What is bankruptcy? What options are available to the debtor and the creditors?

On April 30, 2012   /   Blog, Title Insurance  

bankruptcy options
The purpose of bankruptcy is two-fold: (1) to give the debtor (the party filing bankruptcy) a fresh start and (2) to
pay creditors in an orderly fashion. Bankruptcy is governed by federal law which usually trumps state law when it comes to the actions of both the debtor and creditors.

Liquidation vs. Reorganization

There are essentially two types of bankruptcy – liquidation and reorganization. In a liquidation the debtor gives up trying to pay debts, and assets are turned over to a trustee who sells them to pay creditors. Reorganization offers the opportunity to pay off (usually in installments) or restructure debts based on a plan approved by the creditors and the court. Business entities can continue to operate and come out of bankruptcy in better shape.

Ultimately, no matter which type of bankruptcy it is, the individual debtor is discharged from personal obligation to pay most existing debts, which will not be liens on property acquired in the future.

The Life Cycle of Bankruptcy

Click the image below to view an article and infographic of the life cycle of bankruptcy.  The life cycle of bankruptcy
Click here to view a printable version of the lifecycle of bankruptcy infographic

The most common bankruptcy plans are:

Chapter 7

Chapter 7 is a liquidation, where a trustee is appointed. Certain assets (i.e. your personal residence) can be exempted. Unsecured creditors (for example, a creditor that does not have a mortgage on real property) may end up with nothing, and secured creditors may get less than what they are owed. Real estate transactions require court approval.

Chapter 11

Chapter 11 is a reorganization available to businesses and certain qualifying individuals. It results in a plan allowing for continuing operation of a business, and usually most secured creditors get paid in full and unsecured creditors may get something. There may or may not be a trustee, but if not, the debtor is usually allowed flexibility to do what a trustee would do if it was in the “normal (e.g., ordinary) course of business.” Real estate transactions usually require inclusion in the plan or a special court order. An exception to this rule might be a developer who can usually sell individual lots or houses without special approval.

Chapter 12

Chapter 12 is also a reorganization available to farmers and fishermen. This is shorter than a Chapter 11, and unsecured creditors get less protection.

Chapter 13

Chapter 13 is a “wage earner” reorganization available only to individuals, with a plan and a trustee. Creditors usually get partial payment, but can challenge the plan. The individual has to wait until the plan is completed (usually 3 years or less) for a discharge of debts, except in limited “hardship” situations.

Any type of bankruptcy can be converted to another type. It is important to remember that the bankruptcy court retains jurisdiction until it is closed. In some cases, the court can actually go back and void transactions that occurred even before the bankruptcy was filed. In a reorganization, the plan has to be completed and the case formally closed before the debtor is free from the bankruptcy.

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Bankruptcy Options

The automatic “stay”

One important effect of bankruptcy is an automatic “stay” of any actions of the debtor or creditors, including selling real property or foreclosing any liens. The court obtains immediate jurisdiction over all property, wherever located and no matter where the bankruptcy is filed. Whatever might have been in the works comes to a halt, and no one can proceed without court approval. Some debtors will attempt to file bankruptcy merely to forestall a foreclosure, but a creditor can request that the stay be lifted in order to proceed with a foreclosure, and if the property wouldn’t generate funds for the other creditors, then the court will usually lift the stay, allowing the lender to proceed.

Future blogs will address elements of a bankruptcy, including exemptions, abandoned property, sales “free and clear” and the effect of a discharge, some of which involve common misconceptions about bankruptcy.

Click the following link for a flow chart of the bankruptcy process.

Questions or comments? Please share below!

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Condo, Townhome, PUD, or Plat? What they are, how they’re different, and how they’re identified.

On April 23, 2012   /   Blog, Property Info - Customer Service  

Condo, Townome, PUD, or Plat. How to tell the difference - http://www.flickr.com/photos/52847686@N07/5082458589/

Sometimes questions arise as to the exact nature of certain residential properties: It looks like a house but is it a condo, a townhome, built on a lot in a plat or what? Should I use a Residential Purchase & Sale Agreement or a Condominium Purchase & Sale Agreement form when I write up an offer?  No worries! Your Ticor Customer Service team is happy to help you clear up this sometimes murky issue.  Below are some tips to help you identify which type of residential parcel you’re working with.

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How to tell the difference between a condo, plat, townhome, or PUD

Look at how it was recorded:

In the same way that you can’t judge a book by its cover, you can’t simply look at a home and know whether it’s part of a condo or some other form of subdivision (a/k/a “plat”). The answer may be found with how it was first recorded.

Look for land ownership differences:

The primary difference between a condo and other forms of development is the ownership of the land.

Condo:  An owner of a condo “unit” owns their dwelling but not the land it’s built on. In fact, condo owners typically don’t even own the walls, just the surface of them. Unit owners collectively share interests in the  “common elements”.  Typical common elements include interior hallways, building exteriors, elevators, landscaping, and recreational amenities like swimming pools. Parking may be assigned to specific units, may be held as separate tax parcels, may be common elements, or may be a combination. In Washington State condominiums are created under the provisions of the Washington Condominium Act (or the earlier Horizontal Property Regimes Act).

Plat: 1.) Generic term meaning any type of recorded subdivision.  2.) Specifically a recorded division of detached, single family homes.  Homeowners in a plat own the parcel of land and the structure(s) built on it, and may or may not also have an interest in common areas.  Common areas may be owned in percentage by some or all of the homeowners, or may be held by the Homeowners Association as a separate entity.

A PUD (Planned Unit Development – not to be confused with Public Utility District) is a type of subdivision where the homeowners individually own their lots, plus jointly belong to an association which owns and maintains significant common areas like streets and sidewalks.

Look at covenants and recorded plat documents

In each case, recorded plat documents and covenants typically specify the terms of  what is owned by the individual homeowners and what are common areas.

Your Ticor Customer Service team will be happy to provide legal descriptions, property profiles, or plat documents for you.

Sample legal descriptions

  • Lot 45, Hawthorn Park, according to the plat thereof recorded under Recording Number 200208285002, in Snohomish County, Washington.
  • Unit 422, Building 1, Queen Anne High School Condominium, Survey Map and Plans recorded in Volume 211 of Condominiums, page(s) 13 through 31, inclusive; Condominium Declaration recorded under Recording Number(s) 20051115002874 and amendments thereto, in King County, Washington.
  • Lot 13 and South 2.67 feet of lot 14, Marsh Commons PUD. according to the plat thereof recorded in Volume 144 of plats, page(s) 9 through 11, in King County, Washington;

Townhouses can be any of the above!

Townhomes (common-wall or zero-lot-line homes) can be recorded as a condominium, a regular plat, or a PUD.  It is also common in urban areas to see a residential lot short platted into several separate lots with a townhouse on each lot and perhaps a shared driveway. Townhome short plats include specific language about maintenance of the shared elements.

Here are some sample legal descriptions that can give a clue about how the townhomes were recorded:

  • Unit 11704, Silvercrest Townhouses Condominiums, a Condominium according to Declaration recorded under Auditor’s No. 9105310689 and amendment thereto recorded under Auditor’s No. 9110210556, and Survey Map and Plans recorded under Auditor’s No. 9105310690, in Pierce County, Washington.
  • Lot(s) 165, Silver Firs Townhouses, according to the plat thereof recorded in Volume 59 of Plats, page(s) 109 through 114, in Snohomish County, Washington.
  • Unit Lot B, Seattle Short Subdivision No. 3006904, recorded under Recording Number 20080205900009, in King County, Washington.

Quiz:

See if you can spot which of these photos is in a Condo, Plat, or PUD? (Three question quiz inserted below shows a picture and a multiple choice answer)

Enter your name and hit the ‘start’ button to take the 3-question quiz!

 
 
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10 Tips for Saving Resources

On April 19, 2012   /   Blog, Escrow  

Tips for saving energy and becoming more green

Every year on Earth Day we’re all reminded to look for ways to become more efficient, less wasteful, and more considerate of how our actions impact our environment.

If you’re looking for ways to become a little greener, check out the tips below:

Did you know?

Ticor has taken the steps necessary to earn a Green Certification for each of our Title & Escrow locations in the Puget Sound region.

We’re proud to be the first operation in the FNF family of companies to achieve complete green certification in our marketplace.

  1. Don’t print e-mail attachments! Save important files in an organized file structure on your computer hard drive for easy future reference. You’ll save paper and office space!
  2. Check your printer settings. Some studies have reported that resetting basic printer settings can save the average user 1,400 pages of wasted paper a year. You can also set the printer to print on both sides by default, further reducing paper usage. Check the manufacturer website on your user manual for details on changing your printer settings. Also, always use “print preview” before printing to avoid printing unusable pages.
  3. Send faxes directly to E-mail boxes. Faxing directly to a recipient’s inbox as opposed to their fax machine is an easy way to eliminate wasted paper.
  4. Recycle your office paper. If you have sheets of paper printed in error or no longer necessary, consider running them through your printer on the unprinted side for proofs and personal use.
  5. Turn off the lights when you leave a room if you’re going to be gone for more than 30 seconds. Put timers on lights if you have kids who forget to turn them off.
  6. Recycle! Some cities do, but if your city doesn’t, consider separating cans, glass, plastic, and paper and take it to a recycling center every month so that it is not such a chore. Have the kids help so they get used to the idea.
  7. Try to buy local foods whenever possible. Food that has to travel a long distance is not “green”. If you don’t have access to much local produce, or if you’re not sure, try to buy from a local Farmer’s Market if you can. It will be green as well as fresh.
  8. Go with rechargeable batteries when possible. Be sure to properly dispose of your used batteries – they must be recycled.
  9. Close your curtains! Heat and cool air loss from older windows can be substantial and the sun beating in the windows will warm the house causing the A/C to come on and work harder.
  10. Don’t leave the water running while brushing your teeth.

Do you have tips or suggestions on conserving energy or reducing waste?  Please share below!

Download tips for becoming more green

Click the image above to download the energy conservation tips.

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HELOC Spending Spree – Was it Fraud or Ignorance?

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

Honest Mistake?

During a refinance transaction, a home equity line of credit was paid off – but not closed. Later the refinance lender foreclosed and sold the REO (bank owned) property to a new owner. One of our underwriters insured the refinance, issued the trustee’s sale guarantee and insured the new owner on the sale out.

The former property owner then ran up $172,622 in debt against his home equity line of credit, which was secured by a house he didn’t own. He made no payments, and the home equity lender started foreclosure!

HELOC fraudAs part of a refinance transaction the settlement agent paid, in full, a home equity line of credit (HELOC) in the amount of $149,392.71.

The lender’s payoff statement required the borrower, Mr. Gonzalez, to check either box:
[] Payoff Only
[] Payoff, Terminate and Satisfy/Discharge Mortgage

The payoff statement also provided:
If neither box is checked, the account will remain open and no satisfaction of mortgage will be filed.

The payoff statement further provided:
Notice to Borrower and Closing Agent: A Request to terminate/close your home equity line of credit account to satisfy the mortgage will be processed if (1) the second block is checked; (2) all amounts owed are paid in full; and (3) at least one borrower on the account signs this payoff request.

A Very Small Oversight

Gonzalez signed the payoff request, but due to an oversight on the settlement agent’s part, neither box was checked. As a result the payoff check and request were sent, but the HELOC was not frozen and no reconveyance of the deed of trust securing the loan was ever recorded.

Related Posts

REO Transaction Expectations
Hot Tips for Working with Escrow on an REO Transaction
The REO Transaction Process

Fast forward two years later: Gonzalez fell behind on his payments, and the refinance lender foreclosed, obtaining a Trustee’s Deed upon sale. Subsequently the lender re-sold the property to a new buyer. The sale transaction was handled by one of our offices. The preliminary report showed the HELOC still of record in first lien position as well as a recorded Notice of Default. A claims attorney allowed the title office to insure around the outstanding HELOC, since Our Company had insured the previous transactions involving the refinance lender, the trustee sale guarantee to the refinance lender, and now the ultimate re-sale to the new owner. An endorsement was issued to the final policy of title insurance deleting the exception of the HELOC loan.

The New Owner Files a Claim

The HELOC lender moved forward with its Notice of Default and set a date for Trustee’s Sale. When the new owner received the notices of an impending foreclosure, she opened a claim with Our Company, as she was about to lose her home. The claims department contacted the HELOC lender for a new payoff statement. When the payoff statement was received, the claims attorney noticed Gonzalez (the former owner) had run up $172,622 against his line of credit!

In order to protect the insured’s interest in the property, the Company paid the HELOC lender off again and this time demanded the HELOC be closed and the lien released. The claim was deemed an escrow loss and charged back to the operation dollar-for-dollar!

In an attempt to recoup our losses, the claims attorney sent a written demand to Gonzalez for reimbursement of the amount paid on his behalf to the HELOC lender. Gonzalez called in response to the letter and was friendly, but confused about what was happening. The claims attorney explained to him that Our Company expected full reimbursement for our losses. Gonzalez made it clear that he did not have the resources to pay back the Company. He stated he would retain an attorney.

Moral Of The Story

Does Gonzalez’s decision to run up the HELOC after he lost the property to foreclosure constitute fraud? Yes! Gonzalez intentionally charged $172,622 against a mortgage on a property he no longer owned.

It can be argued that many borrowers are oblivious and don’t understand that they can’t continue to draw on a line of credit after he/she has paid it off and/or no longer live at the property. The issue is that the bank continues to solicit the borrower to spend against the line of credit by providing debit cards and checks that enable more spending!

It is imperative that our settlement agents ensure the HELOC closure letter is signed and, more importantly, delivered to the payoff lender.

It is imperative that our settlement agents ensure the HELOC closure letter is signed and, more importantly, delivered to the payoff lender. There are plenty of instances where the payoff funds are transmitted via wire transfer and the payoff closure letter is not sent to the payoff lender at all, but rather left in the file. There are also plenty of instances where the HELOC payoff statement reflects a zero balance and, subsequently, the signed closure letter is not sent to the payoff lender.

When either instance happens, one of two things eventually occurs later – the lender never closes the line of credit and continues to solicit the borrower to charge against the available balance (which many borrowers do); or the lender continues to accrue annual fees. Either way, once the property is further conveyed, encumbered or foreclosed upon – the HELOC lender is contacted to release its lien and it insists on payment in full AGAIN! Settlement agents need to do their part to protect the Company from these types of losses by sending the closure letter.

Questions or comments?  Please share below!

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Mineral Rights Reservations and Residential Property

On April 2, 2012   /   Blog, Title Insurance  

Mineral Rights Reservations & Title Insurance

The Smith’s offer has been accepted – a nice home in the suburbs, with schools and shopping nearby. The Realtor® has ordered the title report and it looks good…but what’s this? There is an exception for minerals. What does that mean? Is there gold in them thar hills? Will the Smiths wake up one morning and find an oil derrick next to the swing set in the back yard?

What’s Insured?

The Homeowner’s Policy includes very broad “mineral” rights coverage, as follows:

“This Policy insures You against actual loss… resulting from…:

“Your existing improvements (or a replacement or modification made to them after the Policy Date), including lawns, shrubbery or trees, are damaged because of the future exercise of a right to use the surface of the Land for the extraction or development of minerals, water or any other substance, even if those rights are excepted or reserved from the description of the Land or excepted in Schedule B.”

What exactly are minerals, and what can happen because of the reservation?

Ownership of land extends to the center of the earth, and that includes every substance under the surface. And of course, it’s not all just plain “dirt.” It can include many types of valuable substances. Technically oil, gas and similar substances (including natural gas, helium and nitrogen) are not minerals, but can be treated as such under some definitions – in other words, for most people, the definition probably is inclusive of anything that might be considered a mineral, unless the reservation language is explicit.

Ownership of land extends to the center of the earth,

There is a history of mining coal in some parts of western Washington, and with the price of gold at or near record highs, gold mining might make a comeback. More recent activities involve sand and gravel as well as vermiculite, gypsum and perlite.  But these areas are not widespread and residential areas are not necessarily built around them.

Ways mineral reservations might be used

A mineral reservation is a severed “subsurface” parcel in separate ownership from the rest of the land. Prior owners could have sold minerals to a third party or leased it for the purpose of extracting something and collecting rent and royalties. A former owner could have reserved minerals without expecting anything to come of it. Clearly, the owner of minerals would own them, but what that owner might want to take out of the ground could be difficult to determine, to say nothing of the right of access – the ability to actually start digging.

How title companies view mineral reservations

Mineral Rights Residential PropertiesMany mineral reservations are old and have never been actively enforced. Washington has a “dormant mineral” statute (RCW 78.22, et seq.) that allows the surface owner to attempt to terminate unused mineral rights after 20 years of nonuse. Because of the potential for constitutional challenges (and prior case law that said the surface owner can’t claim adverse possession against the mineral owner) title companies typically will not rely on the recorded affidavit to ignore the mineral reservation, but will show it along with the exception for the mineral reservation.

But, a reservation of “minerals” shouldn’t impact most residential transactions. Usually there is nothing valuable in the area. Even if that’s possible, the area probably is subject to stringent environmental, zoning and other land use laws that would preclude anyone from trying to look for or extract minerals. For this reason, title policy endorsements that provide both the owner and the lender coverage against loss due to the exercise of mineral rights are commonly offered in residential transactions. In commercial transactions or some rural areas the risk will be more carefully weighed, including reviewing whether the reservation precludes access from the surface (promising lateral access under the land only) or offers compensation for surface damage, particularly to improvements on the land.

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Mineral rights reservations and real estate

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