Three Quick Tips to Help Avoid Future Claims
Articles from The Massachusetts Focus
Newsletter of Stewart Title Guaranty Company, Massachusetts Offices Fall 2008, Volume 7, Number 4
Three Quick Tips to Help Avoid Future Claims
by Margaret M. Fortuna, Underwriting Counsel
One of the by-products of the current foreclosure market is an increase in the number of claims for all of the title insurance companies. I am regularly asked what the more frequent claim issues are that Stewart receives, and what can be done by agents in order to avoid these issues. There is no single answer to these questions. However, I have put together a list of three things to keep mind which should help you discover and address these issues before they become a claim.
1. Exhibit A Legal Description to Mortgage
We get quite a few claims each month from foreclosure attorneys who claim they cannot go forward with their foreclosure sale because of an error in the legal description to the insured mortgage. They generally insist that we either obtain and record a confirmatory mortgage from the mortgagor who is currently in foreclosure or file a reformation action in Land Court in order to resolve the description issue. What can you do to try to avoid this type of situation?
Have someone double check the Exhibit A legal descriptions prior to the recording of the mortgage in question. Does the mortgage encumber the correct property? Are all of the parcels included? Are the metes and bounds correctly listed?
Also, at the end of the Exhibit A description to the mortgage you may wish to incorporate a title reference sentence. REBA Title Standard 27, Item 3, indicates that “[m]issing bounds, errors in direction or distance, and ambiguous descriptions are cured by reference to a specific lot on a recorded plan or by a title reference to a deed containing an adequate description.” For example, you could use the following:
“Being the same premises conveyed by deed from ______ to _____ dated _____ and recorded with _____ Registry of Deeds on _____ at Book _____, Page ____.”
It may sound simple, but implementing this procedure could help prevent a situation which could potentially require the filing of a reformation action in the future.
2. HELOC Mortgages/Closing Lines of Credit
Another costly issue that can be avoided is open lines of credit. We have been dealing with a few situations where prior lines of credit were paid off but remained open and were used again by the borrower. What can you do to try to avoid pitfalls in this type of situation?
Scenario 1: You are handling a sale transaction or a refinance where the line of credit is to be paid off and closed in connection with your closing.
When you are paying off a line of credit mortgage have the seller/borrower execute and submit to the lender an authorization to freeze the line of credit account. Confirm with the lender at the time you make your request for a payoff statement that the lender has this authorization in their possession. Have the seller/borrower also execute an authorization to close the account — often times lenders will include this authorization as part of the payoff statement — and submit the fully executed authorization form to the lender with your payoff funds. Follow up with the lender to confirm that the payoff has been received, the line of credit account has been closed and the discharge will be issued. By having the authorization to freeze the account in place at the time the payoff is requested any checks which may have been written by the seller/borrower between the time the payoff statement was provided and the time when the payoff funds and authorization to close the account were received will be caught by the lender.
Scenario 2: You are handling a refinance where the borrower is keeping the line of credit account.
If the new lender permits the borrower to keep his/her existing line of credit in place, the new lender will require that the holder of the prior line of credit execute a subordination agreement, which must properly subordinate the prior line of credit mortgage to the new mortgage, and be recorded with the appropriate Registry of Deeds. Since mortgages are often assigned, you will want to obtain and record a subordination agreement even if the prior holder of the line of credit mortgage is also the current lender involved in your new transaction.
3. Obtain and Record Attorney in Fact Affidavits along with Powers of Attorney
If you are accepting a deed or mortgage that is executed pursuant to a power of attorney, you should not only be obtaining, reviewing and recording the power of attorney in question, but you should also obtain and record an Affidavit from the Attorney in Fact, which states that at the time of the transaction in question, the attorney in fact had no knowledge of the termination of the power of attorney by reason of death, disability or incapacity of the principal. This Affidavit should be issued in accordance with G.L.c. 201B, §5 which states the following:
Chapter 201B: Section 5. Good faith reliance; knowledge of termination of power
As to acts undertaken in good faith reliance thereon, an affidavit executed by the attorney in fact under a power of attorney, durable or otherwise, stating that he did not have, at the time of exercise of the power, actual knowledge of the termination of the power by revocation or of the death, disability or incapacity of the principal shall be conclusive proof of the nonrevocation or nontermination of the power at that time. If the exercise of the power of attorney requires execution and delivery of any instrument that is recordable, such affidavit when authenticated for record shall be likewise recordable. This section shall not affect any provision in a power of attorney for its termination by expiration of time or occurrence of an event other than express revocation or a change in the capacity of the principal.
REBA drafted Form 1 entitled “Affidavit Regarding Power of Attorney” to be used in this type of scenario, and I refer you to the same. If you are handling a transaction which involves the use of a power of attorney and the accompanying attorney’s affidavit with respect to the same and you have any questions, please feel free to contact a member of your Stewart Underwriting Team.