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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Questions or comments?  Please share below!

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REO Fixer Fiasco

On March 27, 2012   /   Blog, Title Insurance  

Before and after REO fixer

Buyers are taking full advantage of a down market by purchasing homes at low, low prices after foreclosure or through short sales. The problem is most of the homes have either been neglected or damaged and no longer qualify for government financing, such as an FHA Loan. As a result, some real estate agents are requiring the buyer to pay for repairs up-front.

In one recent transaction the buyer paid $8,500 up-front to have termite damage and other items repaired in anticipation of qualifying for FHA financing.

In some markets the listing agents are advising potential buyers to pay for up-front repairs to abandoned REO and short sale properties during the offer and closing process to ensure the property will qualify for government financing. As a result, the buyer pays for repairs to get the home ready for appraisal. In one recent transaction the buyer paid $8,500 up-front to have termite damage and other items repaired in anticipation of qualifying for FHA financing.

Foreclosure Do-Over

The property was an REO property owned by a bank – post foreclosure. During repair to the property a contract was presented and accepted by the bank. An escrow was opened and a title report ordered that uncovered a defective trustee’s sale. The bank ultimately had to re-start the noticing period and the entire foreclosure process!

The REO bank had to pull out of the contract, since it could not deliver free and clear marketable title to the buyer. The buyer received a full refund of her earnest money deposit, but not the $8,500 spent repairing the home.

Advice from Title

The buyer asked the title company what she could do to collect her up-front cost of repairing a home she ultimately could not purchase. Our response was to consult an attorney, since she might have the ability to file a mechanics’ lien in order to recoup her costs.

More articles relating to REO Transactions:

The REO Transaction Process
Setting expectations on an REO Transaction
4 Hot tips for working with Escrow on an REO Transaction

Questions or comments?  Please share below!

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How One Single Initial Unraveled a Real Estate Transaction…

On March 12, 2012   /   Blog, Title Insurance  

Verifying ID at escrow signing

A small piece of Lucerne Valley was being sold for $41,000 in an all-cash transaction. The buyer and seller lived out of the area, necessitating the closing documents be mailed out for signature. The vacant land sale went sideways when the escrow officer mailed the documents to the seller and demanded they be signed in the presence of an approved notary.

Closing documents mailed to principals

Tiffany V., an escrow officer with our sister branch in Victorville, was handling a simple all-cash sale transaction. All the closing documents were mailed out to the principals for signing. The buyer sent in his completed paperwork and closing funds. All Tiffany was waiting for, was the seller to send in his completed documents and signed grant deed.

An approved notary must be used

When the seller returned the documents to Tiffany, she discovered the seller had not followed her direction to sign them in the presence of a Company-approved notary. She advised him he would have to re-sign with an approved notary. The seller complained our offices were, “…too far and too inconvenient to get to.” and “This is ridiculous; a notary is a notary.” The seller’s real estate agent even gave Tiffany flack about the seller having to re-sign the conveyance deed. Finally the seller agreed to have a Company-approved notary come to him. The owner of record is Charles S. Calloway and the person the notary was meeting with only had identification for Charles E. Calloway. The seller insisted the notary notarize him just as Charles Calloway and that it would be fine with no middle initial.

The man who signed the documents is not the owner

The notary immediately called Tiffany after meeting with the seller. He informed her that he went ahead and notarized the signer as Charles Calloway without the middle initial to avoid getting into the legalities with him. The notary wanted to make sure, however, that Tiffany knew the Charles Calloway he met with was not the Charles S. Calloway on title, but Charles E. Calloway – the grandson of the owner of record.

Probates Explained

Probate: Single at Death
Probate: Married, Community Property
Probate: Married, Separate Property

The property had been in the same family since 1938, passed down from father (deceased owner of record) to son (deceased 20+ years) to grandson. The family members apparently never felt they had to transfer title, since they all had the same name of Charles Calloway.Tiffany promptly notified the real estate agents that the seller did not actually own the property. The seller’s agent quickly apologized about the hard time she gave Tiffany over the approved notary requirement and thanked her for catching the situation before it was too late.

…the Charles Calloway he met with was not the Charles S. Calloway on title, but Charles E. Calloway – the grandson of the owner of record.

The agent has put her client in contact with a probate attorney and it appears the buyer is still very interested in the property and is willing to wait for him to go through probate.

The moral of the story

The deed could have been invalidated by the heirs of the estate of Charles Calloway (senior). Since the new owners were purchasing an owner’s title insurance policy, the company would have had to defend them against any claim or loss resulting from the heirs of the estate laying claim to the property or the proceeds from the sale of the property

Questions or comments? Please share below!

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Property Tax Appeals and Exemptions

On February 28, 2012   /   Blog, Property Info - Customer Service  

property tax appeals and exemptions

This time of year usually brings a renewed interest in property taxes. We’ve written about the property tax annual cycle before.  Today we’re going to address the question of tax appeals and exemptions.

Is it possible to reduce what I pay for property taxes? 

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To download a printable version of this article, click here.

For many of us the answer is probably no.  There is an appeals process plus a number of programs where property owners may qualify for exemptions or deferrals.

Property Tax Appeals

Each county provides specific information on appealing your property tax valuation. This information will include instructions on how to appeal, when you may appeal, what evidence you will need to provide, tools for gathering information, and a description of the appeals process.

You may qualify

According to the King County Department of Assessments, there are more than 26,000 senior citizens and disabled persons that qualify for exemption yet they have not enrolled.

One of the more common reasons to appeal is a change in property value.  For this reason each county provides free databases (or online search tools) that you can use for locating sold properties that are comparable to yours. If you can find similar properties that sold for less than the assessed value of your home, it may be worth your time to appeal your valuation.

Comparable Sales – Comparable sales are properties of a similar lot size, quality, living area, age, and added details like view or waterfront. If you are planning on appealing your property tax valuation, you may be required to list comparable sales that support your request on your appeal petition.

Errors in your property description – From time to time the assessor may make errors in the description of a property. Any errors in how your property is described should be noted in your petition. You can also provide other documentation such as pictures, repair bids, or geology reports if there are structural or site problems that would reduce market value.

Property Search tools

It’s the law

State law requires the Assessor to value all taxable property at 100 percent of its true and fair market value in money, according to the highest and best use of the property.

King County Property Search
Pierce County Property Search
Snohomish County Property Search

Information on appeals
King County Property Tax Appeals
Pierce County Property Tax Appeals
Snohomish County Property Tax Appeals

Property Tax Exemption & Deferral Programs

Some taxpayers may qualify for tax exemptions or tax deferrals. Exemptions generally provide a reduction in the amount of taxes due, whereas deferrals provide temporary relief by applying the deferred taxes as a lien against the property.

Below are a few categories of exemptions & deferrals provided by the Washington State Department of Revenue. The county assessor administers these programs and is responsible for determining if applicants meet the qualifications. Questions about these programs should be directed to the county assessor’s office.

Deferrals
Property tax deferral program for senior citizens and disabled persons
Property tax deferral program for homeowners with limited income

Assistance in the form of a Grant
Property tax assistance program for widows or widowers of veterans

Exemptions
Property tax exemption for nonprofit organizations
Property tax exemption program for senior citizens and disabled persons

Finally, there is a large list of other possible deferrals & exemptions available through the county assessor that may be available for a qualifying property depending on it’s condition, historic significance, or how it is used.

Siri Property tax response

What would siri have to say about saving on property taxes?

Some examples are:

  • Homeowner Improvement
  • Flood and Storm Damaged Property
  • Current Use Open Space
  • Current Use Forest Land
  • Historic Property
  • Designated Forest Land
  • Character building benevolent, protective or rehabilitative social services
  • Veterans and relief organizations
  • Libraries
  • Orphanages
  • Day care centers
  • Nursing homes and hospitals
  • Schools and colleges
  • Art, scientific and historical collections
  • Fire companies
  • Humane societies
  • Musical and artistic associations
  • Public assembly halls
  • Certain public authorities
  • Sheltered workshops for the disabled

As a reference, here are some resources for King, Pierce, and Snohomish counties.

King County

Address Department of AssessmentsProperty Tax Advisor Office516 3rd Ave, Room 1236Seattle, WA 98104Toll Free: 1-800-325-6165 ext. 5-6330TTY: 206-205-6338

Fax: 206-296-0948

taxadvisor@kingcounty.gov
Exemption Questions (206) 205-6330
Website Appeals
Comparable Sales Comparable Sales

Pierce County

Address Assessor-TreasurerAnnex (Public Services Building)2401 South 35th Street Room 142Tacoma, WA 98409(253) 798-6111pcatr@co.pierce.wa.us
Exemption Questions (253) 798-6111
Website Appeals
Comparable Sales Comparable Sales

Snohomish County

Address Assessor’s OfficeFirst Floor, Administration Building East3000 Rockefeller Ave, M/S 510Everett, WA 98201425-388-3615contact.assessor@co.snohomish.wa.us
Exemption Questions (425) 388-3540
Website Appeals
Comparable Sales Comparable Sales
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Real Estate Investor Tries to Defraud the IRS

On February 21, 2012   /   Blog, Escrow  

IRS Liens & Over-Encumbered Property

Foreclosures are just one of many challenges facing our country in this economic crisis. People are not only failing to pay their mortgages, but they have also fallen short on many other obligations. Paying taxes is one of them. It has become common for an IRS lien to appear on a title report.

The IRS, however, is not in the business of owning real estate so they regularly work with taxpayers to release the property from the lien. They do not discharge the lien altogether, but examine the transaction and often release the property when they can determine there will be no proceeds because the property is over–encumbered. Read on to find out how one settlement agent was duped into assisting a real estate investor trying to defraud the IRS.

IRS Tax lien

One deed and one lien

One of our sister offices in Las Vegas opened a sale transaction. The seller was a real estate investor who purchased the property only a few months earlier. Title was held as John Doe, an unmarried man. When the title report came in it showed the property was encumbered by only one deed of trust along with a tax lien. The tax lien was against a limited liability company (LLC) and its members, one of whom was our seller Doe. The settlement agent, Betty, contacted Doe to inform him she needed to order a demand from the IRS.

He explained the lien was against the LLC, was not his personal obligation and should therefore not affect his sale. Betty explained she could not close without a release of lien for this property from the IRS. She asked Doe if she should proceed with ordering a demand from the IRS or if he would be contacting them to negotiate a release of the property only. Doe told her he would take care of it.

A second deed appears

A couple of weeks later Doe asked Betty to update the title report, as there should be a second deed of trust of record. He also requested a HUD–1 Settlement Statement showing a payoff of both loans resulting in no proceeds to him. He planned on submitting the HUD–1 to the IRS to induce them to release the property from the tax lien. Betty thought this was odd and contacted management.

Unbeknownst to Betty – Jane, another settlement agent within the Company, handled the initial purchase of this property for Doe. Jane contacted management about the IRS lien, as she had heard the property was under contract and now in escrow with another settlement agent within the Company. Jane was curious about the IRS lien since it was against the LLC and not Doe individually, and did not appear on her title report when Doe acquired the property.

Since both calls came at the same time, management reviewed the updated title report and documents. The second deed of trust had been prepared by someone in the Company and notarized by Jane. Management noticed the document was dated two months earlier, when Doe purchased the property, yet it was recorded only a few days ago. When management inquired about the document, Jane explained Doe had come into her office and said he forgot to have her prepare and record a deed of trust in favor of his investor on the purchase. He asked her to help him out, and she allowed Doe to back–date the deed of trust and she back–dated the notarial certificate. Jane gave the original to Doe who promptly recorded it.

No-go for Doe

Doe was contacted by management who told him they would not be providing him with an updated title report reflecting this fraudulent deed of trust. They made it clear to Doe Our Company would not assist in defrauding the IRS. Fortunately they were able to convince Doe he was headed down the wrong course and he did not proceed.

Settlement agents are considered the last honest people in a real estate transaction. The IRS certainly counts on it. When the IRS agrees to provide a release in order to allow a taxpayer to sell their over–encumbered property, their approval is conditional. It is conditioned upon receipt of a HUD–1 Settlement Statement confirming the seller received no proceeds. The IRS knows, per Title 18 U.S. Code Section 1001 and 1010, “It is a crime to knowingly make false statements to the United States on this or any other similar form. Penalties upon conviction can include a fine and imprisonment.” Upon confirmation from the settlement agent the IRS prepares and records their release.

Moral Of The Story

Jane’s behavior is inexcusable. Settlement agents should never allow a document to be back–dated in their presence. Settlement agents who are also commissioned notaries should never participate in back–dating a notarial certificate. Lastly, settlement agents should never prepare courtesy documents.

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The Probate Path – Married, Separate Property…

On February 14, 2012   /   Blog, Title Insurance  

Probate path married separate property

Our last Probate Paths blog discussed the effect of death on community property. Today, we talk about another complicated situation involving marriage, another marriage, and death.

Sudden death, no will, and an outdated will…

Hank and Dagny were happily married and living in the family home they bought together. Both had been married before and each had children from those marriages. Hank and Dagny died tragically in December in an avalanche while skiing in the Alps. Dagny never made a will. Hank left an old will in which his son Hank Junior and daughter Randi were the sole devisees. Hank’s will didn’t mention their current home or Dagny. The house is listed for sale by his probate.

What’s the Realtor® to do? And how would the title company approach it?

Download the Probate Path Flow-Chart

Click the image or link below to download a printable version:
Probate Path – Married, Separate Property Flow Chart.

Who passed away first?

Because they bought their house together it would be community property and under normal circumstances the surviving spouse gets it. Since it isn’t in Hank’s will it’s not part of his probate estate. However, it would be if Dagny dies before he does. But – how can it be established who died first – or even if either did? In this situation the presumption would be that they died simultaneously, but how does that help?

The three children could try to dispute who gets what, especially considering the house could be worth a lot and the rest of the estate might be quite substantial. Maybe they are all one happy family and agree that the house can be sold and the proceeds divided up amicably. Or – Alice might claim 100% for herself, arguing that Hank died first and her mom got everything. Hank Jr. and Randi might do the same. Definitely Hank’s will is going to be probated, and Alice will likely want to open a probate on Dagny’s estate as well. But, what if she doesn’t?

Separate property scenario

Here, separate property rules will be applied – to each spouse. The title company will assume that each estate will treat this situation as if each spouse had pre-deceased the other, odd as that might sound. As community property, on the death of either of them, the home would go to the other and would become 100% separate property of the surviving spouse. That rule applies to both spouses here, but then the separate property of each “surviving” spouse is dealt with. The title company would follow a separate probate path for each estate.

The potential interest of each of the three children (plus any other devisee identified in Hank’s will) must be addressed. “

If there is no probate on Dagny’s estate it would certainly call for a “lack of probate” affidavit where Alice gives the facts as she interprets them. The title would also rely on the facts that Hank’s probate will tell them. The potential interest of each of the three children (plus any other devisee identified in Hank’s will) must be addressed. During the pendency of a probate it would probably accept a deed from the personal representative based on an order of the probate court clearing the sale.

The appropriate probate path if Dagny had pre-deceased Hank

Let’s start with Dagny. If she died first, under community property rules Hank would end up with the house. For however many years (or in this case, moments) that he survives Dagny, the house is his, and Alice would get nothing when he died. Then, at the moment of his death, his will would come into play, and Alice would end up with nothing, because she could get only what Dagny would have gotten – but she was already dead and so couldn’t inherit. Junior and Randi get the house.

This is Probate Path No. 3 if his will is probated. If his will is not probated, it’s Probate Path No. 4. Of course, in the latter case, the title company would want a “lack of probate” affidavit, which would probably assert that he was unmarried at death. In that case, Alice would be out of luck. But, that can’t be applied for certain, because the order of death isn’t known.

The appropriate probate path if Hank had pre-deceased Dagny

Similarly, if Hank died first, then Dagny immediately gets the house. His will wouldn’t control. Again, for however long Dagny survives him, the house is hers alone. Then, upon her death Alice, as her only heir – Hank having pre-deceased her – gets the house. As noted, however, this rule can’t be applied because no one knows who died first.

Assuming that both spouses have pre-deceased each other

So, there are two separate property estates, each of which would assume that the respective separate heirs or devisees would get an interest. If only Hank has a probate, the PR would sign for his estate (following Probate Path No. 1), and Alice would sign for her mom’s estate (following Probate Path No. 3).

If the probate is closed without the house being sold, then the title company would ask for individual deeds from Wesley, Randi and Alice, with escrow distributing the proceeds of the sale in accordance with mutual instructions from all three.

Questions or comments?  Please share below!

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The Property Tax Annual Cycle

On February 7, 2012   /   Blog, Title Insurance  

There are few things in life that are as certain as taxes, especially when it comes to buying, selling, and owning real estate.  In this article, we’re going to take a look at property taxes, including when they are due, when they may be paid, how they’re calculated, and what tax relief programs are available.

The Property Tax Timeline

Download the Property Tax infographic

Click here to download a printable version of the Property Tax annual cycle.A graphical depiction of the annual property tax cycle

Property taxes have a timeline that is different than most other taxes or bills that we pay. Let’s take a look at the facts:

  • Taxes are due twice a year, but towards the middle each cycle
  • First half taxes are due at the end of April and cover January through June
  • Second half taxes are due at the end of October, and cover July through December
Click  the following link to download a printable version of the Property Tax Annual Cycle Infographic.

Property tax proration

Because taxes are due toward the middle of the period they cover, a real estate seller may receive a refund or pay prorated taxes depending on the closing date.  For example, a sale that closes in March will have both parties paying prorated taxes: the seller pays for January 1st to date of closing, and the buyer pays from the closing date to June 30th. A closing that happens in May, would give the seller a refund for prorated taxes from the closing date to the end of June, since the seller would have paid in April for the entire first half of the year.

Can property taxes be paid in advance?

When are taxes due?

1st half are due the last day of April, 2nd half are due the last day of October. King County mails out a statement in the middle of February (February 14th for this year – Happy Valentine’s Day!)

Taxes for the second half of the year can be paid in advance, but the first half can’t. Washington State law (RCW 84.56.010) doesn’t allow county treasurers to collect property taxes until February 15 of the year that they are due. So the first half is typically payable any time between Feb 15th and April 30th; and the second half is typically payable any time between Feb 15th and October 31st. It is not necessary to have a tax statement to mail in with your payment. If you decide to mail in your payment without a tax statement, you must write your tax account number on the check. Mailed payments must be postmarked on or before the due date otherwise they will be considered late.

How are property taxes calculated?

How taxes are calculated

The two factors used in the calculation of taxes are the assessed value of the property and the levy rate for that area. Levy rates are represented in dollars per thousand, so to calculate the tax amount multiply the assessed value by the levy rate and divide by 1,000.

The property tax for a given parcel are based on a fairly simple calculation: multiply the total assessed or taxable value of the parcel by the levy rate for that parcel’s neighborhood. In addition there can be fees added by the county to cover specific services like noxious weed control.

Last Year’s Assessed Value x This Year’s Levy Rate = Tax Amount Due

What determines the levy rate?

The levy rates are determined by a number of factors, including the results of voter-approved levies. Property taxes usually aren’t certified until the middle of February, even though the assessments were mailed out the previous year (which often causes confusion). In other words, the assessed valuation statement you get in the 2ndhalf of this year has no effect on the taxes you are paying this year. The valuation will be used in the calculation for next year’s taxes. You won’t know the actual tax you will need to pay for 2012 until the county certifies 2012 taxes in the middle of February, even though 2012 assessed values have been available for months.

Assessed value vs. taxable value

The assessed value is typically the same as the taxable value except in cases where the taxpayer has applied for and received an exemption. For example, senior and disabled property owners may qualify for tax reductions. In some cases home improvements may qualify for a 3-year exemption for taxes on the value of the improvement. For more information on possible exemptions or tax defererals, contact the Assessor-Treasurer for the county in which the property is located.

What tax relief programs are available?

Here are some examples of programs and special classifications available that provide tax relief:

  • Open Space Classification for Agricultural land, Timberland, and Natural preserves.
  • Designated Forest Land Classification for timberland parcels 20 acres or more.
  • Historical Restoration Exemption for historical significant property undergoing restoration.
  • Improvement Exemption – Single Family Dwellings a temporary exemption of valuation of additions to single-family dwellings.
  • Destroyed Property Claim adjustment to the valuation of destroyed property. (please note this program is handled by the Admin department, for further information please contact them at 425 388-3038).
  • Property tax exemptions for senior citizens and disabled persons
  • Full tax deferrals for senior citizens and disabled persons.
  • Exemptions for qualifying property owned by non-profit organizations.
  • Property tax deferral for those with limited income.

Property tax resources:

King County property tax resources

King County Assessor-Treasurer hotline: (206) 296-3850
Find your tax parcel account number: King County tax parcel search
See or print a tax statement: View or print King County tax statements here.
Make online payment: Pay King County Property Taxes Online
Make checks payable to: King County Treasurer
Mailing addresses for property taxes: King County Treasury 500 Fourth Avenue, Room 600 Seattle, WA 98104

Pierce County property tax resources:

Pierce County Assessor-Treasurer hotline: (253) 798-6111
Find your tax parcel account number: Pierce County tax parcel search
See or print a tax statement: View or print Pierce County tax statements online here.
Make online payment: Pay Pierce County Property Taxes Online
Make checks payable to: Pierce County
Mailing addresses for property taxes: Pierce County Budget & Finance P.O. Box 11621 Tacoma, WA 98411-6621

Snohomish County property tax resources:

Snohomish County Assessor-Treasurer hotline: (425) 388-3433
Find your tax parcel account number: Snohomish County Tax tax parcel search
See or print a tax statement: View or Print Snohomish County tax statements online here.
Make online payment: Pay Snohomish County Property Taxes Online.
Make checks payable to: Snohomish County Treasurer
Mailing addresses for property taxes: Snohomish County Treasurer 3000 Rockefeller Ave, M/S 501 Everett, WA 98201
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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.

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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.

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