Top 10 Title Insurance Claims for DC (1-5)

Title insurance claims arise more often that you might think. Below is a list of the most common title insurance claims for the District of Columbia, compiled by Elisabeth Zajic, vice president and senior counsel for First American Title Insurance Company in D.C.

For further reading, the Underwriter Bulletins contain a wealth of information geared more toward the industry but still valuable for anyone who's planning to buy a home.

1. Fraud.

I. Uninsured recent no-consideration "gift deeds" to a family member may be forged or obtained through undue influence, enabling the grantee to sell or arrange for a cash-out refinance of the property and abscond with the cash value of the equity. Fraudulent intra-family conveyances represent a large percentage of claims in the District of Columbia.

II. Mortgage foreclosure "specialists" scout out properties for which a foreclosure notice has been filed but with a lot of equity, often titled in elderly persons. They offer to "save" the home and end up taking a deed to the property.

III. Flip transactions, both legal and illegal, remain extremely popular in D.C. Remember that even if your flip transaction is not otherwise fraudulent, there must be full disclosure to all parties of all pertinent details of the transaction.

IV. When a property is acquired without purchase money financing and the new owner subsequently refinances, taking out the cash value of the equity in the property, pay special attention. This is unusual and the refi frequently follows a deed which was forged or fraudulently obtained.

V. Don't forget the basics. Compare the signatures on your documents against signatures of record and on ID. Give careful scrutiny to powers of attorney and be sure to verify the signature of the principal. Don't blindly assume that all notarized documents are valid.

VI. Trust your instincts. If the deal doesn't "feel" right, it probably isn't.

2. Recording. The failure to record promptly is a major cause of claims.

3. Real Property Taxes. In ascertaining tax status for a D.C. closing, you should proceed as follows:

I. In addition to ordering a tax certificate, you should now check the D.C. Tax Rates and Revenues website for every closing, and document your file with printed copies of the account information. The site information for receivables is updated regularly, with effective dates displayed. Your last check of the site should be done just before closing.
II. The date shown on non-real property tax receivables is particularly important because the Office of Tax and Revenue (OTR) has reached an agreement with the D.C. departments and agencies generating these receivables whereby, unless the liens are either recorded or posted on the website prior to transfer of the property, they will be unenforceable against a bona fide purchaser and will become a personal liability of the seller instead of a real property lien.

III. Order tax certificates. Although the website is a great resource, it does not, at present, create a legal estoppel as to unreported taxes and assessments, as does the tax certificate. The turn-around time for tax certificates is very good at present.

IV. Investigate charges or assessments incurred by previous owners before paying them. OTR is presently seeking to collect a number of previously unbilled tax and assessment liabilities, including, but not limited to, vacant and abandoned property liens, homestead audit liens and Clean City liens. If the taxes were previously unbilled and the property has transferred to a bona fide purchaser, OTR will not enforce the liabilities against the present owner. Instead, the tax will become a personal liability of the former owner responsible for the delinquency, and OTR will provide you with a corrected bill waiving charges.

4. WASA. Claims on D.C. Water and Sewer Authority liabilities have risen dramatically in recent years. One reason for this unfortunate trend is the WASA procedure, which dictates that a new account be established for any given property each time that a final bill is requested. The new account will be opened regardless of whether the old account(s) are paid or not.

I. When handing a sale, order a final bill from WASA. Do not rely on verbal information given to you by WASA. Expect a written response in five business days or more.

II. Never rely on WASA receivables posted on the tax website. The website will show lien amounts only, not account balances. Even the lien amounts cannot be used as payoff figures, as they do not include current penalty and interest charges.

III. Do not rely on a D.C. Tax Certificate for WASA receivables. WASA does not recognize any legal estoppel for water and sewer service charges. Because of problems in this regard, WASA charges will henceforth be specifically excepted to in Tax Certificates.

IV. In the event that a WASA lien has been filed at the Office of the Recorder of Deeds, order a separate payoff statement for the WASA lien. Do not assume that the lien payoff amount will be included in the WASA response to your request for a final bill.

V. WASA must also be contacted for lien payoff balances.

More Info: Water & Sewer Authority Charges

5. Tenants first right of purchase under TOPA. The Tenant Opportunity to Purchase Act gives a tenant or tenants' association a first right of purchase in connection with any sale of residential real property.

Generally, title insurance protects against loss arising from real property interests, constructive notice of which is imparted through recording. TOPA rights are not a matter of record, and traditionally, title insurance would not provide protection against loss or damage arising from the their exercise.

However, under TOPA, a tenant or tenant organization claiming non-compliance with the Act will seek to set aside the transaction. If they are successful, the result will be a total failure of the title. Purchasers and lenders look to the title insurance industry for protection from this risk, and we have endeavored to meet this need, on a "special risk" basis only.

More Info: Under TOPA – A New Law and Underwriting Guidelines
More Info: D.C. Tenant's First Right of Purchase under TOPA

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Top 10 Title Insurance Claims for DC (6-10)

Title insurance claims arise more often that you might think. Below is a list of the most common title insurance claims for the District of Columbia, compiled by Elisabeth Zajic, vice president and senior counsel for First American Title Insurance Company in D.C.

For further reading, the Underwriter Bulletins contain a wealth of information geared more toward the industry but still valuable for anyone who's planning to buy a home.

View the Top 5 >>>

6. Mortgagors holding over after foreclosure. A claim will almost invariably arise when title derives from foreclosure and the mortgagor (borrower) whose property interest was extinguished in the foreclosure sale remains in possession of the property. The claim is precipitated when the successful bidder at the foreclosure sale seeks to evict the former owner/mortgagor in an action for possession, who will respond with a plea of title seeking to invalidate the foreclosure sale. The plea of title gives rise to a duty of defense and indemnification to the foreclosure sale buyer who purchased an owner's title insurance policy.

Because of the near certainty of litigation giving rise to a duty of defense under the title policy issued, First American Title Insurance will not insure title out of foreclosure when the mortgagor remains in possession of the property. Foreclosure requirements listed in your commitment for title insurance should be amended as follows:

I. Recording of Notice of Foreclosure in the Office of the Recorder of Deeds for the District of Columbia pursuant to which captioned property is sold to the proposed insured.

II. Proof of mailing of the notice by certified mail with return receipt to the record owner, complying with the District of Columbia Code and the terms of the Deed of Trust relating to notice of sale.

III. Proof of Publication of Notice in the Washington Post of other English language newspaper with general circulation in the District of Columbia. The proof also must establish that the notice was published five times within a 10-day period.

IV. Certificate of Sale and Auctioneer's Report

V. True copy of Deed of Trust note.

VI. Copy of Affidavit in compliance with Soldier's and Sailor's Civil Relief Act of 1940.

VII. Proof of notice of the sale to all junior lienholders known or of record.

VIII. Proof that possession of the premises has been surrendered to the insured owner/or assigns.

More info: Mortgagors Holding over after Foreclosure

7. Survey issues. A surprising number of claims in D.C. are caused by survey issues. They frequently involve bitter disputes between neighbors, resulting in lengthy and expensive litigation.

In D.C. survey coverage is not given to owners based on a house location survey except with special approval. When a house location survey is provided for closing, the general survey exception should remain in the owner's policy, including Eagle policy. You should read the plat into the owner's policy as well as the loan policy, taking specific exception to matters adverse to title shown on the plat. The survey should be reviewed with the buyer(s) by the settlement officer, who should point out those survey matters which exception is taken. The buyers should sign off on a copy of the plat to be maintained in the settlement file.

8. Disclosure issues. Recently, there has been a surge of litigation stemming from claims of breach of the duty of reasonable care by settlement attorneys who fail to advise purchasers of real property of the title consequences of certain matters of record. Various types of historic preservation easements given by prior owners of record have proven to be particularly problematic. These are not title insurance claims, but claims of negligence on the part of settlement attorneys.

Without going into lengthy discussion of the duty of care of a settlement attorney or settlement company, all of you should be sensitive to directing attention to matters of record which will affect the use and enjoyment of the property by the new owners, such as survey matters, easement issues and restrictive covenants. If possible, it is a good idea to send a copy of the title insurance commitment and survey to the buyers in advance of closing.

If, for whatever reason, you are not providing title insurance coverage for matters which a buyer could reasonably expect such coverage, you must disclose that fact and get a written waiver of coverage. These matters could include TOPA rights, mortgagors holding over after foreclosure, title to parking spaces, easement rights, pending litigation and unpaid taxes and assessments, although this list is by no means comprehensive.

9. Parking space claims. We have dozens of them!

For example, a parking space is listed in the contract but overlooked in the title order and neither conveyed nor insured. If the contract references parking, we have a claim even if the space is not included in the legal description in the policy.

OR – limited common element parking spaces are not properly assigned by amendment to the condo docs and the appropriate exception is not taken in the policy.

OR – the A & T number for the parking space is not included in the FP-7C and the tax bills continue to go to the prior owner, who does not, of course, pay the bills or forward them. The parking space is then sold at tax sale, and we have a claim.

*Pay attention to parking spaces! In many areas of D.C. they are now worth a small fortune!

10. Eagle policy schedule of caps and deductibles. Don't forget to include it when issuing Eagle policies! If the schedule of limitation of liability is not included with the policy, the argument can be made that there is no limitation on liability, thereby drastically increasing the potential amount of coverage for certain risks.

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New RESPA Rule FAQs - Good Faith Estimates

1) Q: What happens if a GFE is not provided to a borrower?

A: In a transaction involving a federally related mortgage, the loan originator is required to provide a GFE to the borrower. Failure to provide a GFE as required is a violation of Section 5 of RESPA.

2) Q: When will the use of the new GFE and HUD-1 forms be required?
A: The new GFE and HUD-1 forms must be used as of January 1, 2010. The new GFE and HUD-1 forms may be used before this date. Please note that if a loan originator issues a GFE on the new form, then the settlement agent must use the new HUD-1 form and the tolerances and other requirements in the revised RESPA regulations will apply.

3) Q: If a GFE is issued on the old form prior to January 1, 2010, and the loan will close after January 1, 2010, which HUD-1 form is to be completed by the settlement agent?

A: If a GFE is issued on the old form prior to January 1, 2010, then the old HUD-1 form must be used even if closing will occur after January 1, 2010. For GFEs issued on the old form, the loan originator has the option to reissue the GFE (with the same terms and charges) on the new form, in which case the settlement agent must complete the new HUD-1 form.

4) Q: When does a loan originator have to issue a GFE?

A: A loan originator must issue a GFE no later than 3 business days after the loan originator receives an application or information sufficient to complete an application. Application is defined as the submission of a borrower‘s financial information in anticipation of a credit decision relating to a federally related mortgage loan, which shall include the following: (1) borrower‘s name, (2) borrower‘s monthly income; (3) borrower‘s social security number to obtain a credit report; (4) property address; (5) estimate of value of the property; (6) loan amount and (7) any other information deemed necessary by the loan originator.

5) Q: What is a loan originator?

A: "Loan originator" means a lender or a mortgage broker.

6) Q: What fees can a loan originator charge before issuing a GFE?

A: Prior to issuing a GFE, the loan originator may, at its option, collect a fee limited to the cost of a credit report.

7) Q: I am a mortgage broker. Can I provide the GFE?

A: Yes, a mortgage broker can provide the GFE, however the lender is ultimately responsible for ascertaining that the GFE was provided to the applicant.

8) Q: There are not enough lines on the GFE or the HUD-1 to show all of the charges that are appropriate for some of the categories. Where should these charges be listed?

A: Additional lines may be added to Blocks 3, 6 and 11 of the GFE. Additional lines may also be added to the HUD-1.

9) Q: Is a GFE a loan commitment?

A: No, the GFE is not a loan commitment. A GFE is an estimate of settlement charges a borrower is likely to incur to obtain a specific loan.

10) Q: At what point can a loan originator charge a loan applicant fees for services other than the cost of obtaining a credit report?

A: After a loan applicant both receives a GFE and indicates an intention to proceed with the loan covered by the GFE, the loan originator may collect fees beyond the cost of a credit report for origination-related services.

11) Q: If the borrower is taking out two loans to finance the purchase, how should the loan originator disclose the charges from each loan on the GFE and the HUD-1?

A: Each loan must have a separate GFE and a separate HUD-1. However, the principal amount of the second loan and a brief explanation of the second loan should be listed on Lines 204 – 209 of the HUD-1 for the first loan.

12) Q: What are processing and administrative services?

A: Processing and administrative services are those services required to perform the functions involved in title service and origination service. Processing and administrative services include, but are not limited to the following: document delivery, document preparation, copying, wiring, preparing endorsements, document handling and notarization.

*The preceding Q&A was originally published on the HUD website.

New RESPA Rule FAQs - HUD-1 Forms

1) Q: How are courier and overnight delivery fees shown on the HUD-1 Settlement Statement?

A: Courier and overnight delivery fees are considered to be fees for administrative or processing services. They are part of a primary service, such as the origination service or title service, and may not be separately itemized.

2) Q: Does voluntarily using the HUD-1 in a transaction that otherwise is not subject to RESPA result in RESPA applying to the transaction?

A: No, using the HUD-1 form does not subject a transaction to coverage under RESPA.

3) Q: Does "conducting a settlement" (from the definition of "title service") have the same meaning as "conducting the closing"?

A: Yes. The terms "conducting a settlement" and "conducting the closing" have the same meaning under HUD's RESPA regulations and are subject to identical requirements under the regulations.

4) Q: What if at closing the seller is paying for a settlement service that was listed on the GFE, such as the Owner‘s title insurance policy? How is this shown on the HUD-1?

A: If the seller is paying for a service that was on the GFE, such as Owner‘s title insurance, the charge remains in the borrower‘s column on the HUD-1. A credit from the seller to the borrower to offset the charge should be listed on the first page of the HUD-1 in Lines 204-209 and Lines 506-509 respectively.

5) Q: If there are additional government recording fees, such as to record a power of attorney or road maintenance agreement, are they included in Line 1201 of the HUD-1 or can they be charged separately?

A: Line 1201 is used to record the total government recording charges. Additional items the lender requires to be recorded, other than those already enumerated in Line 1202, must be itemized on Line 1206. The charges for these additional items must be stated outside the column.

6) Q: How do settlement agents get the information to prepare page 3 of the HUD-1? Do they have to search through all of the loan documents to get this information?

A: The lender is required to transmit the information necessary to complete the HUD-1. The instructions for completing the HUD-1 state that the lender must provide information to the settlement agent in a format that permits the settlement agent to simply enter the necessary information to complete the loan terms section on page 3 of the HUD-1 without having to refer to the loan documents.

7) Q: Is it a violation of the tolerance if some of the items in the 10% category in the Comparison Chart exceed 10%, but other items in the category do not exceed 10%?

A: The tolerance applies to the total of all charges shown in the category ―Charges That in Total Cannot Increase More Than 10%.‖ A tolerance violation of this category means that the total of all actual charges in this category exceed the total of all estimated charges in this category by more than 10%.

*The preceding Q&A was originally published on the HUD website.

New RESPA Rule FAQs - General Information

1) Q: When does the new RESPA Rule take effect?

A: The November 2008 RESPA Rule was effective January 16, 2009. Implementation of the provisions are as follows:


2) Q: When does the revised required use definition take effect?

A: The revised required use definition was withdrawn by a separate final rule published May 15, 2009.

3) Q: Can a loan originator e-mail a GFE to a borrower?

A: Yes; as long as the borrower consents and the other specific requirements for consumer disclosures under the Electronic Signatures in Global and National Commerce Act (ESIGN) are met, a loan originator may e-mail, fax, or send by other electronic means the GFE (and other RESPA disclosures, such as the HUD-1/1A). See section 101(c) of ESIGN, 15 U.S.C. 7001(c); also see 24 CFR 3500.23. The loan originator may also continue to deliver the GFE to the borrower by hand delivery or by placing it in the mail, as provided by RESPA.

4) Q: RESPA and HUD‘s RESPA regulations require that certain records be retained for a period of time. Can those records be retained electronically?

A: Yes, if the person responsible for retaining records under RESPA and HUD's RESPA regulations meets the specific requirements and limitations applicable to the retention of electronic documents set out in the Electronic Signatures in Global and National Commerce Act (ESIGN), that person's responsibility will be satisfied by the retention of electronic records. See sections 101(d) and (e) of ESIGN, 15 U.S.C. 7001(d) and (e); also see 24 CFR 3500.23.

5) Q: Can we translate the GFE and the HUD-1 into languages other than English?

A: Yes, it is permissible to translate the GFE and the HUD-1 as long as the form has been translated accurately.

*The preceding Q&A was originally published on the HUD website.