ALTA Meeting with GAO Regarding Foreclosures December 17, 2010

ALTA Meeting with GAO regarding foreclosures December 17, 2010

GAO Participants

Nikki Clowers, Director Cody Goebel, Assistant Director Jill Naamane Beth Garcia Jim Vitarello Simon Galed (calling in)

ALTA Participants

Craig Page CLTA CLTA rep California Bill Burding Orange Coast Title CLTA rep California Celia Flowers East Texas Title Companies TLTA rep Texas Kevin Eichner FirstAm State Counsel Ohio LTA rep Ohio Ken Jannen First Am home office First Am rep Florida & New York Ted Rogers Security Title small underwriter rep Maryland Joe Reinhart FNF FNF Rep Florida Josh Reisetter Brookings Co Abstract small agent rep South Dakota Kay Creasman ORTIC State Counsel ORTIC rep Virginia Landon Smith Stewart REO Asset Solutions Stewart Rep Texas (calling in) Justin Ailes ALTA Steve Gottheim ALTA Jeremy Yohe (calling in)

Outline

US Real Property Transfer System ¾ What is Title? ¾ Private Contract/Public Notice ¾ The Need for Land Title Services

Three Main Documents ¾ Deed (Recorded) ¾ Mortgage (Recorded) ¾ Note (Not Recorded)

What is title insurance? ¾ Assurance ¾ Insurance ¾ Two types of polices Owner’s – protects consumers Loan – protects lender’s mortgage interest ¾ Scope

Title Process ¾ Search ¾ Abstract ¾ Underwriting ¾ Closing ¾ Insurance

What is a Foreclosure? ¾ Judicial vs. Non-Judicial ¾ Typical Foreclosure process Standing Evidence of default Mitigating factors Final judgment Foreclosure sale

Recent Foreclosure Issue ¾ Improper documentation ¾ Improper foreclosure

How does foreclosure affect the title process? ¾ Title search Final judgment of foreclosure (court ruling backed by government) Sheriff’s deed ¾ What it does not show Any problems with the actual foreclosure Can’t find robo-signers

Legal Protection for Buyers of REO Properties ¾ Strongest legal protection is to buy a title insurance policy Insurer has an obligation to defend policy holder if their title is challenged ¾ Bona fide purchaser for value without notice BFP takes good title despite competing claims if they don’t have notice and they record their conveyance Actual or constructive notice – more than mere media speculation ¾ Court rescission of sale Parties are made whole Title goes back to borrower, purchase price back to buyer

What is happening in today’s market? What banks have freezes? GSE’s 4 point policy framework

American Land Title Association Owner’s Policy Adopted 6-17-06

OWNER’S POLICY OF TITLE INSURANCE Issued by BLANK TITLE INSURANCE COMPANY

Any notice of claim and any other notice or statement in writing required to be given to the Company under this Policy must be given to the Company at the address shown in Section 18 of the Conditions.

COVERED RISKS

SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULE B, AND THE CONDITIONS, BLANK TITLE INSURANCE COMPANY, a Blank corporation (the “Company”) insures, as of Date of Policy and, to the extent stated in Covered Risks 9 and 10, after Date of Policy, against loss or damage, not exceeding the Amount of Insurance, sustained or incurred by the Insured by reason of: 1. Title being vested other than as stated in Schedule A. 2. Any defect in or lien or encumbrance on the Title. This Covered Risk includes but is not limited to insurance against loss from (a) A defect in the Title caused by (i) forgery, fraud, undue influence, duress, incompetency, incapacity, or impersonation; (ii) failure of any person or Entity to have authorized a transfer or conveyance; (iii) a document affecting Title not properly created, executed, witnessed, sealed, acknowledged, notarized, or delivered; (iv) failure to perform those acts necessary to create a document by electronic means authorized by law; (v) a document executed under a falsified, expired, or otherwise invalid power of attorney; (vi) a document not properly filed, recorded, or indexed in the Public Records including failure to perform those acts by electronic means authorized by law; or (vii) a defective judicial or administrative proceeding. (b) The lien of real estate taxes or assessments imposed on the Title by a governmental authority due or payable, but unpaid. (c) Any encroachment, encumbrance, violation, variation, or adverse circumstance affecting the Title that would be disclosed by an accurate and complete land survey of the Land. The term ”encroachment” includes encroachments of existing improvements located on the Land onto adjoining land, and encroachments onto the Land of existing improvements located on adjoining land. 3. Unmarketable Title. 4. No right of access to and from the Land. 5. The violation or enforcement of any law, ordinance, permit, or governmental regulation (including those relating to building and zoning) restricting, regulating, prohibiting, or relating to (a) the occupancy, use, or enjoyment of the Land;

The use of this Form is restricted to ALTA licensees and ALTA members in good standing as of the date of use. All other uses are prohibited. Reprinted under license from the American Land Title Association. American Land Title Association Owner’s Policy Adopted 6-17-06

(b) the character, dimensions, or location of any improvement erected on the Land; (c) the subdivision of land; or (d) environmental protection if a notice, describing any part of the Land, is recorded in the Public Records setting forth the violation or intention to enforce, but only to the extent of the violation or enforcement referred to in that notice. An enforcement action based on the exercise of a governmental police power not covered by Covered Risk 5 if a notice of the enforcement action, describing any part of the Land, is recorded in the Public Records, but only to the extent of the enforcement referred to in that notice. 6. The exercise of the rights of eminent domain if a notice of the exercise, describing any part of the Land, is recorded in the Public Records. 7. Any taking by a governmental body that has occurred and is binding on the rights of a purchaser for value without Knowledge. 9. Title being vested other than as stated in Schedule A or being defective

(a) as a result of the avoidance in whole or in part, or from a court order providing an alternative remedy, of a transfer of all or any part of the title to or any interest in the Land occurring prior to the transaction vesting Title as shown in Schedule A because that prior transfer constituted a fraudulent or preferential transfer under federal bankruptcy, state insolvency, or similar creditors’ rights laws; or

(b) because the instrument of transfer vesting Title as shown in Schedule A constitutes a preferential transfer under federal bankruptcy, state insolvency, or similar creditors’ rights laws by reason of the failure of its recording in the Public Records (i) to be timely, or (ii) to impart notice of its existence to a purchaser for value or to a judgment or lien creditor. 10. Any defect in or lien or encumbrance on the Title or other matter included in Covered Risks 1 through 9 that has been created or attached or has been filed or recorded in the Public Records subsequent to Date of Policy and prior to the recording of the deed or other instrument of transfer in the Public Records that vests Title as shown in Schedule A. The Company will also pay the costs, attorneys' fees, and expenses incurred in defense of any matter insured against by this Policy, but only to the extent provided in the Conditions.

[Witness clause optional]

BLANK TITLE INSURANCE COMPANY

BY: PRESIDENT

BY: SECRETARY

9303 Center Street, Suite 101 OLD REPUBLIC Manassas, Virginia 20110 National Title Insurance Company Phone: 703-365-2300 800-232-6817 Fax: 703-365-2400 www.oldrepublictitle.com/va

Title Underwriting 101: Foreclosures in Virginia

I. Background When lenders loan money to individuals or companies, regardless of the purpose for the loan, they often want some security for their loan, a way to insure they will be repaid. This security can come from (1) the creditworthiness of the individual, i.e., the individual has sufficient net worth and credit scores that the lender is not concerned that it will not be repaid; or (2) possession of some form of personal property, i.e., title to an automobile, a pledge of publicly traded stock certificates, or jewelry of value to cover the loan; or (3) a mortgage or deed of trust on real estate. Most lenders prefer real estate as collateral (security) for the loan, since although real estate may decrease in value, it is stationary, and can be located when needed.

In Virginia, although you may have a true mortgage, it is rare. The customary means to pledge real estate as collateral for a loan is with a deed of trust. The advantage of using a deed of trust is that the noteholder (lender) does not need to go to court to sell the security. The real estate is already vested in a trustee. The trustee, or a substitute trustee, may foreclose on the real estate to collect for the lender, under the terms of the deed of trust, and if those terms are missing, under statutory provisions [Va. Code 1950, as amended, Section 55-58 et. seq.]

This article is not a detailed discussion of foreclosure in Virginia. It is intended as the basics for title insurance agents, to assist in underwriting transactions where there is a foreclosure in the chain of title. The more recent the foreclosure, the more scrutiny it deserves.

II. Definitions/Comments:

1. Borrower/Debtor/Grantor: one who owns the equitable interest in the real estate and is indebted to another, which indebtedness is secured by real estate Often multiple parties own real estate but only one party is the borrower. In this case the other parties have agreed to pledge the real estate to secure the debt. It is also possible for the borrower/debtor to be an entity who does not own real estate, and the grantor to be an owner of the entity who owns real estate and pledges it as collateral (ex: a corporation or a limited liability company needs to borrow funds for business expansion, but owns no real estate. One of the members may pledge real estate as collateral to guarantee repayment of the loan. He would be a grantor, but not the borrower/debtor.) It is critical in providing settlement services that all owners of a piece of real estate sign the deed of trust pledging the real estate as collateral. Otherwise, we have a potential title claim.

2. Lender/Noteholder/Creditor: the entity or person who has loaned funds to the borrower and holds the promissory note. The original lender frequently sells a note to an investor shortly after, if not prior to, settlement on a transaction.

Foreclosures in Virginia 6/08 kmc; rev 4/10 page1of 10 The noteholder is the entity, or person, who is entitled to repayment, the creditor. If the borrower fails to make payments or perform on other duties under the note and/or deed of trust, the noteholder dictates when foreclosure begins.

3. Trustee/Grantee: a Virginia resident, or a domiciled Virginia corporation or limited liability company, named in the deed of trust to act as the impartial fiduciary under the terms of the deed of trust. Trustee owns the legal title to the real estate. Trustee may be an employee of the lender. Va. Code 55-58.1(2) requires Virginia residency of an individual trustee and a corporate trustee to be formed in Virginia with its principal office in Virginia. An Attorney General Opinion dated 6/22/01 states a limited liability company is functionally equal to a corporation for the purpose of serving as a trustee on a deed of trust. The Trustee primarily serves a placeholder position in most cases. The noteholder generally has a foreclosure specialist actually perform the foreclosure, i.e., they substitute the trustee for one whose business primarily handles foreclosures. HOWEVER, if you are named as trustee and receive notice affecting the real estate you have an obligation to forward that information to the lender and/or borrower. If the lender has sold the note and not recorded an assignment, you only have to give notice to the record noteholder, until and unless you learn otherwise. Example: Lender is not escrowing for real estate taxes. Locality decides to sell real estate for back taxes. Trustee is given notice. Trustee should forward information to lender and to property owner at addresses of record. Trustee only has powers granted in the deed of trust, or if none in the document, granted by Virginia statute.

4. Substitute Trustee: person or entity named by noteholder to replace original trustee. Substitute trustee has all powers of original trustee as set forth in deed of trust and not inconsistent with Virginia law. See Va. Code §55-59(9) Appointment is effective when executed (signed) by the noteholder. The substitute trustee has no power to act prior to the appointment. Under current statutes, the substitution of trustee appointment must be recorded prior to the deed from the substitute trustee to a purchaser at foreclosure.

5. Promissory Note: the written promise to repay the loan, made by the borrower. Provisions of the note allow acceleration when the borrower defaults, i.e., instead of having to wait until each payment is past due, and once the debtor is in default of the terms of the note (usually failure to make payments), the noteholder can say the full outstanding principal balance, plus accrued interest, costs, etc., are due and payable. This acceleration is communicated to the debtor by the trustee, and may be communicated by the lender, as well. In addition, standard notes have a “due on sale” provision, which means if the borrower/owner of the property transfers title to the property, the noteholder has the option of accelerating the outstanding balance, and requiring the loan to be paid in full. From a practical matter, when a borrower/owner conveys to themselves and a new spouse, or from themselves to themselves as trustee of a living trust for estate tax purposes, the lenders have not been “calling” the loans, although they have the right to do so. A Noteholder/creditor’s right with a note is an intangible personal property interest, which can be bought and sold just as any other property interest. With a note that meets specific requirements with the wording (a negotiable instrument), when the note is sold to a bona fide purchaser it is sold free of most defenses that the borrower could assert against the original Noteholder, i.e., that the note had been paid. This is one reason deeds of trust should be released, once paid. Hypothetically, if a negotiable note is paid by the borrower, but then sold to a BFP, then the new owner can collect the amount of the note from the borrower. If it is secured by an unreleased deed of trust, the real estate could be foreclosed to pay the debt. It would not be a defense for the borrower that he had paid the prior Noteholder. The borrower would have to collect from the prior Noteholder who appears to have committed fraud.

6 Deed of Trust/mortgage: the document signed by the property owner that pledges real estate as collateral to secure a debt/loan; recorded in the Circuit Court Clerk’s Office it shows there is a lien on the real estate. Foreclosures in Virginia 6/08 kmc; rev 4/10 page2of 10 The Deed of Trust outlines the duties of the trustee. Deed of Trust forms contain the rights and duties of both the borrower, the lender, and the trustee, including all the terms necessary for the foreclosure sale. Virginia Code Section 55-58 provides guidance as to basic provisions needed in a deed of trust. Most institutional lenders use the FNMA (Fannie Mae) and FHLMC (Freddie Mac) prescribed forms. Any essential terms omitted from the deed of trust are supplied by the terms outlined by Virginia statute. [Va. Code 1950, as amended, Section 55-58 et. seq.]

7. Lender’s Title Policy: lenders obtain title policies to remove any risk in the event they need to foreclose on a lien. This is often when unreleased deeds of trust become an issue, and need to be released of record.

III. Underwriting title when the current transaction to be insured is the current foreclosure

Foreclosures are often subject to litigation. If proper procedures are not followed the transaction may be void or voidable, so particular care is needed when underwriting a transaction, particularly at the time of foreclosure. Adding to the pressure is the fact that foreclosure contracts often have very short settlement periods, often 15 days from date of sale, if the purchaser is someone other than the Noteholder.

A practical problem is obtaining the cooperation of the trustee handling the foreclosure sale. Often they will not provide requested documents, but will only give you an affidavit from the company/person doing the foreclosure stating all procedures were followed. If this happens, make sure as much detail as you need is in the certification. If you are unsure, contact our underwriting office for specific approval.

1. If possible obtain copies of the following documents for review: a) Note – if available – will rarely be available – not a major issue b) Deed of trust being foreclosed – must review a full copy from Clerk’s office c) Title search notes – full search d) Lender’s title policy – if available - will rarely be available – not a major issue e) Notices given to i) the current property owner, ii) junior/subordinate lienholders, (iii)assignees of subordinate lienholders, (iv) any of the following associations that have files a lien at least 30 days prior to the proposed foreclosure sale: - condominium unit owners’ association, or - property owners’ association, or - proprietary lessees’ association f) Evidence of delivery and receipt given to those listed in (e), above g) Advertisement as published h) Proof of publication provided by the newspaper i) Evidence of non-applicability of Servicemembers Civil Relief Act SCRA), Dec. 19, 2003 j) Proposed deed from Trustee in foreclosure k) Evidence property owner is not in bankruptcy (check PACER on line) NOTE: Items (b), (c), (j) and (k) can be easily obtained. [Item (k) can be obtained by contacting the bankruptcy court system.] The balance will generally not be available. They cannot be obtained without cooperation of the Trustee. A well drafted foreclosure deed will recite most of the matters. In lieu of that, a detailed foreclosure trustee’s affidavit may have to suffice.

2. Review documents for the following matters: a) Note (1) What are the terms of the Note? (2) What are the matters that trigger default?

Foreclosures in Virginia 6/08 kmc; rev 4/10 page3of 10 (3) Are these terms and matters the same as stated in the deed of trust? If not, the deed of trust may need to be reformed. (4) If note is not available, as is often the case, Va. Code §55-59.1(B) outlines requirements for a lost note affidavit from lender when note cannot be produced, and that a statement that the note is lost should be sent to the defaulting owner. The Code further states that if there is a BFP at the foreclosure sale he need not determine that notice of the lost note has been given to appropriate parties, nor that notices to parties listed in [1](e), above, have been properly given. As title underwriters issuing insurance we should make sure the notices have been given.

The terms of the Note should be consistent with the terms of the Deed of Trust. If not, contact our office.

(b) Deed of Trust being foreclosed Obtain a complete copy from the record room to examine. The Deed of Trust is the blueprint for how the Trustee proceeds. Pay particular attention to items in bold font. (1) Is the legal description accurate and adequate? (2) Is the real estate upon which the deed of trust exists owned by the defaulting party, or someone who transferred to current owner? (3) Was the deed of trust signed by all owners of the property? (4) Is the notary acknowledgment proper? (5) Where (location) are advertisements to be made? (6) How often are advertisements to be made? (7) What are the time periods listed in the deed of trust? (8) What address is given for the borrower? (9) Is there anything of record that changes the borrower’s address? For example, did borrower originally live in the real estate and has subsequently converted it to rental property? If so, does the tax bill give a current address for the borrower now in default? (10) Is a trustee named? Is he a Virginia resident? (11) Are more than one trustee named? If so, does the document give either the power to act individually? (12) Does the lender have the power to substitute a trustee? (13) Does the Deed of Trust give the trustee a power to sell the real estate? (14) Is this a Purchase Money Deed of Trust? A purchase money deed of trust being foreclosed will take priority over prior liens as well as subsequent ones in Virginia, since borrower could not have purchased the real estate without the loan. A deed of trust may say “Purchase Money” or it may be found following the deed to the owner in question. You will sometimes find the term “deferred purchase money” in a deed of trust, when the original purchase money interest is being refinanced. A refinance generally does not have “purchase money” status, and prior liens need to be listed on Schedule B-2.

(c )-(d) Title search notes & Lender’s title policy Notes from a complete title search should be reviewed for possible title issues and to identify necessary parties to the foreclosure. If the lender has provided a copy of their title policy (which rarely happens), it may provide some information, but since the general rule is for lenders to obtain short form policies, it will be missing details a complete search would show a purchaser at foreclosure. Most significantly it will show the underwriter and agent to contact to clear up any title defects found in the title search.

(e) – (f) Notices given to parties in (1) (e), above, should be reviewed to make sure proper parties, addresses, receipts, etc. have been given, and received. The content of the notices should be sufficient to inform the recipient of what is happening. Sending a copy of the legal notice that has been, or will be, published should be sufficient, unless deed of trust requires something more. Virginia Code §55-59.1(C ) offers protection to a BFP if notices were not properly given by Trustee.

Foreclosures in Virginia 6/08 kmc; rev 4/10 page4of 10

(g) - (h) Advertisement content and proof from publisher as to when advertised needs to be provided to make sure trustee has complied with terms of deed of trust, and if none stated in deed of trust, with terms of Va. Code §55-59.2 If these terms* are not met the sale is void. Trustee must meet the requirements of both the deed of trust and the minimum statutory requirements set out in the Virginia Code.

*When & where advertisement needed: 1) “… published in newspaper of general circulation in city or county where property is to be sold, or any portion thereof, lies …” If you question where something has been published check with the Commissioner of Accounts to see if the publication location is acceptable. 2) If Deed of Trust provides for publication, it MUST be at least i) weekly ad = not less than once a week for 2 weeks or ii) daily ad = not less than once a day for 3 consecutive days and iii) sale to be no earlier than 8 days after the 1st ad, nor more than 30 days after the last ad is published OR 3) If Deed of Trust provides for a publication schedule other than daily or weekly, then the advertisement must meet the terms of the deed of trust AND the minimum statutory terms set out above: either once a week for 2 weeks or once a day for 3 consecutive days. OR 4) If Deed of Trust does NOT provide details for publication publication must be at least i) once a week for 4 successive weeks, unless property or some part of it is in a city, or in a county contiguous to a city (of at least 10,000 as shown by legal census and then proclaimed as a city of first class by the governor), publication may be for 5 days, which might be consecutive ii) sale to be no earlier than 8 days after the 1st ad, nor more than 30 days after the last ad is published

*Content required in Advertisement: Va. Code §55-59.3 In addition to matters required in the deed of trust, or in the discretion of the trustee, the ad shall contain: 1) “…a description of the property to be sold, which description shall not be as extensive as that contained in the deed of trust, and shall identify the property by street address, if any, or, if none, shall give the general location of the property with reference to streets, routes, or known landmarks. Where available, tax map identification may be used but is not required.” 2) “… time, place and terms of sale…” 3) “… name(s) of the trustee(s)…” 4) “… name, address and phone number of such person … as may be able to respond to inquiries concerning the sale.”

(i) Servicemembers Civil Relief Act (SCRA) Dec. 19, 2003 Previously known as Soldiers’ and Sailors’ Civil Relief Act , (originally enacted in WWI, revised in WWII, and Desert Storm) 117 Stat. 2835 108-189, 50 App. U.S. C. §§ 501, et seq.

Servicemembers include: active duty military personnel, commissioned officers of the U.S. Public Health Service, commissioned officers of the National Oceanic and Atmospheric Administration (NOAA), reserves ordered to report for military service, and persons ordered to report for induction under the Military Selective Service Act (draftees).

This federal statute protects servicemembers while on active duty and for 90 days after discharged from active duty. The Act can provide temporary relief from mortgage payments when the mortgage was obtained PRIOR to active service, the property was owned prior to entry into military service, the Foreclosures in Virginia 6/08 kmc; rev 4/10 page5of 10 property is owned by the servicemember at the time the issue of foreclosure arises, and the military service materially affects the ability of the servicemember to pay the mortgage. (Often reservists or members of the National Guard make more money in their “regular” job than they do once called to active duty due to their military obligations.)

Failure to comply with terms of this statute can render foreclosure sales invalid.

This law applies to mortgages originated prior to the time of military service. A foreclosure (section 303) may not be valid during the time of military service, or within 90 days after, unless a court order grants the foreclosure OR the waives his or her rights in a written agreement (Section 107) after they are on active duty or within 90 days of termination of active duty.

1) Lender, through the trustee, should provide evidence as to whether owner being foreclosed is in military service or not. 2) If there is any question, then SCRA allows you to obtain a “certificate of military verification” from:

Defense Manpower Data Center (DMDC) 1600 Wilson Blvd, Ste 400 ATTN: Military Verification Arlington, VA 22209-2593

Or https://www.dmdc.osd.mil/appj/scra/scraHome.do

Such a certificate is issued by the Secretary of the branch of the service involved and is prima facie evidence that the contents are accurate.

The settlement agent must determine if the debtor/property owner meets the requirements to have special consideration under SCRA. Often we rely on a statement from the foreclosure trustee in the deed of trust, but a better alternative is to check the source listed above. Document your file.

(j) Proposed deed from Trustee A well drafted Special Warranty deed from a trustee in foreclosure will set forth all the statutory requirements, and the requirements set out in the deed of trust being foreclosed. It should be reviewed prior to settlement to make sure it contains statements that: 1) Trustee is acting according to the terms of the deed of trust; 2) Advertising and notice to the current property owners were done in accordance with Virginia statutes 3) Substitute Trustee’s appointment was prior to sending out notices, ads, etc. (only needed if substitute trustee conducted the sale). Be sure to review the substitution of trustee document. Too often clerical errors are made that invalidate the appointment, i.e., the trustee is substituted in for the second mortgage, then “forecloses” on the first mortgage = invalid foreclosure. Also, make sure the substitute trustee was appointed (look at date notarized) BEFORE the trustee began working on the file, i.e., advertise, give notices, etc. If not he had no power to act.

(k) Bankruptcy issues When a property is in foreclosure, often the debtor has financial problems that encourage him to file for bankruptcy. Contact the bankruptcy court to determine if the debtor has filed, which would operate to automatically stay (stop) any foreclosure action. (11 USC 362) PACER on line allows immediate access to bankruptcy records. LINK Regardless of whether the debtor is in Chapter 7, 11, or 13 bankruptcy proceeding, a court order will be needed for the foreclosure to proceed. (11 USC 362(d)) After the court order is issued allowing the sale, the debtor has a 10 day appeal period. Foreclosure sales taken without such an order, are deemed void (11 USC 362(h)) and are uninsurable. If a debtor appears to be abusing the system, using repeated

Foreclosures in Virginia 6/08 kmc; rev 4/10 page6of 10 bankruptcy filings to stop foreclosure, then failing to proceed with the bankruptcy, the lender may obtain court permission to proceed with the foreclosure.

IV. Underwriting foreclosure issues in the chain of title (not the current transaction) Recitals in a deed are given presumption that they are true. When the foreclosure is in the chain of title rather than the current transaction, or the transaction immediately prior to the current transaction, compare the recitals in the trustee’s deed with i. the terms of the deed of trust foreclosed, ii. the appointment of the substitute trustee, (make sure it’s notarized prior to Notices being given and recorded prior to the deed to the purchaser at foreclosure; and make sure correct DB/page or Instrument number is cited as to deed of trust being foreclosed), iii. minimum statutory requirements, and iv. the final accounting filed by the trustee. Often this is not done by time of first resale of the property. Check to make sure the debtor wasn’t in bankruptcy at the time of sale, or if he was that a court order allowed the sale. The more recent the foreclosure, the more details need to be verified.

V. Question: Do these matters survive foreclosure?

1. Association liens - look at the recorded documents as to priority regarding deeds of trust. Often the documents will state the association lien is inferior to first mortgages, and are silent as to second mortgages or equity lines. Look at the position of the deed of trust being foreclosed.

a) Condominium Association liens - if recorded after a first deed of trust with an institutional lender, the lien is subordinate to the deed of trust and are wiped out by the foreclosure. If the lender is not an institutional lender or it is a second deed of trust, the condominium lien takes priority over the foreclosure (Va. Code §55-79.84). A suit to enforce a condo lien must be brought within 36 months of filing the lien, since July 1, 2004. Prior to that enforcement was required within 24 months. If a lender requires an ALTA 4 or an endorsement as to priority of its insured deed of trust over a condo association’s assessment, be sure to review the documents of record, and the information above.

b) Homeowners Association liens (Va. Code §55-516) Do not have priority over matters already of record at the time the lien is filed.

2. Bankruptcy As mentioned above, if the owner being foreclosed is in bankruptcy the Trustee must have a court order allowing the foreclosure to proceed due to automatic stay provisions (11 USC 362). There is no exception to this requirement. If a court order is not obtained the sale is void (11 USC 362(h)) and uninsurable. The court order has a 10 day appeal period which must expire before the foreclosure sale.

If an owner/borrower files for bankruptcy within 90 days after the foreclosure and the sale was for less than fair market value, the Bankruptcy trustee may have the transfer avoided. (11 USC 547-548)

Be sure to include a creditors rights exception to an Owner’s policy, unless the purchaser is a bona fide purchaser.

3. Federal district court and agency liens a) Liens issued by a federal district court and docketed in the locality where the real estate being foreclosed is located will NOT take priority over a prior deed of trust being foreclosed. Currently they are treated as any other general lien, and if inferior to the Deed of Trust being foreclosed, will be wiped out. Foreclosures in Virginia 6/08 kmc; rev 4/10 page7of 10

b) Judgments in favor of the U.S., and liens in favor of U.S. agencies,(other than tax liens, see below) recorded prior to the foreclosure, have a one year right of redemption. (28 USC 2410 [c]) The U.S. can refund to the purchaser the amount they paid for the property at foreclosure and take title to the real estate to satisfy the lien.

4. Mechanic’s liens a) If a supplier, contractor, or subcontractor has worked on the property prior to the foreclosure, he has up to 121 days after work is completed to file a lien that will take priority over the foreclosed deed of trust. The trustee in foreclosure can ask the court for a determination on the priority of the lien prior to foreclosure (Va. Code §43-70 through 43-70.1) b) Even if it appears the 6 month period for filing suit to enforce the lien has expired, check to make sure the owner/borrower was not in bankruptcy, so that proceeding with enforcement was tolled (placed in suspension until the bankruptcy issue was resolved).

5. Parties in Possession If people remain in the real estate, the purchaser will have the responsibility of evicting them, depending on whether their lease was signed before the deed of trust being foreclosed, or after. Make sure to keep the exception for “parties in possession” in the title policy being issued.

6. Tax liens a)Federal taxes - For an IRS lien recorded after the deed of trust and at least 30 days prior to the foreclosure sale, written notice has to be given to the IRS at least 25 days prior to the foreclosure by personal delivery, or certified or registered mail. (26 USC 7425(b)(2)). If the trustee fails to give such notice, the IRS lien continues to attach to the real estate until the IRS agrees to the sale free and clear of the lien (26 USC 7425(c)(2)).

Tenancy by the entirety will not protect the real estate from the lien attaching, per U.S. v Craft case in April, 2002.

Show the IRS lien in schedule B-2 of the Commitment and in Schedule B-1 require: “Receipt of satisfactory evidence that notice was given to IRS at least 25 days prior to foreclosure sale in compliance with 26 USC 7425(b)(c).”

The IRS has 120 days after foreclosure sale to redeem the property, even if they gave consent. The redemption price is the price paid by the successful bidder plus interest. They do not pay for improvements to the property. The purchaser is not reimbursed for the cost of any improvements.

During the 120 day redemption period take the following exception in the policy: “Right of the IRS to redeem the real estate within 120 days from the foreclosure sale pursuant to 26 USC 7425(d).”

To remove this exception after the 120 days the title must be updated and the current owner must provide an affidavit that they have not received notice of redemption by the IRS.

b) real estate taxes – Real estate taxes take priority over deeds of trust. (Va. Code §58.1-3340 and 55- 59.4(A)(3)) Delinquent real estate taxes should be paid at the time of foreclosure, or an exception should be taken in Schedule B of the policy.

c) State taxes – Priority is based on time of recordation. State tax liens take priority as if they were a judgment issued by a Virginia court.

Foreclosures in Virginia 6/08 kmc; rev 4/10 page8of 10 7. sewer and water liens / municipal liens - Some localities have authority to pass ordinances to allow liens for sewer and water charges. (Va. Code §15.2-5139) The lien will survive foreclosure if not paid. An Attorney General’s opinion dated September 23, 1992 said the trustee should pay sewer and water liens prior to paying the secured party. … Municipal liens (weed liens) will also need to be paid.

VI. Miscellaneous Matters 1. Deeds in Lieu of Foreclosure – Rather than go through foreclosure, sometimes an owner/borrower wants to just deed the real estate to the lender. A lender may or may not agree. A deed in lieu does not wipe out any inferior liens including subordinate deeds of trust. A deed in lieu may change the priority of the original deed of trust unless deed in lieu says there is no merger. Contact our office for approval on this issue. 2. The deed of trust being foreclosed is not to be released of record. Inferior deeds of trust are wiped out due to the foreclosure and also do not need to be released of record. Sample Requirements and Exceptions attached. Foreclosure checksheet attached.

Foreclosure Underwriting Requirements (Commitment, Schedule B-1)

The following requirements should be in Schedule B-1 as appropriate:

(#) Instruments satisfactory to the Company creating the estate(s) or interest(s) to be insured must be properly executed, delivered and duly recorded:

(1) Special warranty deed from (foreclosure Trustee of record) on behalf of (name of person being foreclosed, current record owner), who shall be named as Grantor for indexing purposes, vesting fee simple title in (name of purchaser at foreclosure sale).

(#) Payment and release of record of the following matters: (1) List any deeds of trust that will not be foreclosed. If they are to survive foreclosure add the following: “If not paid and released at settlement this lien shall show as an exception on the Owners and Lenders policies to be issued.” (2) List all judgments that will not be wiped out by the foreclosure. If they are to survive foreclosure add the following: “If not paid and released at settlement this lien shall show as an exception on the Owners and Lenders policies to be issued.”

If you are insuring the foreclosure deed transaction make the following requirements:

(#) Provide the Company with satisfactory evidence of the following matters, or this language shall appear in Schedule B of the policy(s) issued: “Operation and effect of foreclosure action under Deed of Trust from ( ), Grantor(s), to ( ), Trustee(s) for the benefit of (Lender), in the amount of $( ), recorded in Deed Book ( ), page ( ), in the Clerk’s Office, Circuit Court of ( ), and Trustee’s Deed delivered pursuant to the foreclosure.” :

1) Copy of the Notice of Trustee’s Sale as advertised in local newspaper; name of paper and dates advertisement was run 2) Copy of Foreclosure Notice to current property owner 3) Copy of Notice to each junior lien holder(s), if any 4) Copy of Memorandum of Sale of the Foreclosure Foreclosures in Virginia 6/08 kmc; rev 4/10 page9of 10 5) Copy of Deed of Trust being foreclosed 6) Copy of Trustee’s Deed to be recorded, prior to recordation fore review and approval by the Company. It should include the following statements: a) Trustee is acting pursuant to terms of the Deed of Trust; b) Advertising, notice to Owner, and notice to inferior lien holders were done pursuant to the Deed of Trust and Virginia Statute; c) Owner is not subject to ) Servicemembers Civil Relief Act (SCRA) Dec. 19, 2003 (omit if Owner is not an individual)

7) If owner being foreclosed is an individual person(s), proof of compliance with the Servicemembers Civil Relief Act (SCRA) Dec. 19, 2003

Note: Upon review of these items additional requirements and/or excpetions may be made, and/ or Company may decline to delete the Exception outlined above.

(#) Evidence record owner is not in bankruptcy. Although owner may have moved to another bankruptcy region, check with the bankruptcy court (toll free or online service) to see if Owner has filed for bankruptcy.

- Do not require an Owner/Seller affidavit.

Foreclosure Underwriting Exceptions (Commitment, Schedule B-2 and Policies)

(#) Except to all liens that survive foreclosure: Mechanics’ liens, IRS liens, federal judgments, Association liens, locality sewer/water liens, etc.

(#) “Operation and effect of foreclosure action under Deed of Trust from ( ), Grantor(s), to ( ), Trustee(s) for the benefit of (Lender), in the amount of $( ), recorded in Deed Book ( ), page ( ), in the Clerk’s Office, Circuit Court of ( ), and Trustee’s Deed delivered pursuant to the foreclosure.”

- Even when the policy jackets will include creditor’s rights exceptions include the following in the title binder and in the policy. (#) Any claim which arises out of the transaction vesting in the insured, the estate or interest insured by this policy, by reason of operation of bankruptcy, state insolvency or similar Creditors’ Rights laws.

Foreclosures in Virginia 6/08 kmc; rev 4/10 page10of 10 Current Foreclosure Checklist I. Deed of Trust being Foreclosed – information

Date of D/T ______Date recorded ______DB/pg ______

Loan Amount $______Lender: ______

Grantors: ______

Trustee(s): ______

Is Trustee a Virginia resident? Yes / No [If no, a substitute trustee must be appointed.]

If more than one Trustee named does either have power to act? Yes /No [If no, both Trustees must be involved at each step.]

Substitute Trustees allowed? Yes / No

Advertising required: Place: ______

Frequency of advertising required: ______

Legal description adequate & accurate? Yes / No [If no what is the problem]

Did Grantor(s) own the real estate? Yes / No [Look at deed. Make sure ALL owners signed the deed of trust.]

Notary acknowledgement proper? Yes / No [If no, the deed of trust may not be used for the foreclosure.

Address for Borrower/Grantor(s): ______Is address on tax bill same as in Deed of Trust? Yes / No [Make sure notice is given by Trustee to proper address.]

Does the Deed of Trust give Trustee power to sell the real estate? Yes / No

Is this a Purchase Money deed of trust? Yes/ No [DB/page of deed to current owner should be just prior to DB/pg of deed of trust being foreclosed. Deed of Trust may say “Purchase Money” on it as well.]

NOTE: If you answer “no” to any of the questions above, call our office for approval to proceed.

Foreclosure detailed checklist 5/08, rev 5/09 pg 1 of 3 II. Substitution of Trustee

1. Was a substitute Trustee authorized in the Deed of Trust? Yes / No / n/a 2. Date of appointment of Substitute Trustee ______3. Date appointment of Substitute Trustee recorded ______4. DB/pg of appointment ______5. Earlier of date Substitute Trustee sent out Notices or Advertised the sale, ______Note: Substitute Trustee has to be appointed prior to Trustee sending out Notice or Advertising the sale and has to be recorded prior to the deed to purchaser at foreclosure.

II. Notice 1. Written notice of time, date and place of sale sent to Yes / no (a) property owner by guaranteed delivery/certified mail Yes/ no b) current address of property owner Yes / no c) all subordinate lenders secured by deeds of trust of record Yes / no d) Associations if memo of lien filed Yes / no e) IRS, if IRS lien filed Yes / no - 25 day notice given Yes / no - is settlement within 120 days of foreclosure (If yes, take exception to IRS right of redemption) 2. Was notice given to debtor at least 14 days prior to the sale (sale cannot be on the 14th day)? Yes /No

III. Advertisement Note: If advertisement requirements of both deed of trust and Va. Code Sec. 55-59.2 are not met, the sale is VOID.

Yes / no 1. Terms set out in D/T: (If yes, see #5; if no, see #6) Yes / no 2. Location ______Yes / no 3. frequency ______Yes / no 4. Published in a newspaper in general circulation in locality where any part of the property lies Yes / no 5. weekly ad = not less than once a week for 2 weeks or daily ad = not less than once a day for 3 consecutive days 0r Yes / no 6. weekly ad = not less than once a wee for 4 wks UNLESS part of property is in a city or a county adjacent to a city of at least 10,000 and proclaimed by the governor as a city of first class, in which case publication may be for 5 days which may be consecutive.

Yes / no 7. sale held not sooner than 8 days after the 1st ad published Yes / no 8. sale held not later than 30 days after the last ad published

Foreclosure detailed checklist 5/08, rev 5/09 pg 2 of 3 Yes / no 9. sale held AFTER the last day of the ad 10. Necessary contents of ad: Yes /no a) property address or general location Yes / no b) time, place and terms of sale Yes / no c) name(s) of trustee(s) Yes / no d) name address and phone number of contact person

IV. Miscellaneous matters

Yes / no 1. Servicemembers Civil Relief Act (SCRA) applicable Is there a statement in foreclosure deed stating lender’s information is that it does not apply? Yes / no 2. Is debtor/property owner in bankruptcy? [Check with the bankruptcy court] Yes / no 3. Was an IRS lien of record? If yes, was notice given and has 120 days passed since the sale? If not, right of redemption must be an exception in the policy and binder. Yes / no 4. Is the property vacant? Take exception to parties in possession if not, or if unknown. Yes / no 5. Is the property free of sewer/water liens? If not, require they be paid or take Exception. Yes / no 6. Is the property free of Association liens? If not, make sure HOA is informed of the foreclosure. Yes / no 7. Is the property free of Mechanic’s liens? If not, require they be paid or take Exception. Yes / no 8. Are taxes paid up to date? If not, require they be paid.

Foreclosure detailed checklist 5/08, rev 5/09 pg 3 of 3 ALTA NEWS

Contact: Jeremy Yohe Office: 202-261-2938 Phone: 202-590-8361

E-mail: [email protected]

** Immediate Release **

American Land Title Association Comments on Recent Announcements Regarding the Foreclosure Process

Washington, D.C., Oct. 1, 2010 — The American Land Title Association (ALTA) has issued the following statement regarding title insurance on foreclosed properties:

Several lenders have halted foreclosures and the sale of real estate owned (REO) properties due to possible flaws in documentation used in the foreclosure process. This has, in turn, raised questions about the validity of title to properties that have already been foreclosed, resold and on which a title insurance policy has been issued. ALTA believes these questionable foreclosures will ultimately have little adverse impact on the new owners of REO properties or on the title insurance claims.

“If a new homeowner’s title is challenged because of a faulty foreclosure, the title insurer may have an obligation to defend the challenge,” said Kurt Pfotenhauer, chief executive officer of ALTA. “However, it is unlikely that a court will take property from an innocent current homeowner and return it to a previous homeowner who failed to make payments on the loan subject to the foreclosure.”

Though laws may vary on a state by state basis, in general, the buyer of a property that has been through foreclosure has numerous defenses available to assure their continued ownership.

• The alleged deficiency in the foreclosure process may not be accurate. • The alleged deficiency in the foreclosure process may not have harmed the previous owner. • The foreclosure judgment is a final court order. It is likely too late for a technical objection to the foreclosure process to be raised by the previous owner. • Because the new owner purchased in good faith, they may be protected under the law.

(30) These same legal defenses should significantly limit the title industry’s claims exposure. And in the event that a court does set aside a foreclosure due to a defect in documentation, the foreclosing lender would be required to return to the new homeowner all funds obtained from them, resulting in no loss under the title insurance policy.

“ALTA will be asking lenders to acknowledge that all appropriate procedures have been followed by the lending community before foreclosed properties are resold on the market,” Pfotenhauer said. “On foreclosures, it is especially important that all documentation is in order. Commitment to accuracy and quality assurance is the foundation of title insurance. This commitment ensures fewer problems for homeowners and lenders, and should give shareholders confidence in their investment.”

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About ALTA

The American Land Title Association, founded in 1907, is a national trade association representing more than 3,800 title insurance companies, title agents, independent abstracters, title searchers, and attorneys. With offices throughout the United States, ALTA members conduct title searches, examinations, closings, and issue title insurance that protects real property owners and mortgage lenders against losses from defects in titles.

ALTA NEWS

Contact: Jeremy Yohe Office: 202-261-2938 Phone: 202-590-8361 E-mail: [email protected]

** Immediate Release **

American Land Title Association Supports FHFA’s Policy Framework for Resolving Potential Foreclosure Process Deficiencies

Washington, D.C., Oct. 14, 2010 — The American Land Title Association (ALTA) supports the Federal Housing Finance Agency’s (FHFA) four-point policy framework for resolving potential foreclosure process deficiencies.

This framework will assist the land title industry to continue insuring Real Estate Owned (REO) properties based upon companies’ individual risk assessments.

“ALTA supports FHFA’s outline for an orderly and expeditious resolution of foreclosure process issues that will provide greater certainty to homeowners, markets and other stakeholders,” said Kurt Pfotenhauer, chief executive officer of ALTA.

With respect to the clearing of title for REO properties, FHFA’s blueprint requires mortgage servicers to review their processes and procedures and verify that their documents, including affidavits and verifications, are completed according to legal requirements. When a foreclosure process deficiency is identified, it should be remediated. FHFA directs mortgage servicers to address any issue and take actions as may be required to ensure that title insurance is available to the purchaser of the property.

“Title insurers are looking to lenders to provide appropriate indemnities,” Pfotenhauer said. “We will continue to work with federal and state regulators, Fannie Mae, Freddie Mac and lenders to bring certainty to the marketplace, and we will continue to offer the title industry’s perspective on this issue.”

# # #

About ALTA

Contact: Jeremy Yohe Office: 202-261-2938 Phone: 202-590-8361 E-mail: [email protected]

** Immediate Release **

American Land Title Association Says Owner’s Policy Protects Homeowners Who Purchased Foreclosed Properties

Washington, D.C., November 2, 2010 — The American Land Title Association (ALTA) reminds homeowners of a previously foreclosed property that they will be protected if ownership issues arise because of a lender’s foreclosure documentation practices if they purchased an owner’s title insurance policy when they bought their home.

Reports that lenders improperly documented paperwork in the foreclosure process raised questions about the validity of title to foreclosed properties that have been resold, sparking fear that homeowners who purchased in good faith could lose their home.

“An owner's policy provides assurance that your title company will stand behind you if a covered title problem arises after you buy your home,” said Kurt Pfotenhauer, chief executive officer of ALTA. “The bottom line is that your title company will be there to pay valid claims and cover the costs of defending an attack on your title.”

For a one-time fee, an owner’s title insurance policy provides protection for as long as a homeowner or heirs own interest in the property. Only an owner's policy fully protects the buyer should a covered title problem arise that was not found during a title search, including ownership challenges. Other possible hidden title problems can include errors or omissions in deeds, mistakes in examining records, forgery and undisclosed heirs.

(30)

Homeowners who have any questions or concerns about their rights should notify the title insurance company that issued their owner’s policy. Look for your owner’s title policy in documents you received after your closing from your title company. Consumers are encouraged to learn more about the value of title insurance at www.homeclosing101.org.

“When property changes hands in our country, it is through a private contract that is recorded in the public record,” Pfotenhauer said. “No matter the type of purchase, but especially a foreclosure, it is important that all documentation is in order. Commitment to accuracy and quality assurance is the foundation of title insurance. This commitment ensures fewer problems for homeowners and provides assurance that they won’t lose their investment.”

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About ALTA

How is Real Property Transferred?

The land title transfer system in America works so well that most consumers never take the opportunity to learn how or why it works or the personal and societal benefits derived from this highly effective system of assurance.

However, when an individual sits at a closing table to sell one house and buy another, the main reason such a complex real estate transfer can be quickly accomplished is because an independent, third party title/settlement professional has already scoured the public record (property records, tax records, and court records) to establish legal ownership of the property being sold, cured any title or public record defects (one third of all transactions reveal a title or public record defect), accounted for and transferred all of the money intended to change hands, and insured the entire transaction against any mistake, fraud, risk or defect, whether it is known or unknown.

As a practical matter, this means that buyers are more willing to purchase property because they are insured against property fraud and defects in the public record. Lenders are more willing to make loans because ownership by the borrower of the collateral, or real estate, is guaranteed through title insurance. The secondary financial markets are willing to buy mortgage-backed securities because, in the event of a default, their right to the underlying collateral is assured.

Title companies and their agents are involved in completing all aspects of the closing process, from preparation of documents and recording instruments, to preparation of closing forms and collecting and disbursing funds. Before a transaction is completed, a title search of the records is made in an effort to locate potential problems so that they can be corrected and the transfer can proceed. While most problems can be located in a title search by skilled professionals, there can be hidden hazards that even the most thorough search will not reveal. Examples include forgeries in the chain of title, a claim by a previously undisclosed relative of a former owner, or a mistake in the public records, all of which can be covered by title insurance. Liens, easements, rights-of-way, life estates, air and subsurface rights, and future interests are also discovered in a title search and insured by a title insurance policy.

There are two types of title insurance: an Owner’s Policy protects the buyer’s interests while a Loan Policy protects the lender’s interest. An Owner’s Policy is typically issued in the amount of the real estate purchase price, and remains in effect for as long as the owner or their heirs retain an interest in the property. In addition to identifying risk before a transaction is completed, the Owner’s Policy will pay valid claims and all defense costs against claims on the title. A Loan Policy assures the lender of the validity, priority and enforceability of its lien (mortgage) – serving as protection for the lender’s security interest in the property. A Loan Policy is issued in the amount of the loan, and liability decreases as the mortgage is paid off by the borrower.

Since the sale, purchase and transfer of real estate is governed by local law and custom, practices of the title industry vary by locality and are regulated by state governments. Who pays for the title insurance is also a matter of local custom. In some parts of the country, the seller purchases the Owner’s Policy for the buyer, in effect assuring them their title is clear while in other parts of the country, both the Loan Policy and Owner’s Policy are issued simultaneously, and in still others, the buyer must ask for an Owner’s Policy and pay for it separately.

Title insurance is substantially different than other types of insurance coverage for two reasons: 1) it is paid by a one-time premium that provides protection for as long as the owner or their heirs retain an interest in the property and, 2) title insurance procedures seek to eliminate risk rather than simply price risk. While the emphasis on risk prevention is a labor intensive and costly component of doing business, but the coverage offers the best possible opportunity for avoiding challenges to title and assuring consumers peace of mind. I Am a Title Professional

I am a land title professional. Our industry ensures that people have clear ownership rights to their home – rights that help them to realize the American dream, create wealth, and drive the nation’s economy. As a Land Title Professional… I help protect the dream of homeownership. The land title industry helps protect people’s investments in their homes. For a one-time fee, we assure clear ownership of title for the homeowner and then provide insurance protection for as long as they own their property. Land title agents discover and cure errors in one out of every three real estate transactions before buyers even get to the closing table. By working to eliminate the risks that could jeopardize home ownership, we help protect the American dream. I help people create wealth. By assuring clear ownership, the land title industry helps people use their property as collateral to borrow funds, which they use to open businesses, expand their education, and provide for their families. By assuring that they will not lose their home to fraud or other risks, people can use their home’s equity as an investment. By providing mortgage lien insurance to lenders, we help make credit available to consumers so that they can realize the benefits of homeownership. I help drive our nation’s economy. The system that allows land to be freely bought, sold, and transferred in the United States depends on the work of the land title industry. The proof of ownership that we provide allows homeowners to grow their assets and stimulate the economy through real estate equity. Our work gives lenders confidence to provide mortgage loans, which is the backbone of the real estate economy – the backbone of the nation’s economy. I offer a service that no one else does. No other industry insures people’s ownership of real property. Not bankers. Not Realtors. Not the government. Title professionals use extraordinary skill to search public records and title plants for judgments, liens, and other potential problems – information used to resolve issues, reduce people’s risk, and conduct the transaction. Without the work we do, homeowners’ property rights could be jeopardized, collateral and equity could be lost, along with trust in our national system of private property ownership. About the Land Title Industry

The land title industry is vital to the U.S. economy. The work we do protects the rights, therefore the monetary investments, of real estate buyers. We reduce risks to lenders, giving banks the confidence to issue mortgages and home equity loans. Because of the assurance title insurance provides, lenders issues loans more cheaply than without land title insurance, and we provide the assurance necessary for capitalism to flourish in our country.

The title process is a detailed and extensive one. Title professionals take extraordinary time and use expert skill to search public records and title plants for judgments, liens, and other potential problems. We then go to work to resolve title issues, reduce people’s risk, and prepare for the transaction process. In the end, our work assures people’s ownership rights and helps protect them from future claims.

Title insurance is different from other types of insurance coverage for two reasons. First, people pay for their owner’s policy only once (rather than annually) to give them protection for as long as they own their property. Secondly, our process works to eliminate risk upfront, rather than after issues happen later. Other forms of insurance, such as auto or property and casualty, require little upfront work because claims can’t be predicted or prevented. Public Benefits of the Land Title Industry

The 3,800 member companies of the American Land Title Association (ALTA) include title insurance agents, underwriters, real estate settlement service providers, real estate attorneys and title abstractors. Working together as an industry these companies and their employees ensure that privately owned residential and commercial real estate is quickly and legally transferred, indemnifies owners from claims against their property and guarantees lenders recourse to collateral in the event of a default. Like a light switch that always delivers electricity, the land title transfer system in America works so well that most consumers never take the opportunity to learn how or why it works or the personal and societal benefits derived from this highly effective system of assurance.

• Because of the land title industry, Americans close their loans faster than any other country – 30 days on average – and the speed of the transaction saves consumers tens of billions of dollars annually in additional interest costs.

• At no cost to taxpayers, the land title industry collects $1.75 billion per year in back income taxes.

• At no cost to taxpayers, the land title industry collects $3 billion per year in delinquent real estate taxes.

• At no cost to taxpayers, the land title industry collects $325 million per year in delinquent child support payments.

• The land title industry spends $225 million per year to correct errors in the public property records that otherwise would lead to serious impairment to the property rights of millions of Americans.

• The land title industry is an important source of revenue for local governments, paying $170 million per year to purchase copies of recorded documents.

• Because of the land title industry, people can be confident about purchasing property anywhere in the country because they are insured against fraud and defects in the public record.

• Because of the land title industry, mortgage lenders are more willing to lend because ownership by the borrower of the collateral (the real estate) is guaranteed.

• Because of the land title industry, mortgage-backed securities (MBS/CMBS) can be created and traded, because in the event of a default, recourse to the underlying collateral is guaranteed. Land Title Industry Regulation, Ethics and Standards

The land title industry is regulated by state departments of insurance. In some cases, a separate state agency regulates title insurance agents. Practices within the industry vary due to differences in state laws and local real estate customs. In addition, providers of closing or settlement services are governed by the federal Real Estate Settlement and Procedures Act (RESPA).

In addition to government regulation, the land title industry has industry-wide standards and best practices established by the American Land Title Association (ALTA). Standards include uniform accounting, internal auditing practices, financial reporting; and the promulgation of standard policy forms and endorsements.

ALTA has developed the Title Industry Consumer Initiative to educate and protect consumers by helping them make informed choices when purchasing real estate settlement services.

A major component of ALTA’s Consumer Initiative are the Principles of Fair Conduct, which represent the association’s commitment to promote behavior within the title industry that demonstrates a commitment to the ethical and fair treatment of consumers. Industry members that adopt the Principles of Fair Conduct pledge:

1. To engage only in business practices that are lawful and consistent with a high standard of ethical behavior.

2. To encourage a culture of compliance within their organizations for federal and state laws that govern the title insurance business and for these Principles.

3. To treat consumers in a fair and ethical manner.

4. To provide consumers with timely and comprehensive information regarding their policies, services, products, and prices so as to enable consumers to shop effectively among providers of title-related services.

5. To encourage and assist consumers to be educated purchasers of title insurance and title-related services.

ALTA conducts ongoing industry education to promote the fair and ethical treatment of consumers, including adherence to the laws and regulations that govern the business of title insurance and settlement services..

As part of the Title Industry Consumer Initiative, ALTA has created a consumer website www.homeclosing101.org which provides an overview of the closing process and explains the purpose of a title search and correcting errors in the public record. The site also describes how consumers can shop and compare prices for title insurance and settlement services.

ALTA continues to work with federal and state legislators and regulators to further a better understanding of the land title industry and solicit feedback on how the industry can continue to meet the needs of consumers. Documents Presented at Closing by Settlement Agent

1. Promissory Note (lender and state law) 2. Mortgage (lender and state law) 3. Occupancy Affidavit (Fannie and Freddie) 4. 1099 (lender) 5. Loan Application (lender) 6. Identity Affidavits (lender) 7. W-9 (lender) 8. Buyers Right to Rescind (FHA and HUD) 9. Lenders Notice of Right to Assign Loan (HUD and lender) 10. Drug Lab Disclosure (local custom and/or state law) 11. Water and Sewer Disclosure (local custom and/or state law) 12. Minerals Right Disclosure (local custom and/or state law) 13. Tax Disclosure (title and/or settlement agent) 14. Lien Disclosure (title and/or settlement agent) 15. Truth in Lending Disclosure (HUD) 16. Mortgage Brokers Affidavit (local custom and /or state law) 17. Itemization of Amount Financed (HUD, Fannie, Freddie) 18. Homeowners Association Affidavit (local custom and/or state law) 19. Scrivener Error Affidavit (lender) 20. Power of Attorney (if needed) (state law) 21. Deeds (state law) 22. HUD 1 (HUD) 23. HUD1-A (HUD) 24. Tax Agreement (lender, local custom, state law, title entity, settlement agent) 25. Closing Instruction (lender, title entity, settlement agent, state law) 26. Real Property Transfer Affidavit (state law and/or local custom) 27. Buyers Settlement Statement (state law and/or local custom, title entity, settlement agent) 28. Sellers Settlement Statement (state law and/or local custom, title entity, settlement agent) 29. Bill of Sale (state law) 30. Escheat Disclosure (state law and/or local custom, title entity, settlement agent) 31. Sellers Affidavit (title entity, settlement agent) 32. Buyers Affidavit (title entity, settlement agent) 33. Utility Agreements (title entity, settlement agent)

Other documents may also exist depending on local customers and practices and the nature of the real property. 42. Determine primary real estate tax installments, payment Typical Steps of a status, and other related tax information 43. Determine supplemental real estate tax installments and Home Purchase Transaction payment status in an Escrow Closing Jurisdiction* 44. Determine whether special bonds or assessments affect the properties, and obtain lien amounts Prepare And Assemble Search Package OPENING 25. Statement of information form 45. Summarize tax information 26. Rent statement form Receive Purchase Contract 46. Organize all procured images from geographical and Gen- 27. Vesting form 1. Examine contract and addendum(s) eral Index search 28. Privacy notice 2. Clarify questionable contract provisions (illegibility, etc,) 47. Review search package and determine preliminary title 29. Opportunity to earn interest notice 3. Procure legal description and ownership/vesting status 30. Federal withholding form (FIRPTA) 4. Determine items required for supplemental instructions 48. Review legal description and compare with existing maps 31. State withholding forms 5. Acknowledge contract and agree to act as escrow holder TITLE EXAMINATION 32. 1099 IRS form 6. Assemble and organize information necessary to facilitate Examine Title communication and coordination with all parties 33. Preliminary report Initiate Title Order Deliver Opening Packages To All Parties Involved In 49. Review and analyze all work prepared by title searcher The Transaction 50. Make necessary amendments to preliminary title status 7. Confirm identity of properties to be searched and insured determination 34. Schedule and conduct signing of documents contained in 8. Confirm legal description and ownership/vesting 51. Order land inspections, when deemed necessary opening package 9. Determine Assessor’s Parcel Number (APN) 52. Order court case examinations, when deemed necessary 10. Identify transaction type TITLE SEARCH 53. Confirm that document images requested by customer are 11. Determine the types of title policies to be issued Perform Geographical Title Search filed 54. Place order for easements to be plotted on property maps 12. Run names of buyer and seller in compliance with the 35. Research historical title and determine prior owners and United States Patriot Act others having some right of interest in the properties, as well 55. Determine title status to be reflected in preliminary report Procure Property Disclosure Report (PDR) as the effect each has had on the title during their period of and submit file to word processing for creation of prelimi- ownership nary report 13. Order statutorily required PDR 36. Create chain of ownership and right of interest in the prop- PRELIMINARY REPORT 14. Deliver PDR to real estate broker for delivery to principals erties, and identify documents that support that chain, over a Create Trust Account Depository For Transaction Funds sufficient period of time, to satisfy acceptable risk parameters Prepare Preliminary Report/Commitment established by title insurance underwriter based upon type of 15. Document all deposits 56. Prepare report from title search write-up transaction, type of policy requested, amount of insurance to 57. Proofread preliminary report/commitments 16. Verify amounts pursuant to contract terms be given, and other data available 17. Conduct good funds verification 58. Deliver finished report, privacy policy, wiring instructions, Perform Individual Name Title Search (General Index) requested document images, maps, and plotted easements to 18. Determine compliance with IRS cash reporting laws 37. Identify documents found in public records over many years title department Establish Interest-Bearing Account that affect parties and the property owned by them, but 59. Send finished report, privacy policy, wiring instructions, 19. Obtain and file IRS W-9 form with financial institution do not describe any particular property, including pending requested document images, maps, and plotted easements Store Transaction Information Electronically litigation, bankruptcy, dissolution of marriage, name changes, to your closing officer, principals to the transaction, and real probate proceedings, guardianship and conservatorship ac- estate representatives 20. Create electronic file which includes all data entry, scanned tions, judgment liens, state tax liens, federal tax liens, powers images of outside documents, file notes, preliminary report/ of attorney, and partnership documents TITLE CURATIVE WORK commitment and all other information and documents that Procure Images Coordinate Title Curative Work With Clients, and would otherwise be maintained in a hard-copy file Attorneys Compile Opening Packages For All Parties To Trans- 38. Compile images of geographical chain of title documents 60. Establish requirements for title curative work for various title action, Including: 39. Identify and create images of General Index documents 40. Gather images of recorded maps issues, such as foreclosure, probate, bankruptcy, outstanding 21. Opening amendment marital property rights, trusts, child support orders, tax liens, Conduct Property Tax Search judgments, pending lawsuits, boundary disputes, easement 22. General provisions and access rights, and unreleased deeds of trust 23. Buyer and seller information forms 41. Compare assessor’s maps with legal description and confirm APN 61. Provide underwriting support to your closing officer 24. Homeowner’s insurance quote PROCESSING CLOSING Balance File And Prepare Final Hud-1 Closing Statement Review And Analyze Preliminary Report/Commitment Receive Closing Package And Instructions 114. Perform final calculation of all disbursements 62. Order payoff information for monetary encumbrances 88. Negotiate policy coverages, including type of policy and 115. Verify amount due with each payee 63. Obtain and send borrower’s authorization endorsements 116. Provide required instructions to close loan 64. Procure homeowners’ association documents, including 89. Review dosing package and instructions for compliance and 117. Pay monetary encumbrances by check CC&Rs, budget, minutes, articles, and bylaws acceptability of underwriting guidelines 118. Prepare and send suspension/close letters for equity loans 65. Obtain current owner’s authorization and fee check 90. Review form of the deed for proper signature, notary, APN, 119. Pay all tax encumbrances by check grantor and grantee information, return addresses, and legal 66. Procure transfer information 120. Prepare and release seller’s proceeds and buyer’s refund description Receive Inspection Report(S) Required Under The 121. Prepare and disburse all broker’s commissions 91. Review deed of trust for proper signature, notary, APN, trus- Contract For Roof, Septic, And Pest tor, beneficiary, return addresses, and legal description 122. Comply with broker’s Commission Disbursement Instructions (CDI) 67. Send to buyer and seller for approval 92. Review curative documents to clean up the title 123. Prepare and send out new lender disbursements 68. Send copies to real estate professional/attorneys Order Title Date Downs 124. Prepare and send out miscellaneous checks Review Deed 93. Order tax status date down 125. Include homeowners’ association disbursements, credit card 69. Verify city and county transfer tax 94. Order title status date down payments, inspections, homeowner’s insurance, etc., on clos- 70. Verify parties, vesting, and legal description 95. Report any issues disclosed by tax status and title status date ing statement 71. Review Preliminary Change of Ownership Report for downs Prepare And Send Out Closing Packages To Seller, completeness 96. Prepare and send recording package to County Recorder’s Buyer, And Brokers office for recording 72. Verify notary acknowledgment 126. Include certified copies of all closing instructions, amend- 73. Order home warranty contract 97. Confirm recordation ments, and deeds. 74. Verify premium of home warranty contract 98. Notify all interested parties 127. Prepare state and federal Withholding disbursements 75. Verify required coverages 99. Obtain and deliver confirmed, certified copies of various 128. Process state and federal withholding forms and remit funds transaction documents Compile Closing Instruction Amendment(S) 100. Prepare statement for policy premium and recording fees to POST-CLOSING 76. Include vesting, legal description, lender rate and term, sale send to your closing officer price terms, and purchase contract terms/adjustments in Perform Post-Dosing Maintenance instruction amendment(s) TITLE POLICY 129. Process reconveyance documents Prepare Pre-Loan Documentation Written Estimates 101. Prepare policy and endorsement write-ups 130. Process other release documentation (Preliminary Hud-1) 102. Prepare policy and endorsements from title write-up 131. Process release of obligation, if necessary 103. Proofread policy and endorsements 77. Prepare itemized estimate that includes fees and charges Perform Final Accounting Audit Of File 104. Deliver finished policies and endorsements to title officer anticipated in final HUD-1 closing statement (e.g., prora- 132. Clear trial balance 105. Deliver finished policies and endorsements to your closing tions, deposits, adjustments, fees, premiums, commissions, 133. Follow up on stale-dated checks not cleared within six months and charges) officer 134. Comply with state escheat laws 78. Conduct review official closing instructions and estimated Order Funding HUD-l with all parties 135. Prepare and distribute year-end 1099 IRS forms to all parties 106. Order borrower’s dosing funds required by law 79. Obtain all final signatures 107. Order lender’s closing funds LOAN DOCUMENTS Pre-balance HUD-1 * Note: This list reflects the collective services of steps to pro- 80. Order loan documents 108. Perform preliminary calculation of disbursements vide title insurance and close a residential real estate transaction 81. Store loan documentation 109. Run all names of principals, depositors, and payees (includ- in escrow closing states in much of the western U.S. Particular 82. Include receipt of document packages and assembly/verification ing realtors and lenders) in compliance with United States activities may be somewhat different but similar in purpose in of component parts, all prior to making borrower packages Patriot Act non-escrow closing states in the eastern U.S. 83. Conduct review of all lender instructions 110. Order tax status date down 84. Schedule loan documentation signing either in-house or 111. Resolve any issues disclosed by tax status and title status date with an outside service downs 85. Receive and examine executed package and verify compli- 112. Authorize recording of documents at County Recorder’s ance with lender instructions office 86. Return lender package to lender 113. Confirm recording with all parties 87. Order homeowner’s insurance TITLE EXAMINATION Typical Steps of a Examine title Home Refinance Transaction 35. Review and analyze all work prepared by title searcher 36. Make necessary amendments to preliminary title status in an Escrow Closing Jurisdiction* determination 37. Order land inspections, when deemed necessary OPENING TITLE SEARCH 38. Order court case examinations, when deemed necessary 39. Confirm that document images requested by customer are Receive Lender Order Perform Geographical Title Search filed 1. Review order 21. Research historical title and determine prior owners and oth- 40. Place order for easements to be plotted on property map 2. Clarify questionable provisions ers having some right of interest in the properties, as well as 41. Determine title status to be reflected- in preliminary report affect each has had on the title during respective periods of 3. Procure legal description and ownership/vesting and submit file to word processing for creation of prelimi- ownership 4. Determine items required for instructions nary report 22. Create chain of ownership and right of interest in the prop- 5. Assemble and organize information necessary to facilitate erties, and identify documents that support that chain, over a PRELIMINARY REPORT communication and coordination with all parties sufficient period of time, to satisfy acceptable risk parameters Prepare Preliminary Report/Commitment Initiate Title Order established by the title insurance underwriter based upon type of transaction, type of policy requested, amount of 42. Prepare report from title search write-up 6. Confirm identity of properties to be searched and insured insurance to be given, and other data available 43. Proofread preliminary report/commitments 7. Confirm legal description and ownership/vesting 44. Deliver finished report, privacy policy, wiring instructions, 8. Determine Assessor’s Parcel Number (APN) Perform Individual Name Title Search (General Index) requested document images, maps, and plotted easements to 9. Identify transaction type title department 10. Determine types of title policies to be issued 23. Identify documents found in public records over many years 45. Send finished report, privacy policy, wiring instructions, 11. Run names of buyer and seller in compliance with the that affect parties and the property owned by them, but requested document images, maps, and plotted easements United States Patriot Act do not describe any particular property, including pending to your closing officer, principals to the transaction, and real litigation, bankruptcy, dissolution of marriage, name changes, estate representatives Store Transaction Information Electronically probate proceedings, guardianship and conservatorship ac- PROCESSING 12. Create electronic file which includes all data entry, scanned tions, judgment liens, state tax liens, federal tax liens, powers images of outside documents, file notes, preliminary report/ of attorney, and partnership documents Review And Analyze Preliminary Report/Commitment commitment, and all other information and documents that Procure Images 46. Order payoff information for monetary encumbrances would otherwise be maintained in a hard-copy file 24. Compile images of geographical chain of title documents 47. Obtain and send borrower’s authorization Compile Opening Packages For All Parties To The 25. Identify and create images of General Index documents 48. Procure homeowners’ association assessment status Transaction, Including: 26. Gather images of recorded maps 49. Obtain current owner’s authorization and fee check 13. Opening instructions Conduct Property Tax Search Prepare Documents 14. General provisions 27. Compare assessor’s maps with legal description and confirm 50. Prepare HUD-l document 15. Borrower and seller information forms APN 51. Prepare HUD-1 subordination agreement 16. Homeowner’s insurance quote 28. Determine primary real estate tax installments, payment 52. Provide in-house notary service 17. Statement of Information form status, and other related tax information Prepare Closing Instruction Amendment(S) 18. Privacy notice 29. Determine supplemental real estate tax installments and 19. Preliminary report payment status 53. Organize documentation, including vesting, legal description, Deliver Opening Packages To All Parties Involved In 30. Determine whether special bonds or assessments affect prop- credit card payoffs, and lender rate and term The Transaction erties, and obtain lien amounts Prepare Pre-Loan Documentation And Written Esti- Prepare And Assemble Search Package mates (Preliminary Hud-1) 20. Schedule and conduct signing of documents contained in opening package 31. Summarize tax information 54. Prepare itemized estimate that includes fees and charges 32. Organize all procured images from geographical and Gen- anticipated in final HUD-l dosing statement (e,g., deposits, eral Index search adjustments, premiums, fees and charges) 33. Review search package and determine preliminary title status 55. Conduct review of final closing instructions and estimated 34. Review legal description and compare with existing maps HUD-1 with all parties 56. Obtain all final signatures LOAN DOCUMENTS Pre-Balance Hud-1 Closing Statement TITLE POLICY 57. Order loan documents 78. Perform preliminary calculation of disbursements 103. Prepare policy and endorsement write-ups 58. Store loan documentation 79. Run all names of principals, depositors, and payees (includ- 104. Prepare policy and endorsements from title write-up 59. Include receipt of document packages and assembly/verifica- ing realtors and lenders) in compliance with United States 105. Proofread policy and endorsements tion of component parts prior to making borrower packages Patriot Act 106. Deliver finished policies and endorsements to title officer or electronic downloads 80. Order tax status date down 107. Deliver finished policies and endorsements to closing officer 60. Conduct review of all lender instructions 81. Resolve any issues disclosed by the tax status and title status 61. Schedule loan documentation signing either in-house or date downs POST-CLOSING with an outside service 82. Authorize recording of documents at County Recorder’s Perform post-closing maintenance 62. Receive and examine executed package and verify compli- office 108. Process reconveyance documents ance with lender instructions 83. Confirm recording with all parties 109. Process other release documentation 63. Return lender package to lender Balance File And Prepare Final Hud-1 Closing State- 110. Process release of obligation, if necessary 64. Order homeowner’s insurance ment

TITLE CURATIVE WORK 84. Perform final calculation of all disbursements Perform final accounting audit of file Coordinate Title Curative Work With Clients, And 85. Verify amount due with each payee Attorneys 86. Provide required instructions to dose loan 111. Clear trial balance 87. Pay monetary encumbrances by check 112. Follow up on stale-dated checks not cleared within six 65. Establish requirements for title curative work for various title months 88. Prepare and send suspension/close letters for equity loans issues, such as foreclosure, probate, bankruptcy, outstanding 113. Comply with state escheat laws marital property rights, trusts, child support orders, tax liens, 89. Pay all tax encumbrances by check judgments, pending lawsuits, boundary disputes, easement 114. Prepare and distribute year-end 1099 IRS forms to all parties 90. Prepare and release borrower’s proceeds required by law and access rights, and unreleased deeds of trust 91. Prepare and send out new lender disbursements 66. Provide underwriting support to your closing officer 92. Prepare and send out miscellaneous checks CLOSING 93. Include homeowners’ association disbursements, credit card Receive Closing Package And Instructions payments, homeowner’s insurance, etc., on closing statement Prepare and send out closing packages to borrower * Note: This list reflects the collective services of steps to pro- 67. Negotiate policy coverages, including type of policy and and lender endorsements vide title insurance and close a residential real estate transaction 68. Review closing package and instructions for compliance and 94. Include certified copies of all closing instructions, amend- in escrow closing states in much of the western U.S. Particular acceptability of underwriting guidelines ments, and deeds activities may be somewhat different but similar in purpose in 69. Review form of the deed for proper signature, notary, APN, Order title date downs non-escrow closing states in the eastern U.S. grantor and grantee information, return addresses, and legal 95. Order tax status date down description 96. Order title status date down 70. Review deed of trust for proper signature, notary, APN, trus- tor, beneficiary, return addresses, and legal description 97. Resolve any issues disclosed by tax status and title status date downs 71. Review curative documents to clean up title 98. Prepare and send recording package to County Recorder’s 72. Review subordination agreements for underwriting accept- office for recording ability 99. Confirm recordation Order Funding 100. Notify all interested parties 73. Order borrower’s dosing funds 101. Obtain and deliver confirmed, certified copies of various 74. Order lender’s closing funds transaction documents Trust Account Depository For Transaction Funds 102. Prepare statement for policy premium and recording fees to send to your closing officer 75. Document all deposits 76. Conduct good funds verification 77. Determine compliance with IRS cash reporting laws