…” – not Gary Aksland. Maggie escalated the file to her escrow officer, Elvia Salaz. Elvia contacted the short sale negotiator at Bank of America, because there was no arm’s length transaction affidavit attached to the short pay agreement and there was no condition for an arm’s length transaction contained in the agreement. Elvia explained the wire was received from Gary Aksland, and the short sale negotiator said, “Don’t close!” The short sale negotiator stated the arm’s length affidavit was not attached to the short pay letter because it had been signed in advance by the buyer and seller, and submitted with the short sale negotiation package. Clearly the principals had lied.

Elvia contacted National Escrow Administration, who also insisted the transaction could not be considered arm’s length if the owner’s father was putting up the funds to purchase. The national escrow administrator insisted on either (1) Bank of America approving the owner’s father as the new buyer; or (2) we resign as escrow holder and not close.

Step away from the transaction

Elvia elected to resign. As a result, the calls started pouring into the office. The listing broker was the first to call. When he insisted his real estate firm would never be a party to any fraudulent transaction and demanded to know why we were resigning, he was informed the wire transfer came from the owner’s father. He was silent for a moment, then he apologized and hung up.

“…he was informed the wire transfer came from the owner’s father.”

The investor/buyer also called and when we explained our reason for resignation, he only asked that the wire transfer be returned to the father, which we promptly did.

Maggie’s attention to detail and recognizing the wire was received from a third party saved the Company from closing on a transaction that was clearly not arm’s length.

Moral of the story

Since the buyer in this transaction did not put up the money to close, the transaction is not arm’s length. Had we closed, the short pay lender could have realized this and rescinded their short pay letter – then kept their lien in full force and effect to foreclose. By not closing on this transaction, Maggie saved the Company from a potential claim of $280,000 from the insured owner and/or the hassle of having to unwind this transaction.

Questions or comments? Please share below!

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A Case of Brotherly Identity Theft…

On January 9, 2012   /   Blog, Escrow, Title Insurance  

The case…

This is a real estate fraud/identity theft case brought by plaintiffs Darryl Dumas (“Darryl”) and Darryl Dumas as Trustee of the Dumas Revocable Living Trust Agreement Dated February 7, 2001 against Darryl’s brother Derrick Dumas (“Derrick”), among others, concerning real property located at 1875 Paradise Drive, Los Angeles, Calif. 90025 (“Subject Property”). On January 12, 1994, Darryl purchased the property by Grant Deed. In 1998, Darryl moved out and began renting out the subject property. In April of 2001, Darryl transferred title to the property to his trust.

Identity Theft
In 1999, Derrick started a mortgage brokerage company known as Countywide Loans. In February 2008, Derrick indicated he could arrange for Darryl to obtain a line of credit with Chase, secured by the subject property for up to $500,000 on favorable terms. Darryl was interested in an increased line of credit to have the flexibility to make investments when the opportunities arose. Darryl agreed to apply for the Chase secured equity credit line and allegedly provided his brother, Derrick, with his personal financial information in order to facilitate the application.

ID Theft & Real Estate Fraud

Derrick was out of the country from June through November of 2008. In early November 2008, Darryl’s other brother, David, informed him that Derrick had obtained a loan against his home under his name without his knowledge or consent. Darryl then asked David to check the records for the subject property to see if Derrick might have done something similar to him. A few days later, David advised Darryl there was a $350,000 loan against the subject property in favor of a lender named Overland Direct. Derrick’s company, Countywide, had originated the loan and sold it to Overland Direct. Our Company insured this transaction and issued a $350,000 lender’s policy to Overland Direct.

“Derrick confessed that he had stolen Darryl’s identity, forged his signatures on the loan documents to take out a loan…”

Derrick returned to the United States in the middle of November 2008. On November 16, 2008, Darryl confronted him at their parents’ home. Derrick confessed that he had stolen Darryl’s identity, forged his signatures on the loan documents to take out a loan from Overland Direct against the subject property and kept the loan proceeds.

Forgery Claim Covered

The Notaries…

The notaries of the various documents involved in this fraud were Dante C. Gumiran (Commission No. 1638844, CA) and Caroline P. Diaz (Commission No. 1522651, CA). Both Gumiran and Diaz were employed by Derrick at Countywide Loans. Gumiran signed a declaration that his boss, Derrick, instructed him to notarize the relevant documents outside the presence of the purported signer, Darryl. Diaz alleges in her declaration that she did not notarize the documents at all and that her signature is a forgery. She insinuates that someone used her notary stamp, which she left at her desk at Countywide Loans.

In February 2009, Overland Direct’s $350,000 note went into default and the loan went into foreclosure. Overland Direct received notification from Darryl, however, that his signature was forged and that he never applied for the loan in question. Based on this information, Overland Direct submitted a claim to Our Company.

Our Company ended up defending our insured lender in a suit filed by Darryl as well as ultimately incurring a policy limits loss ($350,000) plus expenses on this claim.

Recouping our Losses

This matter has been reported to law enforcement and we are following up to ensure the notaries have been reported to the notary board in California for further investigation. In addition, we are pursuing Derrick in a civil action to recoup our losses.

By The Way
We have two other claims involving Derrick forging borrower’s names, which are still in the midst of investigation and will result in further litigation. As a result, the names of the parties (with the exception of the notaries) have been changed.

Questions or comments? Please share below!

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The Probate Path – Married Community Property

On January 4, 2012   /   Blog, Title Insurance  

probate path for married or domestic partnership community property

Our previous probate path blog post discussed the sad tale of Sam Smith, who died with no kids, and the happy tale of Rolf, his nephew and sole heir who discovered that he had the proverbial “rich uncle.”

Three Basic Probate Situations

As noted in the December 6th blog, there are three basic probate situations:

  • The owner was single – not married or a domestic partner
  • The owner was married or a domestic partner and it was community property
  • The owner was married or a domestic partner, but it was separate property (not community property)

There are variations: did the deceased have a will? Is the estate being probated (with or without a will)?

Today we talk about another probate situation, this time involving community property.

A sudden passing with no will

Shelley and Norma are domestic partners, and live in a home that they bought together in 2009 (see the August 2011 blog post, “Domestic Partnership Law in Washington State” where community property laws apply to both a married couple and domestic partners). Shelley has two children, Albemarle and Adelaide, from a previous marriage. They also adopted a child together, Angelina.

Sadly, Shelley passed away from a sudden illness. She did not have a will. The question arises – who gets the house? Is it just Norma, or can Albemarle and Adelaide claim an interest, perhaps forcing a sale of the home in order to get their share? What about little Angelina?

This is a basic community property situation, and Norma inherits the house, free of any claims by Albemarle or Adelaide, and it becomes her separate property. When her time comes (assuming she doesn’t sell the house, get married or enter into a new domestic partnership before then), only Angelina would inherit from her.

“…the children don’t come into play when either parent dies – only when the surviving parent later dies.”

Now, if Norma had died first, the same rule would apply – that is, Shelley would get the house as her separate property. However, when she passes away, Albemarle, Adelaide and Angelina would all inherit the house. In any case, the children don’t come into play when either parent dies – only when the surviving parent later dies.

Determining who is in title

Probate path for married or domestic partner at death & community property

Click the image above to download a printable version of this chart

But we are getting ahead of ourselves. Right now, a Realtor® is listing the house for Norma, and the title company has to decide who is in title and who would need to sign a deed. If there isn’t a lot of money at stake a probate probably wouldn’t be necessary, so a “lack of probate” affidavit is the starting point.

Most community property situations are pretty straightforward, because when two parents own the home as community property it passes directly to the surviving spouse when one passes away, and their kids will end up with it eventually anyway. The chart to the right shows how the title company would proceed to identify who must sign the deed. As in Shelley’s case, with no probate for what is clearly community property, the Probate Path No. 1 is followed.

To view the probate path chart click here. (a PDF will open in a new window)

Complications may arise

However, complications can arise when there are children from a previous marriage, and it may not be so simple for the title company. For example, Albemarle and Adelaide could raise a fuss, and even though it is apparent that Norma inherits the house, the title company may want to get a deed from them. Why might they want to make a claim? Well, Shelley could have inherited the house, in which case, even though that happened in 2009, it would be her separate property, and Norma could be out of luck. Or, maybe Shelley paid the entire purchase price with inherited money, in which case her heirs could argue it was her separate property because separate funds were used to buy it. But let’s add another wrinkle – maybe Shelley contributed the down payment from separate funds, but Norma made the mortgage payments. She might claim an interest – perhaps a “marital” lien, saying that some of the equity value was acquired by her for the value of what she paid. Albemarle and Adelaide could be anything from the sole owners to part owners to having no interest at all.

Lack of probate affidavit

Hopefully, all the complications would be identifiable in the “lack of probate” affidavit. Of course, Norma could open a probate for Shelley (especially if there was a will), and no matter what Albemarle and Adelaide would claim, the probate court would deal with it. The title company would follow either Probate Path No. 3 or 4, and a deed from the personal representative in the probate would be sufficient.

To download a printable version of the probate path chart, click this link: probate path infographic. 

Questions or comments? Please share below!

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