Welcome to today’s webinar! Spooky Claims 2018 Stephen C. Reid, III October 18, 2018 The webinar will begin shortly.
In order to obtain a CE Certificate or CLE Credit, you must listen to the webinar for a minimum of 55 minutes obtain the password (provided at the end of the presentation) follow the instructions as given 2
ATTORNEY INFORMATION Because of opinions expressed by the Texas Department of Insurance (TDI) concerning rebates, legal credit is available only to: Attorneys who own title agencies that are Stewart Title Guaranty Agents Attorneys employed by a title insurance agent licensed with Stewart Title Guaranty or Stewart entities Fee attorneys who have an Escrow Officer license through a Stewart Title Agent or Stewart entity We welcome any other lawyers to listen, but cannot provide continuing education credit to you. 3
Spooky Claims 2018 Stephen C. Reid, III Underwriting Counsel SW Regional Underwriting Office Stewart Title Guaranty Company
Two Wrongs Don’t Make It Right 5
Two Wrongs Don’t Make It Right In 2013, owner borrowed $2.5 M secured by a $1.5 M first and a $1 M second on commercial tract. Neither DT was recorded. In 2015, owner borrowed another $1.5 M from a second lender to be secured by the same property, which was insured as a first. 6
Two Wrongs Don’t Make It Right Legal description for completely different property owned by borrower, but already mortgaged, is attached to the insured DT. 2016 first lender records both its first and second DTs. Later in 2016, title company that closed insured loan learns of the error and attempts to correct it by recording a certified copy of DT with correct legal attached, which is not legally effective 7
The Claim Adverse lender files suit to foreclose and joins insured to establish priority. Insured notifies underwriter and we retain counsel to defend. Our insured was BFM because it made its loan before the prior lender recorded its DTs, BUT the other lender recorded against the correct property first. 8
The Result Court finds that the first correctly filed lien has priority. 9
Curative Statute Prop. Code §§ 5.027-5.031. Material and nonmaterial corrections. In this case it would have been a material change because it was adding land to a deed of trust that correctly conveyed other land. Material changes must be executed by each party to the original conveyance, or each parties heirs, successors or assigns. 10
Fix It and Remove It May 2012, 1st Mutual provides purchase money financing for new windows – Windows installed in July 2012 Owners default on mortgage payments in 2014 and property is foreclosed. We insure purchaser in 2016. 11
Fix It and Remove It In early 2017, owner files a claim after being served with lawsuit to foreclose. 1st Mutual filed litigation to foreclose on the security interest related to the windows. The security interest was documented by virtue of a fixture filing in County Recorder’s Office. 12
Fix It and Remove It Even the claims handler was confused… The policy didn’t take exception for a recorded fixture filing, so the claim was covered…but there was a foreclosure of a prior lien… 13
Fix It and Remove It Claims handler argued the foreclosure of a 2010 deed of trust wiped out the fixture filing recorded in 2012. 1st Mutual disagreed. It argued timely perfection of its security interest by recording a fixture filing within 20 day period of time set forth in the UCC. 14
Who wins? UCC § 9.334 provides that 1st Mutual’s fixture filing has priority where the debtor has an interest in the property or is in possession of it and a) purchase money security interest in goods is granted to 1st Mutual and b) the competing lien arises before installation and c) 1st Mutual perfects its security interest by recording a fixture filing w/in 20 days after the goods become fixtures 15
Take Aways • Keep in mind that a subsequent personal property lien acquires priority over existing liens if it is filed within 20 days of installation. • Don’t automatically assume that foreclosure of a prior lien wipes everything out. If in doubt – ASK UNDERWRITING! 16
Missed Prior Deed of Trust • April 2011 Loan Policy for refinance • $300,000 prior deed of trust paid off at closing • Subordination for 2006 $50,000 prior deed of trust 17
• Agent relies on a 2006 starter…that failed to show an $850,000 deed of trust that recorded shortly before the 2006 $50,000 prior deed of trust (in the gap) • The $850,000 deed of trust is still outstanding but does not show as an exception on the policy • New lender on 2011 Loan Policy files a claim 18
What do we do now? Hope Equitable Subrogation Works Here … • Legal theory that an intervening lienholder should not be permitted to enjoy an unearned windfall • When proceeds from a new loan are used to pay off a prior loan, the new loan is then “equitably subrogated” in the amount used to pay off the prior loan 19
Prevention • We often get claims for matters that fall in the gap, which is likely what had happened with the omission of the $850k deed of trust on the prior 2006 report. • When relying on starters – make sure you understand the risk and pay attention to the dates. A quick search from the date of the deed of trust being paid off would have revealed this prior. • See Bulletin SLS2009004 20
Sometimes Less is More Our insured hired an architect to complete some remodeling on his home. He is aware of a 5 foot public easement that affects the Northeastern portion of his property and the plans are drawn up to accommodate this easement. 21
Sometimes Less is More The insured goes to get a building permit and the City refuses to issue, citing a 10 foot public easement. The easement substantially changes the landscape of the portion of the Property that is now available for remodel. The insured files a claim and the easement is found as an exception in Schedule B, however it contains an erroneous description. 22
Sometimes Less is More The exception specifically indicated a 5 foot (in width and scope) area of affected Property. As a result of the specificity, the exception was limited by the 5 foot description, when in actuality, a reading of the easement document would have revealed it was 10 feet in width and quite longer in length. 23
Prevention – SLS2009017 24
Prevention – SLS2012012 25
Releases We have had numerous claims related to mistakes regarding whether a prior lien was released. Following are a few examples: • Examiner mistakenly believed prior deed of trust was released in a prior transaction, although no release was of record. This was based on a prior policy that did not contain an exception for the lien, however it was later determined that the insured property was excluded from the legal in the prior policy. 26
Releases • Agent believed a prior DT was paid off in a prior refinance transaction, although no release was of record. • Agent that closed prior transaction actually had taken exception to the DT. 27
Line of Credit Mortgages • $5,000,000 dollar lien Stewart insured that paid off a $2,000,000 line of credit loan. • Closing agent sent a close out letter with the payoff check, but never received a release. • LOC lender advanced another $2,000,000 and commenced foreclosure after the borrower defaulted. 28
• LOC lender denied receiving the close out letter, although it received and cashed the payoff check. • Expensive litigation has established that close out letter was sent, barring LOC lender’s claim. Part of the evidence was whether the original check had staple holes, as testimony showed payoffs were routinely stapled to close out letters. 29
Prevention Tips • SLS Bulletin 2008015 “Paying off Line of Credit Mortgages ” • Follow up on release early. Once additional funds are advanced lenders “forget” about the close out letter. Send a second copy of close out letter with follow up request. • Utilize title company release statute, Tex. Prop. Code § 12.017. 30
LLC Sale GO Properties was formed as an LLC with two members: Olicorp Properties, LLC (Olicorp), and Gracie Properties, LLC (Gracie). Olicorp's sole member was Larry Oliver; Gracie's sole member was Stacy Phillips. The GO Operating Agreement named Olicorp as the sole Member Manager. 31
On August 1, 2013, Phillips, without any authority under the GO Properties Operating Agreement and without notifying Oliver, filed a Notice of Change of Registered Officer or Registered Agent with the Secretary of State, which changed the registered agent from Olicorp to Gracie. 32
She also filed a Notice of Change of Principal Office Address, which changed GO Properties' principal address from Olicorp's business address to Phillips's home address. Phillips handwrote her title as "Owner" of GO Properties on both documents. 33
The issuing agent relied on Phillips's representation that she was the owner of GO Properties, and the change of registered agent and change of principal address as it conducted its examination and later acted as closing agent for the transaction. 34
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