Garbage in, garbage out. It’s a common turn of phrase used by computer scientists, but it’s a principle that applies to anyone working with and analyzing information, including title professionals.
Deeds are recorded in the public record to show who owns a property along with other documents like mortgages or liens showing who might have an interest in the property. If a mistake is found on one of these chain of title documents, it creates a title defect or cloud that must be corrected before the property can be sold. Sometimes, the mistake isn’t found before the title is transferred, making title insurance a valuable commodity for lenders, real estate investors, and homebuyers.
In a podcast interview, Stewart Underwriting Counsel, Lindsay Hall Harrison, shares some of her tales from the underwriting desk illustrating how one small mistake can lead to a tangle of title issues that take time and money to unravel.
Here’s one of those stories and five tips to help title agents to avoid these title insurance disasters.
One mistake can jeopardize ownership rights
Imagine putting your condo on the market only to be told it isn’t yours to sell. In the tale of the “Error of the Transposed Digits Foreclosure,” the wrong condo unit went to the foreclosure auction and was sold to an unsuspecting third party. The physical address of the intended foreclosure was Unit 310, but Unit 301 was bought.
No one noticed a problem until the new owner tried to sell the condo. When reviewing the chain of title documents for the resale, someone noticed that the legal description referenced Unit 310, but the physical address was indeed 301. The mismatch was a red flag that needed further investigation. As underwriting counsel, Lindsay was brought in to help.
She checked the Declaration of the condominium association to confirm that both units existed. They did, so she took a deeper dive into how the numbers could have been switched in the legal description.
In most states, legal descriptions are what matters most in conveying title. Unlike an address, it’s a unique identifier that eliminates confusion about the exact boundaries of a property.
Commonly, you’ll find the legal description in two places on a recorded mortgage, as an Exhibit A attachment and written within the mortgage. According to Lindsay, the legal description within the mortgage would control over the one attached as Exhibit A.
In the condo’s mortgage, Exhibit A contained a typo with the transposed numbers while the legal description within the mortgage was correct. Two years later, when a mortgage reassignment and lis pendens were issued, the title searcher didn’t look thoroughly enough to catch the mistake. It appears that only Exhibit A was referenced, so foreclosure proceedings were executed on the wrong unit.
When I asked how this problem is resolved, she explains that she’s like a doctor who diagnoses the problem and sends the patient off to get care somewhere else. She submits a recommendation on how to fix the problem, but she doesn’t always know what the affected parties agree to do. In this case, the lender will likely refund the unsuspecting owner of the wrong condo and foreclose on the right property. There will probably be a lawsuit filed and many months of expensive legal interventions.
Top 5 Tips to Prevent Title Defects
Reliable land record systems build trust in the American dream of homeownership and preserve property values, but these systems aren’t perfect. Simple human errors recorded in the public record, title plants, and the mortgage electronic registration system (MERS) create the kind of confusion that can jeopardize a property owner’s title rights. Title companies and title insurance exist precisely for this reason.
As underwriting counsel, Lindsay sees some of the worst-case scenarios. Based on her experience, she gives title agents these tips:
- Trust your gut
- Double-check someone else’s work
- Don’t be afraid to phone a friend
- Trust but verify
1. Trust your gut
“You see a lot of things come through that don’t always feel right,” Lindsay explains as she looks back on her time as a title agent in the trenches of daily closings. “My number one tip is to trust your gut.”
Title examiners play an essential role in the title industry and real estate transactions. After the buyer and seller sign the contract, this professional is trained to spot red flags like mismatched legal descriptions and property addresses. They have to sift through a lot of information, make sure it lines up, and maintain organized files from beginning to post-closing.
Not only do title professionals have to guard the transaction from external threats like business email compromise and wire fraud, but they also have to worry about transactional fraud like forged lender documents from borrowers or internal fraud committed by an employee of a party to the transaction.
These may be rare, but ignoring any red flag could result in a title claim. If something feels off, don’t be afraid to investigate.
2. Double-check someone else’s work
“It doesn’t make you paranoid. It just makes you good at your job,” assures Lindsay. Often, less experienced employees at mortgage companies input the data into systems like MERS and on the chain of title documents like mortgages and mortgage reassignments.
With high volumes of paperwork, it’s easy to understand how Unit 301 becomes 310 on one document, triggering a new chain of misinformation and resulting in a foreclosure blunder.
Some think the future of land records lies in blockchain technology, which purports to eliminate these mistakes from the record completely. But until the technology of a single source of truth with accurate and indelible information is built, title agents must rely on best practices, their gut, and their peers to authenticate property information.
3. Don’t be afraid to phone a friend
Your underwriting counsel is only a phone call away. “No question is stupid, and if you’re asking me, it’s better to ask than to go forward and do it yourself and question it after the fact,” advises Lindsay.
Title searches are only one part of the job. The amount of data, people, and expectations that title professionals deal with can be overwhelming. Real estate agents are waiting for the clear to close to quickly get their clients to the closing table. Lenders are expecting seamless transfer of data from their loan origination systems to the title company’s software. Regulators are concerned with how non-public personal information and funds are handled during the transaction.
This is not a job you have to do by yourself. Lindsay encourages title agents to “reach out to your friendly neighborhood underwriter.”
4. Trust but verify
When you receive information from a new source, trust but verify. The best defense against title claims is to remain vigilant even when no red flags surface.
In one example from the team at Southern Title, a seller dubbed “Shaggy” claimed “it wasn’t me” when a judgment surfaced in the public record for unpaid rent. The closer obtained additional documents from a notary showing Shaggy’s birth date and name, confirming that the judgment was recorded against the correct individual. A payoff from the attorney assigned to the judgment is ordered. During a phone call about the payoff, Shaggy became combative, refused to cooperate, and even threatened to sue the title company.
After reaching out to their underwriter for help, Shaggy is persuaded to come clean and pay off the lien to complete the closing.
During our 2021 State of the Title Industry Roundtable with Lindsay and other experts in the industry, we asked our audience how increased workloads have affected them. 45% said they had experienced burnout in 2021, and 16% hadn’t had time to even think about it.
It’s not easy to find time for yourself during such a hectic real estate market. Still, it’s vital to check in with yourself in order to keep providing the best service possible. Managing the frustration of real estate agents, lenders, and consumers is daunting, so Lindsay reminds agents to breathe.
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