All Forum Posts by: Tom Gimer

Quote from @Tom Gimer:

Obvious answer: sell it

Reason: subto is not a viable long term hold solution

Hi Tom- can you please elaborate on the issues with sub to as a longterm hold solution? How does selling work (seems like a complicated sell). 

Quote from @Peter Walther:

Quote from @Account Closed:

Quote from @Tom Gimer:

Quote from @Account Closed:

Quote from @Tom Gimer:

Quote from @Peter Walther:

Quote from @Tom Gimer:

Quote from @Peter Walther:

Quote from @Shafi Noss:

@Jay Hinrichs Maybe so. I'm happy to drop that theory if the numbers aren't behind it.

Fun read. I read each post. ;-) Okay, maybe not "fun" but very informative.

However, As I was reading through, I came to realize I don't actually understand some of the terms. Could someone please explain:

Is the "Preliminary Title Report" simply a list of what comes up on title but has no insurance effect? (This is what I've been lead to believe)

But, Are "Owners Title Insurance" and "Owner's Extended Coverage" and "Extended form policy" all the same thing, just different names or is there more to it?

What does ALTA do/or is for?

You'll probably get different answers here. 

A preliminary title report to me is simply a document showing who owns the property and what encumbers it (mortgages, judgments, liens, etc.). Also known as an O&E -- owner and encumbrance report. It has nothing to do with title insurance. 

Owners Title Insurance = basic owners coverage (liens, adverse claims, marketability, etc.)

*Owner's Extended Coverage = Extended Form Policy (everything in basic plus many additional coverages including post-policy matters, subject to different limits)

*not available for investment properties in many states

ALTA = American Land Title Association ... it's a trade association for the title industry. They create standardized forms, conduct lobbying activities, etc.

That helps.

This is from a Settlement Statement of a property I’m selling

Title - Lender's Title Insurance to xxxx Title $857

Title - Owner's Title Insurance to xxxx Title $1590

Why is the Owner’s Title Insurance almost twice the price of the Lender’s?

Coverage for an insured owner lasts as long as an insured has an interest in the property or liability for a breach of warranty given if the insured conveys the property.  Therefore, the policy liability "tail" can continue on forever.  Practically, the risk of loss diminishes over time and might effectively be extinguished some time years down the road.  In addition, the amount of insurance is fixed as the amount shown on the policy.

With a lender's policy, liability lasts only so long as the insured has a lien on the property.  If the loan is refinanced and paid off after 3 years, the policy liability is extinguished.  In addition, the amount of insurance is limited to the amount of the debt outstanding.  So, if a loss occurs after 5 years and a $100k original loan has been paid down to $75k, that is the maximum amount the insured can recover and of course the maximum loss the insurer can experience, even though the amount of insurance shown on the policy is $100k.

Also, if a lender's policy is issued simultaneously with an owner's policy, the premium is generally substantially less than if the policies were purchased separately.  That's partially because an owner's policy contains a provision that any payment for loss paid under a simultaneously issued loan policy, will reduce the amount of coverage under the owner's policy.

That would imply, that if he sells on "Subject To" or on an "Executry Contract", and no longer owns the property, (the seller just remains on the mortgage), any Owner's Title Insurance they bought would no longer apply? 

If Owner's still applies for some reason, & the owner bought for $100,000 and 
later sells on a Wrap for $150,000 I would guess that the insurance still only covers the $100,000 minus paydown?

@Peter Walther On the body of law, yes, it's a good point. It sounds like large assureds like Fannie and Freddie are comfortable paving the way for others, hopefully we can all benefit from that and other users and attorney's know to be cautious in the meantime. 

I'm asking for aggregate not granular data. If we had aggregate data about losses of people who don't have curative work done, we could compare to the aggregate data of losses for people who did have curative work done, and how much they paid for that curative work. There's still sampling bias but that would be a fair start. I don't believe $175 is enough to pay underwriters so Iowa may be a naturally occurring data set. 

People who were unhappy with real estate agents and lawyers receiving title kickbacks could have been told to deal with it or do business in a different country, but RESPA got passed because a bunch of people sat down and agreed there was a different way to do it. 

Quote from @Jay Hinrichs: @Tom Gimer

Quote from @Peter Walther:

Quote from @Shafi Noss:

Quote from @Peter Walther:

Quote from @Shafi Noss:

@Jay Hinrichs 

Well first Jay I know you are extremely experienced and I suspect Carlos is as well so let me start by saying you both have my respect. 

I know this is a bit techincal  but same thing applies when your doing a DIL  or a defaulted borrower just wants to deed the property back or to one of Morbys gator sub to folks via quit claim.

@Jay Hinrichs: You said "I know this is a bit techincal but same thing applies when your doing a DIL or a defaulted borrower just wants to deed the property back or to one of Morbys gator sub to folks via quit claim."

Since "Subject To" is selling the property, but not paying off the loan (buyer takes over payments), does that mean that the lender loses Title Insurance coverage since the Due on Sale is violated?  

If the property gets deeded back, does the Title Insurance get reinstated?

Quote from @Tom Gimer:

Quote from @Peter Walther:

Quote from @Tom Gimer:

Quote from @Peter Walther:

Quote from @Shafi Noss:

@Jay Hinrichs Maybe so. I'm happy to drop that theory if the numbers aren't behind it.

Fun read. I read each post. ;-) Okay, maybe not "fun" but very informative.

However, As I was reading through, I came to realize I don't actually understand some of the terms. Could someone please explain:

Is the "Preliminary Title Report" simply a list of what comes up on title but has no insurance effect? (This is what I've been lead to believe)

But, Are "Owners Title Insurance" and "Owner's Extended Coverage" and "Extended form policy" all the same thing, just different names or is there more to it?

What does ALTA do/or is for?

For anyone whose interested, here's a link to a recent paper that compares one flavor of AOL to traditional title insurance, prepared for the MBA.  My brief read found two thing that really jumped out at me.  The $50k cap on liability and a failure to identify who is going to be responsible for clearing any title defects identified in the AOL. 

In my experience, $50k is not much to spend to cure a title problem and I didn't see where its defined, if the E&O carrier spends $40k trying unsuccessfully to cure the problem, does the assured only collect the remaining $10k as the recoverable loss?

Also, with traditional title insurance, the settlement/policy issuing agent does much of the curative work, part of the reason the agent keeps a portion of the premium.  There's no charge for title clearance on the settlement statement.

Lastly, there's a large body of law the defines a title insurer's rights and responsibilities under a policy.  there's none for AOLs that I'm aware of.  Raise your hand if you want to be on the bleeding edge of the law.

blank_rome_whitepaper_on_attorney_opinion_letters.pdf (mba.org)

Quote from @Tom Gimer:

Quote from @Peter Walther:

Quote from @Shafi Noss:

@Jay Hinrichs Maybe so. I'm happy to drop that theory if the numbers aren't behind it.

Still Fannie Mae itself approves "Attorney Opinion Letters" as an alternative to title insurance to pair with their loans. 

"In recent years, widespread digitization of real estate records and technological advances have improved the process of confirming marketable title, but that has not translated to lower costs for borrowers. 

Fannie Mae research shows that low-income and first-time homebuyers pay disproportionally more in closing costs. Since beginning to accept AOLs under the Selling Guide in April 2022, savings to borrowers have been significant. On average, homebuyers have saved more than $1,000 when an AOL was used instead of a traditional lender’s title insurance policy. For purchase transactions, average borrower savings have been >$500, even when the borrower has elected to obtain an owner’s title policy."

...

"Fannie Mae has also purchased more than 10,000 loans with AOLs since 2009 and has not experienced losses from title claims on these loans."

https://singlefamily.fanniemae.com/media/37606/display

So is it always correct for everyone to get title insurance? FNMA doesn't seem to think so. 

I also think it's ironic that title insurance was developed to address short comings in AOLs.  I guess what's old is new again.

I was just thinking it would be interesting to hear what happens in the context of AOLs when fraud or forgery (impossible to identify when examining title) is discovered.

IMO there would be no breach or proximate cause and thus no attorney liability. Of course this would be covered with title insurance.

Who pays?

 From the Fannie Mae guidelines:

provide the following statement: We [I] agree to indemnify you and your successors in interest in the [mortgage] [deed of trust] opined hereto, to the full extent of all losses attributable to a breach of our [my] duty to exercise reasonable care and skill in the examination of the title and giving of this opinion.

I think the threshold for proving a breach is pretty high. The indemnification also excludes losses from mis indexed docs. That's one of the reasons I find it hard to believe there have been no losses. Also not mentioned is what happens when the indemnifying attorney dies or goes out of business and doesn't bother to get a tail rider for his E&O?

Quote from @Shafi Noss:

@Jay Hinrichs Maybe so. I'm happy to drop that theory if the numbers aren't behind it.

Still Fannie Mae itself approves "Attorney Opinion Letters" as an alternative to title insurance to pair with their loans. 

"In recent years, widespread digitization of real estate records and technological advances have improved the process of confirming marketable title, but that has not translated to lower costs for borrowers. 

Fannie Mae research shows that low-income and first-time homebuyers pay disproportionally more in closing costs. Since beginning to accept AOLs under the Selling Guide in April 2022, savings to borrowers have been significant. On average, homebuyers have saved more than $1,000 when an AOL was used instead of a traditional lender’s title insurance policy. For purchase transactions, average borrower savings have been >$500, even when the borrower has elected to obtain an owner’s title policy."

...

"Fannie Mae has also purchased more than 10,000 loans with AOLs since 2009 and has not experienced losses from title claims on these loans."

https://singlefamily.fanniemae.com/media/37606/display

So is it always correct for everyone to get title insurance? FNMA doesn't seem to think so. 

I also think it's ironic that title insurance was developed to address short comings in AOLs.  I guess what's old is new again.