Buyer beware with D.C. foreclosure addendums

Homebuyers of foreclosed properties in the District should think twice when signing a sales contract with release or waiver provisions in it, as it's highly unlikely that any title insurance underwriter will agree to insure the transaction.

In November of 2010, the D.C. City Council enacted the “Saving D.C. Homes from Foreclosure Emergency Amendment Act of 2010,” which shocked the title insurance industry.  

The purpose of the Act is to protect D.C. homeowners while imposing more stringent standards on lenders undertaking the foreclosure process against owner-occupied residential properties.

In order to determine whether or not a D.C. foreclosure sale is insurable, title insurance underwriters are requiring significantly more physical documentation that all aspects of the Act have been adhered to, while also reviewing the terms of the contract for sale.  

The problem that we are now experiencing, is that Sellers are including addendums to the standard GCARR Contract for Sale that include release or waiver provisions that no title insurance underwriter will agree to insure, as long as they are a part of the contract.

Examples of these provisions include the buyer waiving:

1.    The remedy of specific performance on account of the Seller’s default or failure to sell and convey the property for any reason,
2.    Any right to file a lis pendens against any portion of the property,
3.    Any right to invoke any other equitable remedy that may be available that would prevent the seller from conveying the property to another purchaser,
4.    Any and all claims arising from any agreed to adjustments or prorations, or errors in those calculations,
5.    Any trial by jury for litigation arising out of the contract,
6.    Any claims or losses incurred by the Buyer due to construction, repairs or treatment of any defects, known or unknown that exist or hereafter exist on the property, and
7.    Any right to avoid the sale of the property, reduce the price or hold the seller responsible for any damages due to the marketability, habitability, insurability or condition of the property,
8.    Any claim arising from encroachments, easements, etc, and
9.    Any right to recover any form of damages as a result of the Buyer surrendering a lease on a prior residence, moving expenses, etc.  

The waiver or release paragraph then states that any attempt by the Buyer to breach, disregard or disavow any of the waivers or releases described above, will result in the Buyer to pay all reasonable attorney’s fees and costs incurred by the Seller in reaffirming or enforcing the waivers/releases or defending an action brought by the Buyer.

Please note, if you are a real estate agent or purchaser, by signing a contract addendum with language similar to that listed above, it is highly unlikely that any title insurance underwriter will agree to insure the transaction, as these waivers/releases essentially void the entire title insurance policy that would be issued to the Buyer and/or Lender.

The ability to proceed with a foreclosure settlement in D.C. is difficult enough since the passage of the Act, and these waiver/release provisions are only resulting in foreclosures coming to a complete halt.

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Related:

• Added oversight means added expense for homebuyers
• DC foreclosure moratorium surprises title industry

New: Homebuyer videos section

Sometimes it's easier to understand a subject with visuals. Title insurance and the real estate closing process in general are just two examples. 

With that in mind, take a moment to tour our new Homebuyer Videos section. Real estate agents: Use this section as a resource for your homebuyers. And homebuyers: Use this section to learn more about what goes on behind the scenes leading up to closing.

Here at Federal Title, we believe it's important to inform homebuyers, many of whom are purchasing a home for the first time. The more our homebuyers know in advance, the better prepared and the more comfortable they are when it comes time to sit down at the closing table.

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Unfortunately, title insurance is tough to illustrate in pictures (hence our text-heavy blog).

Thankfully though, we've got friends at local company called Say it Visually, who've helped us explain the steps between ratified sales contract and signed HUD-1 settlement statement in terms as simple as stick figures.

We have plans to create a series of videos about various aspects of the closing process. We'll post each video in the newly created Homebuyer Videos section.

As it turns out, these videos take some times to make, and so production is inching along slowly. All right, we only have two videos so far...

These days more and more web users are turning to online videos to learn everything from how to change a bicycle tire to, well, how to buy a house. But did you know Federal Title was the first in the title industry to produce videos for homebuyers explaining title insurance and closing costs?

Other title companies jumped on the bandwagon shortly after, and now even the U.S. Department of Housing & Urban Development is creating videos to help homebuyers understand the real estate closing process.

We know most homebuyers will do an online search before contacting a real estate agent. The wisest homebuyers will also research the title company that handles their settlement.

It's our hope that by educating prospective homebuyers, using tools such as our Homebuyer Videos section, we they will be better equipped to make informed decisions throughout the homebuying and closing process.

HUD releases helpful homebuyer videos

Remember the kid in school that tried to copy off of everyone else?  As an adult, I don’t find it as annoying – in fact, I view it as a testament to what we do here at Federal Title.  

Federal Title was the first in the title industry to produce videos for homebuyers explaining the closing process and closing costs.  Soon after we released these videos, a few other competitors jumped in the video market.  

Now, the U.S. Department of Housing and Urban Development (HUD) jumped in by releasing three instructional videos for prospective homebuyers. HUD’s videos mainly focus on the homebuying process and shopping for a mortgage.  

The videos are each about 11 minutes long and narrated by Teresa Payne of HUD and might be the best cure for insomnia I’ve seen in a while. However, the videos are full of very useful information and if a prospective homebuyer would watch each of these videos, we would probably have a lot less questions at the closing table.  

All in all, the videos are a justifiable expense of taxpayer dollars and may just result in fewer regulations by HUD in the future – now that consumers are better-armed with information.  The videos can be found on HUD's YouTube channel.

Added oversight means added expense for homebuyers

Increased regulation on the title insurance industry will take a bite out of the wallets of homebuyers and refinancing homeowners in the District of Columbia in 2011.

Added oversight will likely amount to added fees and less room for negotiation, Todd Ewing, founder & president of Federal Title & Escrow Company, said just days after title insurance producers and companies operating in DC were placed under the regulation of the city's Department of Insurance, Securities and Banking.

"Title insurance premiums will no longer be negotiable since DISB now requires all DC title insurers to file their respective rates by March 31, 2011," Ewing said. "The requirement will likely result in overall higher title insurance premiums charged to homebuyers and refinancing homeowners."

Homebuyers and refinancing homeowners should also expect to pay a $50 fee for the closing protection letters issued by title insurers to the respective mortgage lender, a new fee DISB now requires.

Title fees in the District of Columbia have steadily increased over the last couple years.Due to a higher number of title insurance claims, title insurance premiums significantly increased in 2009, Ewing said. Settlement fees increased in 2010 due to additional paperwork and liabilities imposed on lenders and settlement agents by the RESPA regulatory reform, he said.

The Title Insurance Producer Emergency Act of 2010, which passed in July 2010 and took effect January 1, placed title insurance producers and companies operating in DC under the regulation of DISB.

Federal Title upgraded its online closing cost quote tool to reflect the new requirements by DISB and will provide updates as new information regarding title insurance costs becomes available from DISB over the next few months