Claims And Issues

Green Tree Servicing Survives Motion to Dismiss ... As A PLAINTIFF.

In Green Tree Servicing, LLC v. Chicago Title Ins. Co., 499 S.W.3d 771 (Mo. Ct. App. 2016), the Missouri Court of Appeals held that determination of whether an insured provided notice to a title insurance carrier of its claim for coverage within a reasonable time was a fact issue that could not be resolved on a motion to dismiss.

Green Tree Servicing sued as the assignee of the insured's claims for breach of contract and vexatious refusal to pay, which Green Tree alleged in its complaint against a title insurance company.  Green Tree Servicing, LLC v. Chicago Title Ins. Co., 499 S.W.3d 771, 777 (Mo. Ct. App. 2016).

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COLUMBUS DAY MYSTERY: TITLE INSURANCE COVERAGE EXPLAINED.

          The Appellate Division of the Superior Court of New Jersey has confronted title insurance in a recent decision in the case of Princeton South Investors, LLC v. First American Title Insurance Co., 437 N.J. Super. 283, 97 A.3d 1190 (N.J. Super. Ct. App. Div. 2014).

          As explained by the Appellate Division following decided case law on the subject from across the nation, title insurance is the same as other insurance only different.  The cases do not say it, but title insurance actually operates prospectively, looking toward future losses.  In the case of title insurance, the future loss is "[a]ny defect in or lien or encumbrance on the Title."  The typical title insurance policy protects the policyholder from "Covered Risks" and states certain exclusions in providing its coverage.

          In general terms, title insurance is an insurance contract which protects a landowner-policyholder against loss caused by defective title.  "Title insurance protects a buyer against the risk of defects that exist at the time the policy is purchased, but not against the risk of defects that may arise in the future."  Princeton South Investors, LLC v. First American Title Ins. Co., 437 N.J. Super. 283, 287, 97 A.3d 1190, 1192 (N.J. Super. Ct. App. Div. 2014).  So, title insurance provides coverage against the risk of future loss due to a title defect based on current events in basic terms; it does not provide coverage against future events which may result in title defects.  The current events at the time that the title insurance policy is issued have already taken place, but they have not caused a loss yet; the loss due to a title defect has not taken place yet.  To illustrate, the property may not be sold this year, or in this decade, or ever.  There is no "title defect" in existence now and so there is nothing to insure against -- yet.  But what will be insured against is future loss due to a title defect, not future events.

          The present case presented this issue clearly.  It is a case involving the potential assessment of taxes on some future date.  "Here, there were no delinquent taxes at the time First American issued the policy, and any potential taxes that might have arisen in the future, following a successful tax appeal, had not yet been 'assessed.'"  Princeton South Investors, LLC v. First American Title Ins. Co., 437 N.J. Super. 283,  288, 97 A.3d 1190, 1193 (N.J. Super. Ct. App. Div. 2014).

          Therefore, in this case there was no coverage, the Appellate Division panel held.  First, the insuring agreement in the policy did not extend coverage.  The title policy at bar included a list of stated risks which could cause loss qualifying as "Covered Risk" under the policy.  "Those stated risks include unpaid taxes that were due and payable, but unpaid, at the time the policy took effect ...."  Princeton South Investors, LLC v. First American Title Ins. Co., 437 N.J. Super. 283, 291, 97 A.3d 1190, 1194 (N.J. Super. Ct. App. Div. 2014).

          Consistent with its coverage grant in the insuring agreement, the title insurance policy involved in this case also contained several exclusions from coverage which would apply here.  Princeton South Investors, LLC v. First American Title Ins. Co., 437 N.J. Super. 283, 292, 97 A.3d 1190, 1195 (N.J. Super. Ct. App. Div. 2014).  Once the Court determined that there was no coverage because there was, well, no coverage, its task was completed at its first step of course.

          Yet one thing more to mention, in the spirit of the Appellate Division in this decision.  The party claiming coverage from the title insurer is a foreclosure sale purchaser.  Perhaps it is enough that the purchaser received a certain discount at the foreclosure sale.  Throwing insurance coverage into the investment is overreaching, even for a hedge fund.

Please Read The Disclaimer.  © 2014 by Dennis J. Wall.  All rights reserved.  No claim to Original New Jersey Government Works.

SAY IT AIN'T SO, SHEILA: THE FDIC'S SECRET SETTLEMENTS.

          I am currently reading with interest Sheila C. Bair's book, "Bull By The Horns".  It is a description of the time spent in office by the Federal Deposit and Insurance Corporation's former Chairman, written by the Chairman herself to describe her office.  During her tenure, which ended on or about July 6, 2009, much of the Financial Crisis exploded on our economy.

           While I am reading Ms. Bair's account of her tenure, reports have surfaced concerning secret FDIC settlements made on her watch with Directors and Officers who allegedly caused or contributed to the cause of the Great Financial Fiasco.  In apparent violation of Federal law, the FDIC agreed to keep the settlements secret unless a specific request was made for disclosure of that particular settlement.  See, e.g.,  E. Scott Reckard, "FDIC Begins to Reveal Settlements Related to Financial Crisis" (Los Angeles Times Online, posted March 19, 2013); William K. Black, "Business Blog / Which Aspect of the FDIC's Litigation Failures is The Most Embarrassing and Damaging?" (Huffington Post, posted March 12, 2013).  Reportedly, Ms. Bair was leading the FDIC "when most of the settlements were completed".  See Scott Reckard, Los Angeles Times, supra.

           Sheila Bair does not mention the fact of FDIC settlements with Directors and Officers of failed banks in her book, let alone that the FDIC agreed to keep them secret, or at least I cannot find any mention of them in her book.  We shall now, perhaps, all hear her side of the story soon.

           In response to a recently published newspaper report in the Los Angeles Times, the FDIC has begun posting information concerning its previously secret settlements on its web site.  The documents will be posted in increments.  As of March 29, 2013, the initial postings consist of  about 45 sets of documents (not simply individual settlements, but in some cases, groups of settlements).  They are collectively labeled by the FDIC as "Professional Liability Agreements by State Since 2008".  The FDIC site also contains a list of 53 "Professional Liability Lawsuits" filed by the FDIC against "officers and directors, attorneys, accountants, appraisers, brokers or others" and "fidelity bond carriers and title insurance companies," between July 2, 2010 and March 7, 2013.

           Examining the 45 pdf's posted to date will take awhile.  If I find anything 'newsworthy' in them, I will post my reviews of these settlement documents as I am able to complete my reviews.  In the meantime, the settlement which has attracted the most popular interest at the present time is the December, 2012 settlement between the FDIC and Michael Perry, who was CEO of failed IndyMac Bank located in California.  IndyMac's failure "cost the [FDIC] $13 billion -- the biggest loss in its 80-year history."  Scott Reckard, Los Angeles Times, supra.  [Emphasis added.]

           The FDIC reportedly secretly settled its claims against Mr. Perry for his agreement to personally pay $1 Million, plus an agreement by Mr. Perry not to engage in the banking industry (for awhile, at least) and also with provisions guaranteeing the FDIC's pursuit of IndyMac's "liability insurers" for $11 Million more.  Professor William K. Black, Huffington Post, supra.

           The Perry settlement was so good that it was announced in EMails sent to news organizations -- reportedly by Mr. Perry's lawyers, not by the FDIC.  The terms of this particular settlement were therefore public knowledge in December, 2012 when the settlement was reached between Mr. Perry and the FDIC.  See Kevin LaCroix, "IndyMac CEO Settles FDIC's Failed Bank Suit" (The D & O Diary, posted December 17, 2012).   

           In contrast, one alleged seller and/or deliverer of Mortgages to IndyMac Bank, Quicken, agreed to pay 6.5 times as much money, or $6.5 Million, to settle the FDIC's claims against it, and "[w]ithout admitting liability".  (See the 65th page in the 230 page pdf labeled, "IndyMac2", among the FDIC's "Professional Liability Settlement Agreements by State Since 2008".)

           On the whole, it seems less expensive to be a failed CEO than it does to be a failed Mortgage 'seller and/or deliverer'.  On the whole, as well, there are many legal entanglements with secret settlements that make these agreements unwise, and the price of keeping them secret exorbitant.  This is a good rule of thumb to follow when making all types of insurance settlements, it seems:  As a general rule at least, keep them open and transparent.  See generally DENNIS J. WALL, 1 LITIGATION AND PREVENTION OF INSURER BAD FAITH § 3:107, "Settlement of Third Party Bad Faith Claims:  Confidentiality (protected) or Concealment (Void)" (West Third Edition; 2013 Supplement in process); 2 id. § 9:28, "Settlement of First Party Bad Faith Claims:  Confidentiality (Protected) or Concealment (Void)".    

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Mortgage Foreclosure Fraud ... Again?

   The Fix is almost in.  Maybe.

   As these words are written, the 2012 State of the Union Address has not yet been given.  2012 is also an election year for the President, of course.

   Obama Administration officials, chiefly the Secretary of Housing and Urban Development, are reportedly engaged in pressuring State Attorneys General to release Mortgage Servicers not only from fraud claims or causes of action based on their conduct as Mortgage Servicers, but also from all their liability to all civil claims based on their conduct in lending and securing Mortgages in the first place including subprime Mortgage lending.  See Nelson D. Schwartz and Shaila Dewan, "Political Push Moves a Deal On Mortgages Inches Closer" p. B1, col. 5 (New York Times Nat'l ed., "Business Day" Section, Tuesday, January 24, 2012) .

   The current Banks a/k/a Mortgage Servicers involved in these talks include:

1. Bank of America;
2. Citigroup;
3. JPMorgan Chase;
4. Wells Fargo; and
5. Ally Financial.

The current payment configuration would be for an average payment of "about $20,000" to "[a]bout one million homeowners".  There are 8 million Homeowners currently in Foreclosure.  Id.

   In addition, there are 11 million Homeowners whose home value exceeds the Mortgaged amount.  On average, they alone owe two to two-and-one-half times the average amount payable to 1/19 of all the Homeowners in question.  See id.  Even with that average amount of $20,000.00 which would be paid by the Banks-Mortgage Servicers, in other words, eleven million more Homeowners are still subject to Foreclosure if this deal is accepted, leaving a total of 19 MILLION Homeowners still subject to Foreclosure.

   Some deal.  But that is not all.

   The "average amount" payable by the Banks-Mortgage Servicers fluctuates depending on how many States agree to release the Banks-Mortgage Servicers from unknown liabilities.  It may be less.

   In any event, at this time, the Attorneys General of California, Massachusetts, Nevada, and New York, among other States, are having none of it.  The Homeowners and all citizens of their States are fortunate to have them on the job.

Please Read The Disclaimer.

Silence on the Mortgage Fraud Settlement Front, For Now.

This updates posts here and on Insurance Claims Bad Faith Law Blog addressing why and how the Attorney Generals of California, Massachusetts and Nevada, among other jurisdictions, have all rejected the idea of engaging in settlement talks over uninvestigated, unknown liabilities of Mortgage Servicers and their Banks as a part of settlement negotiations over established fraudulent Mortgage lending and servicing practices.

   Talks led by the Iowa Attorney General, with assistance and a push from the Obama Administration, apparently continue with Mortgage Servicers and Lenders to settle potential claims over their Mortgage servicing and lending practices.  The talks apparently continue even without the California Attorney General, and without the approval of Attorneys General from other jurisdictions including Massachusetts and Nevada:

Why strike a deal -- one that would, say, shield banks from new litigation over toxic loans, flawed securitizations and the mess at MERS, the registry that has made such a jumble of land records -- without knowing what happened?

Gretchen Morgenson, "Fair Game / From East And West, Foreclosure Horror Stories" p. 1, col. 1 (New York Times Online, "SundayBusiness" Section, Sunday, January 8, 2012).

   Why, indeed?

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Title Insurance Coverage for Access to Lake Michigan.

   Title Insurance Policy Exceptions were at issue in Plastow v. Lawyers Title Insurance Corp., 2011 WL 6370570 (W.D. Mich. December 20, 2011), Download Plastow v. Lawyers Title Insurance Corp. (W.D. Mich. Case No. 1.10cv703, Opinion Filed December 20, 2011) PUBLIC ACCESS.  The Federal District Judge applied the law which is generally applicable to interpreting Insurance Policies, and held in favor of Coverage under the Title Insurance Policy at bar.

   Mr. and Mrs. Plastow owned property with access to Lake Michigan since 1980.  At first, they built a summer cottage on the Property, which they used until 2006.  In 2006, they began using the Property as their primary residence and in 2007 they completed construction and took occupancy of a new house on the Property.  Id. at *2.  Back when they bought the Property in the first place -- the Title Insurance Policy at issue bears a "'Date of Policy'" of December 18, 1979 -- the Plastows bought Title Insurance from the Defendant, Lawyers Title.  Id. at *1.  As is usual and ordinary, this particular Title Insurance Policy contained certain stated "exceptions" to Coverage.  Id. at *2.

   Over time, local inhabitants of a subdivision called Timberlane Terrace used the beach which the Plastows thought they owned exclusively.  In 2008, one of the Timberlane Terrace property owners wrote the Plastows a letter asserting rights to use the beach.  The Plastows sent this letter to the Title Insurance Company and demanded both a defense and indemnity.  Defendant acknowledged receipt of the information but stated no position on Insurance Coverage.  Id. at *3.  Making a long story short, so to speak, some Timberlane Terrace property owners retained an attorney who sent the Plastows a letter.  Thereafter, the Plastows sued all 87 Temple Terrace property owners asserting exclusive rights to the beach on Lake Michigan.  Twenty-five of the defendants from Temple Terrace counterclaimed against Mr. and Mrs. Plastow, who again put the Title Insurance Company on notice.  Once again the Plastows demanded a defense and indemnity.  This time, the Title Insurance Company denied all Coverage, not because the claims from Temple Terrace were not covered in the first place, but because of two of the exceptions in this Title Insurance Policy.  Id. at *5.

   In an interesting application of Insurance Policy rules of interpretation, the Federal Court treated the exceptions as Exclusions are treated under Michigan Insurance Law:  These Title Insurance Policy exceptions were not "clear or specific" and Exclusions which are not clearly and specifically stated raise doubts about their application which, under Michigan law, are to be resolved in favor of the Policyholders.  Accordingly, in this case the Federal Court declared "as a matter of law" that neither exception applied to exclude the Defendant's Duty to Defend or its Duty to Indemnify, and held that the Plastows' Motion for Partial Summary Judgment should be granted accordingly, and further held that the Defendant was guilty of a Breach of Contract.  Id. at *9 - *11.  The Federal Judge concisely summarized her holding in this case as follows, as the Court entered Judgment for the Plastows:

     In sum, the claims asserted against Plaintiffs by the Timberlane Terrace property owners were covered by the general terms of the Policy, and the coverage was not negated by the coverage exceptions on which Defendant relies.

Id. at *10.

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Reconsideration Motion Okay When Reasonable Expectations Doctrine Was Arguably Misapplied.

   In Dare Investments, LLC v. Chicago Title Insurance Co., 2011 WL 5513196 (D.N.J. November 10, 2011) Download Dare Investments, LLC v. Chicago Title Insurance Co. (D.N.J. Case No. 10.6088, Order Filed November 10, 2011) PUBLIC ACCESS, STATED NOT FOR PUBLICATION Download And Opinion Filed of even date (November 10, 2011) ALSO PUBLIC ACCESS, the Federal Court held that a Motion for Reconsideration was correctly filed and argued, because it was based on an arguable misapplication of law by the Court the first time.

   The legal doctrine applied in that case is the Doctrine of Reasonable Expectations for Insurance Coverage in New Jersey.

   The Federal Court in that case also held, however, that it was right the first time.  The Motion for Reconsideration was denied.

 

   The author will co-present "Disasters in Insurance:  The Sequel" on Friday, November 18, 2011 live from Noon to 1:00 PM ET via the West Legal Education Center website.  Thereafter the Webinar will be available on demand, 24/7, on the website.  Here is a handy link to the prequel Webinar broadcast live on October 21, 2011:  http://westlegaledcenter.com/program_guide/course_detail.jsf?courseId=41335829

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California Title Insurance First-Party Coverage: ...

,,, Held:  Not for Perfect Title, No Estoppel.

   In Dollinger Deanza Assoc's v. Chicago Title Insurance Co., 2011 WL 405915 *7-*8 (Cal. 6th DCA September 9, 2011),  Download Dollinger Deanza Associates v. Chicago Title Insurance Co. (Cal. 6th DCA Case No. H035576, Opinion Filed Sept. 9, 2011) PUBLIC ACCESS, NOT OFFICIALLY PUBLISHED IN CALIFORNIA, the California Sixth District Court of Appeal held that Title Insurance is not issued in California for perfect Title but for Indemnity vs. a defect in Title.

   Further, there is no exception that applies to Title Insurance Companies from the rule that Insurance Coverage cannot be made to exist by Estoppel or Waiver.  Title Insurance is a First-Party Coverage and there is no exception to the general rule for Title Insurance, the California Appellate Court held.  Id. at *14-*15.

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Title Insurance Lawyer's Legal Conclusions Not Admissible Expert Opinions.

   In an opinion nearly as long as the Texas Panhandle, a Federal Magistrate Judge in Texas held that a Title Insurance Lawyer could not testify to legal conclusions, not even as an Expert Witness offering 'Opinion' testimony.  Fidelity Nat'l Title Insurance Co. v. Doubletree Ptrs., L.P., 2011 WL 4715174 *6-*7 (E.D. Tex. October 5, 2011), Download Fidelity Nat'l Title Insurance Co. v. Doubletree Ptrs., L.P. (E.D. Tex. Case No. 4.08 CV 243, Memorandum Opinion and Order Filed October 5, 2011) PUBLIC ACCESS.  This holding is consistent with the overwhelming majority, perhaps universal view, that an Expert Witness is not permitted to testify to legal conclusions.

   Another consistent holding in this case came after a finding (or holding) of no Insurance Coverage.  Under Texas law, there could be no actionable breach of the implied Duty of Good Faith and Fair Dealing without a breach of the Insurance Contract.  Id. at *18.

Please Read The Disclaimer. 

Title Insurance Companies Are Also Damaged by Mortgage Fraud.

 

   One Larry Levi, the assignee of a note and mortgage, purchased what the Federal Court sometimes called "a mortgage title insurance policy" in Levi v. Commonwealth Land Title Insurance Co., 2011 WL 4542904 (S.D.N.Y. September 30, 2011):  Download Levi v. Commonwealth Land Title Ins. Co. (S.D.N.Y. Case No. 09 Civ 8012, Opinion and Order Filed Sept. 30, 2011) PUBLIC ACCESS.   By whatever name, the Court was interpreting and applying a Title Insurance Policy in that case.

   Mr. Levi's claim was for breach of contract.  The New York Federal Court applied New York law.  The Court held that Mr. Levi adequately proved his covered claim.  It granted his Motion for Summary Judgment.  Id. at *3-*5.  He adequately proved that the mortgage he was assigned was a fraud.

   The Federal Court's compilation of recoverable Damages in this case was significant.  First, the Court held in accordance with universal law (including New York's) that "[a] title insurer must indemnify the insured for the actual loss, within the policy limit, stemming from the defect in the mortgage."  Id. at *6.

   Here, Mr. Levi was "a holder of a junior lien," and his recoverable loss would be his actual loss of "the lesser of 1) the unpaid principal on the mortgage debt and 2) the mortgagor's equity in the property, i.e., Levi's recovery if he had been able to foreclose."  Id. The Court in this case determined that Mr. Levi's actual loss, and thus his recoverable loss from his Title Insurance Company, was $1,000,000.00 or $1Million, "a point Commonwealth does not contest" -- and an amount which happened to be the Policy Limit on his Title Insurance Policy.  Id.

   Second, the Federal Court determined that Mr. Levi was entitled to Prejudgment Interest under New York law.  Prejudgment Interest accrues in New York from the earliest date on which the cause of action or claim could be ascertained.  In this case, the "starting point for prejudgment interest" would be the date when "the insured's cause of action accrues when it suffers an actual loss as a result of the defect in his lien."  Id. at *6-*7.

   Third and finally, the Federal Court rejected Mr. Levi's claim to attorney's fees, under Federal law.  "Commonwealth has not 'acted in bad faith, vexatiously, wantonly, or for oppressive reasons' and therefore a discretionary award of attorney's fees is not warranted."  Id. at *7.

   The implication of this and many other decisions which follow established principles of Insurance law, on Mortgage and Title Insurance Companies' exposure from fraudulent mortgages in the Great Credit Collapse through which we are all now living, is very clear:  The Collapse may also be the cause of the collapse of many as yet unknown Insurance Companies, which will undoubtedly file third-party or direct claims of their own against the persons responsible for the losses resulting from mortgage fraud.

   The 22nd Annual Bad Faith Litigation Conference of the American Conference Institute is being held in 2011 in Orlando, Florida.  The author will be speaking.  Here is a link to the American Conference Institute Website Page which features this Conference including registration. If you or someone you know would like to attend, the ACI is offering a discount to the readers of this weblog.  If you would like to explore the ACI discount offer, contact:

Marc Gerstein
Delegate Coordinator
Office: 1-212-352-3220  x5432

[email protected]

 

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When Facts Destroyed Title Insurance Defense For Unpaid Liens.

   A recent decision illustrates the holdings reached by some Courts that where there is no Duty to Indemnify, there cannot be any Duty to Defend either.  The case of Home Federal Savings Bank v. Ticor Title Insurance Co., 2011 WL 4479080 (S.D. Ind. September 27, 2011) involved an unpaid Lien of 6 Million Dollars.  The Policyholder of a Title Insurance Company was the party which allegedly had a duty to pay the lien, which was perfected through the forum State's Mechanic's Lien Law.  Id. at *3. 

   Ordinarily, a Title Insurance Policy will exclude liabilities arising from Mechanic's Liens.  So did the Policy at issue in this case.  Id. at *2.  However, the Policyholder, Home Federal, protected its financing on the particular commercial construction project at issue in this case, by purchasing "a mechanic's lien endorsement," reprinted below for convenience.

   Home Federal brought the present lawsuit against Ticor Title on three alleged Claims, including an alleged breach of the Duty to Defend, an alleged breach of the Duty to Indemnify, and alleged Bad Faith.  The parties both filed Motions for Summary Judgment "specifically addressed to the duty to defend and the duty to indemnify."  Id. at *4.

   The Federal Judge in this case first looked at the issue of whether there was a Duty to Indemnify under the undisputed facts.  The Court determined that there was none, and that ruling otherwise would provide Home Federal with a '$6 Million windfall,' in the Court's words, for not paying the lien in question.  See id. at *5 - *6.

   Then the Federal Judge addressed the question of whether a Duty to Defend existed.  Ordinarily, the existence of a Duty to Defend is determined by comparing the underlying allegations against the Insured, with the provisions of the Policy at issue.  Here, once the Federal Court determined the separate issue of no Duty to Indemnify based on the undisputed record facts, the Court determined in one sentence that Ticor Title therefore "necessarily had no duty to indemnify Home Federal either."   Id. at *6.

   Two rulings of consequence are inherent in this one holding.  First, it bears repeating that the Court's decision in this case is not unique.  There are many decisions in which Courts have determined that once there is no Duty to Indemnify, there is no Duty to Defend either.  In doing so, however, they seem to ignore the distinction between determining the existence of a Duty to Indemnify based upon the actual facts, versus the ordinarily separate question of determining the existence of a Duty to Defend based upon the underlying allegations compared with the Policy provisions at issue.  In this particular case, the Court's holdings seem to have been totally correct for the parties involved.  The result, however, is less interesting to an outsider than the way in which the Court got there.

   Second, the Federal Court in this case took a holding generated in standard-form Liability Insurance Policy Declaratory Judgment Actions, namely, in DJA's involving Commercial General Liability Insurance Policies with standard, widely used forms and endorsements, and without discussion applied that holding -- where there is no Duty to Indemnify, there cannot be a Duty to Defend -- to this case involving a Title Insurance Policy, which has its own unique Policy provisions and which may or may not be based on standard, widely used Forms and Endorsements.

   Here, before closing, is the Mechanic's Lien Endorsement under which Home Federal argued for Coverage from Ticor Title in this case:

 Anything contained in said policy to the contrary notwithstanding, the Company insures against loss or damage incurred by the insured by reason of the enforcement or attempted enforcement of any statutory lien for labor or material arising from construction contracted for and/or commenced on the land prior to, at, or subsequent to the effective date of said policy, and any extension of said date, as having priority over, or sharing on a parity with, the lien of the insured mortgage for that portion of the proceeds of the loan secured thereby advanced for the purpose of paying the costs of the acquisition of the land and the development of and the construction of improvements on the land, including by [sic] not limited to the cost of labor or materials incurred in connection therewith. At the time of each disbursement of the proceeds of the loan, the title must be searched by Royal Title Services, Inc., down to such time, for possible liens or objections intervening between the date hereof and the date of such disbursement.

This endorsement is made a part of the policy or commitment and is subject to all the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly stated, it neither modifies any of the terms and provision of the policy or commitment and prior endorsements, if any nor does it extend the effective date of the policy or commitment and prior endorsements or increase the face amount thereof.

 

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Title Insurance Company Breaches Contract in California: ...

FDIC Sues For Alleged Nondisclosure, Summary Judgment Granted.

    An "escrow officer" of First American Title Insurance Company became the "closing agent" for IndyMac Bank in California.  IndyMac lent money to one Steven Darling for the purchase of "a single family home".  IndyMac provided certain Closing Instructions to First American Title in connection with the purchase, to which FAT put its corporate name.

   Among the Closing Instructions to which FAT subscribed, was one which "required First American Title to inform IndyMac if its escrow agent knew of a transaction involving the same borrower taking place within 180 days of the closing."  Download FDIC v. First American Title Insurance Co. (C.D. Cal. Case No. SACV 10.0713, Order Filed August 24, 2011) PUBLIC ACCESS, also published as 2011 WL 3737435 *1 (C.D. Cal. August 24, 2011)(authorized password required to access Westlaw).  FAT allegedly knew of two other Mortgage Loans to Mr. Darling for the purchase of two other properties through its escrow officer, one Bushway,

   IndyMac and the Mortgage Loan in question both collapsed in the face of the financial winds howling across California -- and the rest of the United States --  once the Great Credit Collapse began.  The Federal Deposit Insurance Corporation put IndyMac into Receivership.  Among other actions as IndyMac's Receiver, the FDIC filed suit for alleged breach of contract against First American Title for alleged breach of the Closing Instructions in question.

   First American Title defended itself by contending that it sent IndyMac a letter which "modified" the requirement to disclose material information.  FAT did not, however, annotate any objection to the disclosure provision in the Closing Instructions signed by FAT including the provision which required First American Title to disclose certain information.  Instead, it was undisputed that FAT simply signed the Closing Instructions and sent a letter.   Id. at *7.  The Federal Court in California granted the FDIC's Motion for Summary Judgment against First American Title.

   According to PACER, the Federal Court's Online Docket, on September 7, 2011 First American filed a Notice of Settlement in this case, Download FDIC v. First American Title Insurance Co. (C.D. Cal. Case No. SACV 10.0713, Notice of Settlement Filed September 7, 2011) PUBLIC ACCESS.

 

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Recent Developments in Title Insurance: Duty to Defend; Foreclosure Performance.

   In Download 266 Summit, LLC v. Lawyers Title Insurance Corp. (D. Minn. Case No. 10.4051, Memorandum of Law and Order Filed July 22, 2011) PUBLIC ACCESS, also published as 2011 WL 3020301 *5-*8 (D. Minn. July 22, 2011)(authorized password required to access Westlaw), the Court applied established Insurance Coverage Rules which apply to a Duty to Defend in Liability Insurance Cases.  This may be one of the first times that a Court has applied Duty to Defend Rules which are traditionally associated with Liability Insurance Policies, to Title Insurance Policies too.

   Parenthetically, in the 266 Summit case, the Federal Court also held that there was no requirement in the Title Insurance Policy before it "that it [the Title Insurance Company] prosecute actions on behalf of the insured."  266 Summit, LLC v. Lawyers Title Insurance Corp., 2011 WL 3020301 at *8.  [Emphasis entirely by the Federal Court.]

   The ubiquity of Title Insurance is phenomenal.  Consumers, i.e., individual Homeowners, "pay one-time premiums for title insurance" for as long as the person owns the house.  A Lender's Title Policy, on the other hand, "must be repurchased each time a loan is refinanced".  The Financial Fiasco has battered Title Insurance Companies nonetheless.  They collect far few Premiums than they did before the Great Collapse.  However, Foreclosures reportedly bring them a ray of hope.  "When a bank forecloses, it orders a title review, and that has become" an ever-increasing revenue source.  Maryann Haggerty, "Paying For Title Insurance" (New York Times Online, Thursday, July 28, 2011).

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HUD Program Offers Hope of Relief ... to Mortgage, Title Insurers.

 

   There is a program to take the squeeze off Mortgage Insurance Companies and Title Insurance Companies.  Do you remember the sensation of losing blood when you were punched in the nose during your childhood (not that long ago)?  Mortgage Insurance Companies and Title Insurance Companies have been paying money to lawyers and on Claims a lot since late 2006, early 2007.

   The program to let up the pressure is not a proposal.  It is operational.

   However, you and your clients may never see it.  You may only get the chance to read about it in online newspapers from far-away places.

   The program is called the Emergency Homeowners Loan Program.  It is a joint effort by the United States Government through Housing and Urban Development, and the State Governments.  Therein lies a snare.  Will your State Government participate or will it turn away program money to preserve Mortgage Servicers' and Mortgagees' current streams of income?

   The only Homeowners who should even think about applying for the Emergency Homeowners Loan Program, where it is available, are people who:

• Have lost income during the Great Economic Collapse or because of a medical condition;
• Are 3 to 12 months behind on their Mortgage payments, interest, principal, and servicing fees hidden and disclosed;
• Are a Defendant or about to become a Defendant in a Foreclosure lawsuit filed by a Plaintiff who may or may not know who really owns the Mortgage;
• Have income below the median income of their neighbors; and
• Have what is reported to be "a 'reasonable likelihood' of resuming mortgage payments within two years."

See Ovetta Wiggins, "Maryland Joins HUD Foreclosure Loan Program" (Washington Post Online, Friday, April 1, 2011).

   After meeting each of these qualifications, an eligible person can receive a maximum loan of $50,000.00, hardly enough to pay down the Mortgage on any property in the high-rent district, so to speak.  The loan is limited to 12 months "of overdue debt" as well.

   Under the business model which existed some 30 years ago, under which Homeowners payed off their Mortgages to banks and were done, this program would have made enough profit even for the banks.  Under the business model which caused the Great Collapse, and which is inexplicably still in charge of us, this program will undoubtedly be opposed by those who stand to make even more money from interminable debt followed by Foreclosures.

   For the sake of the Mortgage Insurance Companies and the Title Insurance Companies, in addition to the Homeowners, this program is worth joining.  You and your clients can join it, if your State Government is available to meet your needs and the needs of your clients, and of the distressed Mortgage and Title Insurance Companies.

Please Read The Disclaimer.

  

Insurance Expert, Custom and Trade Usage of Insurance Policy Terms.

   Two Insurance Companies faced off on many issues in Download Nationwide Life Ins. Co. v. Commonwealth Land Title Ins. Co. (E.D. Pa. Jan. 20, 2011 Opinion on MIL re Expert), PUBLIC ACCESS, also published as 2011 WL 204619 (E.D. Pa. Jan. 20, 2011)(authorized password required to access Westlaw).  One of the many issues in contention was Commonwealth Land Title Insurance Company's use of an Expert Witness to testify about the background of terms and provisions used in Commonwealth's Insurance Policy.

   Commonwealth issued a Title Insurance Policy to Nationwide.  There came a time when Nationwide made a Claim on that Policy and Commonwealth denied the Claim.  Nationwide sued for Coverage.  Commonwealth listed an Expert Witness to testify about its Title Insurance Policy.  Nationwide objected and moved to strike the Expert as a Witness.

   Three of Nationwide's mostly unsuccessful arguments will receive focus here.  First, Nationwide argued that the Commonwealth Policy language was clear and so no Expert Testimony was required.  Under Pennsylvania law which governed the proceedings, "[t]he court must, however, also consider evidence of industry custom and practice."  Nationwide Life Ins. Co. v. Commonwealth Land Title Ins. Co., 2011 WL 204619 at *7.  In fact, "the Pennsylvania Supreme Court has held that trade usage must always be considered in interpreting a contract, regardless of whether a phrase is ambiguous."  Id.  [Emphasis by the Court.]  The Court rejected this prong of Nationwide's argument accordingly.

   Nationwide also argued that the particular Expert Witness at issue, based the Opinions he expressed in his Report "solely on subjective belief and unsupported opinion."  Id. at *8.  For some reason, Nationwide also criticized what it perceived as "no methodology" for this Expert's Opinions.  The Federal Court rejected this argument, beginning with a long list of this Expert's experience.  In sum, this Expert is a lawyer who has dealt with Title Insurance issues.  He was regional claims counsel, and was employed at two Title Insurance Companies, wrote a book about Title Insurance, and edited a newsletter about Title Insurance Law.  "Such an extensive background in the land title insurance industry," wrote the Court while rejecting Nationwide's contentions to the contrary, "unequivocally puts [this Expert] in the particular class of persons who could testify as to the custom and trade of certain terms used within title insurance policies.  No further 'methodology' for his opinions is necessary."  Id.

   Last, Nationwide won half a loaf with the argument that this Expert could not testify about legal conclusions, and that arguably all of the Opinions he expressed in his Report are legal conclusions.  The Federal Court agreed that no Expert can testify to legal conclusions.  Those portions of his report "will be stricken" and the Court refused to consider them in passing upon the parties' motions for summary judgment.  Id. at *15.  There was a "but" coming:  The Expert Witness in question could offer Opinions about "title insurance industry practice and customs" including regarding the terms and provisions at issue in the Commonwealth Title Insurance Policy.  Id.

   The Federal Judge in this case recently granted leave to file an Interlocutory Appeal on the scope of Coverage under the Commonwealth Title Insurance Policy. Download Nationwide Life Ins. Co. v. Commonwealth Land Title Ins. Co. (E.D. Pa. Memorandum Opinion Filed March 23, 2011), PUBLIC ACCESS, also published as 2011 WL 1044864 *4 (E.D. Pa. March 23, 2011).

Please Read The Disclaimer.

  

Limitations Held Bar to a Ponzi.

   It seems just yesterday that we first read reports that Ponzi schemes were a part of the Great Financial Collapse.  They have actually been around long enough, apparently, for one Federal Court to rule recently that a Statute of Limitations bars fraud claims against Title Insurance Companies and others who allegedly participated in such a Ponzi scheme, in Download Independent Trust Corp. v. Stewart Info. Serv's Corp. (N.D. Ill. Case No.. 10C4430, Memorandum Opinion and Order Filed February 7, 2011) PUBLIC ACCESS, also published as 2011 WL 529390 (N.D. Ill. February 7, 2011)(authorized password required to access Westlaw).  "Because the statute of limitations has run on all of [the Plaintiff's] claims, [the Title Insurance Company's] Motion to dismiss is granted."

   With prejudice.  Id. at *5.

   The Plaintiff in this case is the Receiver for Independent Trust Corporation.  The Receiver sued, or at least filed suit, against several alleged Ponzi schemers.  What differences, then, are there between this case and the more famous case involving the Bankruptcy Estate of Mr. Bernard Madoff?

   Well, the timeframes are a huge difference.  In the Independent Trust Corporation case, the fraud claims were based on events beginning as far back as 1986, according to the Federal Court's decision in that case.

   Further, in the Madoff Bankruptcy proceeding, it is Mr. Madoff who is the Bankrupt.  The current proceedings are all about the role played by others with respect to the claims of Mr. Madoff's creditors, people and entities who once were his investors -- not at all about any claims of Mr. Madoff himself against anyone else.

Please Read The Disclaimer.  

MORE: Federal Immunity for Foreclosure False Swearing?

   As is now generally known, Foreclosure False Swearing in Lawsuits has caused a crisis in Mortgage Insurance and in Title Insurance both.  See the many recent previous posts here in particular under the Categories of Mortgage Insurance and Title Insurance.

   Apropos of proposals for Federal Immunity for Foreclosure False Swearing:

   The banks and other players in the securitization industry now seem to be looking to Congress to snap its fingers to make the whole problem go away, preferably with a law that relieves them of liability for their bad behavior.  But any such legislative fiat would bulldoze regions of state laws on real estate and trusts, not to mention the Uniform Commercial Code.  A challenge on constitutional grounds would be inevitable.

   Asking for Congress's help would also require the banks to tacitly admit that they routinely broke their own contracts and made misrepresentations to investors in their Securities and Exchange Commission filings.  Would Congress dare shield them from well-deserved litigation when the banks themselves use every minor customer deviation from incomprehensible contracts as an excuse to charge a fee?

Yves Smith, "How the Banks Put the Economy Underwater" p. 9, col. 1 (New York Times "Week In Review" Section, Sunday, October 31, 2010).

   Anybody else care to answer that last question?

   I will try for an answer:  "Heck, yes."  Expect a bill or bills to be introduced in the U.S. House of Representatives this week, tabled by the current majority, and passed by the majority to come in January, 2011.

 Please Read The Disclaimer.

UPDATE ON OUR PREVIOUS POSTS on Residential Mortgage ...

  ... Foreclosure False Swearing Issues.  Our Previous Posts can be accessed primarily in the Categories of Foreclosures, Mortgage Insurance and Title Insurance.  Some Previous Posts are also archived under Deceptive and Unfair Practices Acts, Fraud and Misrepresentation, and Market Performance.

    Not to be left out, Rolling Stone magazine just released an article on what the reporter clearly sees as the ill effects of Foreclosure Frauds by some Plaintiff Lenders and Mortgage Servicers, or perhaps as the ill effects of Foreclosure Lawsuit Systems as inherent Frauds, by Matt Taibbi, "Courts Helping Banks Screw Over Homeowners" (Rolling Stone Online, November 10, 2010; print publication issue November 25, 2010).

Please Read The Disclaimer.

MORE ABOUT Fraud Upon Courts by Foreclosure PLAINTIFFS, Insurance Crisis.

"I'm very concerned about activity by some I read about that go to the integrity of the system.  But we're tied to (ruling on) what comes before us in a case.  And if no one is there to say it's not true, we're in a tough position."  Honorable J. Thomas McGrady, Florida Circuit Court Judge, quoted by Kris Hundley, "Judge:  Foreclosure Cases Starting to Clog the System" (St. Petersburg Times Online, Friday, November 5, 2010).

This post continues from posts which began on Sunday, October 31, 2010  and continued on Monday, November 1, 2010 and on Wednesday, November 3, 2010.

.

   Another Congressional Response:  Immunize All Foreclosure Plaintiffs Who Have Filed False Affidavits.

   Congress is reportedly likely to confront proposed Bills to immunize all Foreclosure Plaintiffs who have filed false affidavits and otherwise sworn falsely in Foreclosure Lawsuits.  Whether the Bills pass or not is open to question, apparently.  See Marketplace on Public Radio, "Weekly Wrap:  What Lies Ahead" (Friday, October 29, 2010) .

   The immunity would presumably extend to subrogation suits filed by Mortgage Insurance Companies who are going broke paying for defaulting Mortgagors (i.e., for the Defendants in the Foreclosure Suits) but who do or may have remedies available as a result of the false Affidavits filed in Court.  See, e.g., Dakin Campbell, "Genworth's Profit Misses Analysts' Estimates on Mortgage-Insurance Losses" (Bloomberg.com, Thursday, October 28, 2010)( "Mortgage insurers, which pay lenders when homeowners default and foreclosures fail to recoup costs, have lost money over the past three years because of the surge in soured loans."); Michael Powell, "Owners Seek to Sell at a Loss, But Bankers Push Foreclosure" p. A1, col. 2 (New York Times Nat'l ed., Monday, October 25, 2010)("And lenders can try to collect on private mortgage insurance.").

   Parenthetically, in some cases Mortgage Insurance Premiums lead to Foreclosure Suits because they are too high to pay when they are the result of "force-placed" Insurance, i.e., forced by the Lender.  See Gary Blankenship, "Sloppy Paperwork Exacerbates the Foreclosure Crisis/'People Weren't Paying Attention to the Paperwork, and They are Trying to Fix it During the Foreclosure Process'" p.1, col. 1 (Florida Bar News, October 15, 2010)("Lenders require that owners maintain insurance.  But if an error accidentally lets that insurance lapse for a few days, the lender can bring in an insurer, with the premiums passed to the owner.").

   The proposed immunity would also presumably extend to bar recoupment suits by those Title Insurance Companies which have issued Title Insurance Policies to people who bought Foreclosure homes.  The state of the title on many Foreclosure homes now is or may be questionable.  Title questions on Foreclosed homes are likely subject to legal actions and other expense incurred by the Title Insurance Companies to clear the title.  See, e.g., Andrew Martin and David Streitfeld, "Halt in Foreclosures a New Blow to Home Sales" p. A1, col. 3 (New York Times Nat'l ed., Friday, October 8, 2010); Anjali Fluker, "Foreclosure Halt Stymies Local Realtors, Investors" p. 1, col. 4 (Orlando Business Journal, Oct. 15-21, 2010).

   In fact, at least some Title Insurance Companies have stopped issuing Title Insurance for these very reasons.  David Streitfeld, "Document Flaws Have Put Brakes on Foreclosures" p. A1, col. 6 (New York Times Nat'l ed., Friday, October 1, 2010).

   Like Mortgage Insurance Companies, Title Insurance Companies are also losing money as a result of the many lenders' Foreclosure Lawsuits.  See Kathleen M. Howley, "Foreclosure Errors Cloud Homeownership With 'Blighted Titles'" (Bloomberg.com, Friday, October 1, 2010)("The costs for title insurers to defend customers and reimburse for lost properties rose 14 percent to $480.5 million in 2010's first half from a year earlier ....").

   CONCLUSION:

Some people have a right to swear falsely and submit false Affidavits, if we let them.  But they have no right to call their False Swearing the Truth.

   There is a crisis.  It is a crisis of False Swearing, part of a business model fueled by cash and ways to generate more. 

   It has within it the potential of Fraud and the certainty of greed.

   The Judicial System is in question because of numbers.  Foreclosure Plaintiffs have filed so many Lawsuits that the basis for these Lawsuits is often disregarded, including who is the proper Plaintiff and who has the Note and who holds the Mortgage.  There is no question that the owners are most often in default.  The questions come because of the conduct of the Foreclosure Plaintiffs.  There are few questions caused by the conduct of the Foreclosure Defendants.

   "It's not the money, stupid."  "It's the Justice," far more than money or the pursuit of money.

   Time will tell whether the litigious Foreclosure Plaintiffs, with great wealth and plans to make more, will be allowed to overwhelm the Court System with False Swearing as a way of doing business, and be immunized in all Foreclosures from the consequences of their conduct in litigating some Foreclosures.  Or whether they will face the consequences of False Swearing, just as other Plaintiffs in past cases have faced the consequences of False Swearing.

   To say again, Time will Tell.  In the meantime, Mortgage Insurance Companies and Title Insurers are going broke, they are being sued by the litigious Foreclosure Plaintiffs, and the Judicial System is under attack.

   The outcome is not certain.

Please Read The Disclaimer.

   

 

"Fraud Upon the Courts?" Insurance Crisis Result of False Swearing.

   Third in a series:

This post continues from posts which began on Sunday, October 31, 2010  and continued on Monday, November 1, 2010.

   Some people have a right to swear falsely and submit false Affidavits, if we let them.  But they have no right to call their False Swearing the Truth.

   There are so many Foreclosure Lawsuits that the sheer number of them overwhelmed the abilities of the people and organizations responsible for filing them.  There is a current Crisis in False Swearing as a result.  Affidavits have apparently been filed in many Foreclosure Lawsuits in an effort to obtain Summary Judgments without Trial, because many Plaintiffs cannot prove their Foreclosure Cases if they have to go to Trial.  "The foreclosure machinery that has forced millions of Americans out of their homes is beginning to seize up as some lenders and their lawyers are accused of cutting corners in their pursuit of rapid home repossessions."  David Streitfeld, "Document Flaws Have Put Brakes on Foreclosures/Focus on Cut Corners" p. A1, col. 6 (New York Times Nat'l ed., Friday, October 1, 2010).

   The effects have been felt by Title Insurance Companies, for example, which have refused to issue Title Insurance to cover title to properties foreclosed on by certain mortgage servicers and lenders who are suspected of filing false Affidavits in Foreclosure Lawsuits.  See id.  As one report put it:

   The missteps stemmed from the affidavits the lenders file as they seek a quick or summary judgment in thousands of foreclosure cases.  The affidavits state certain facts about the case, including the amount owed, which the signer indicates [actually, testifies] he has personal knowledge of.  Without the affidavit, the lender would have to prove the facts at trial.

Id.

REMEDIES FOR THE FALSE FORECLOSURE AFFIDAVITS "CRISIS".

   First, there is no "crisis" at all. There are apparently some litigious Foreclosure Plaintiffs who are willing to lie under oath in order to make money.

   So what is new?  "'The whole essence of this crisis is fraud and unless we restore the rule of law and transparency of disclosure, we are not going to fix this.'"  Professor Laurence J. Kotlikoff, quoted by Gretchen Morgenson, "Fair Game/One Mess That Can't Be Papered Over" p. 1, col. 2 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, October 24, 2010).

   This is not the first time that people may have lied under oath.  If it can be proved that they did, they are subject to the same consequences as any other person previously proven to have lied under oath.  See Gretchen Morgenson, "Banks' Flawed Paperwork Throws Some Foreclosures Into Chaos" p. A1, col. 3 (New York Times Nat'l ed., Monday, October 4, 2010), quoting Linda M. Tirelli, Esquire:  "'This is not about getting a free house for my client.  It's about getting a level playing field.  If I submitted false documents like this to the court, I'd have my license handed to me.'"

   Fifty (50) State Attorneys General are jointly investigating whether the False-Swearing-Affidavits-in-Foreclosures procedure is an unfair and deceptive trade practice by Lenders and Mortgage Servicers in their States' Courts.  If this business practice exists of backing up Foreclosure Cases with false testimony, they vow to take appropriate action to prevent it.  See National Association of Attorneys General Press Release, "50 States Sign Mortgage Foreclosure Joint Statement," October 13, 2010.  Parenthetically, the Federal-State prosecutor relationship is reportedly frayed past the point of forbearance due to the Feds favoring the Banks.  See Joe Nocera, "Talking Business/The States Take on Foreclosures" (New York Times Online Friday, October 29, 2010).

PREVIOUS FEDERAL RESPONSES TO FORGIVE THE FRAUD; DEAD ON ARRIVAL. 

   A Congressman from Texas has reportedly introduced a bill in  many past Sessions of Congress, without success until this year, which would require all States and the District of Columbia to accept Affidavits at the lowest common denominator favored by any one State, which could theoretically include no oath, no personal knowledge, no notary, and so on.  The Bill, as noted, passed Congress this year.  President Obama vetoed it by refusing to sign it while Congress was in recess, a process called a "pocket veto".  See Jackie Calmes and David Streitfeld, "Obama Will Veto Notary Bill That Could Speed Foreclosures" p. B1, col. 1 (New York Times Nat'l ed., "Business Day" Section, Friday, October 8, 2010).

More About Suggestions for a "Fix" For Foreclosure False Swearing "Crisis" to Come, and More to Come on the Insurance Crisis that REALLY is the result of the False Foreclosure Swearing ....

 Please Read The Disclaimer.

  

    

False Swearing: Part of a "Fraud Upon the Court?"

   Some people have a right to file false Affidavits, if we let them.  But they have no right to call their false Affidavits the Truth.

   A witness giving testimony in an Affidavit must ordinarily swear or affirm under Oath.  She or he swears that what's in the Affidavit is the Truth and that it is based on the personal knowledge of the person testifying in the Affidavit.

   Failure to comply with these requirements is not a "procedural defect" or a mere failure to "follow the letter of the law in preparing foreclosure paperwork."  Gary Blankenship, "Sloppy Paperwork Exacerbates the Foreclosure Crisis/'People Weren't Paying Attention to the Paperwork, and They are Trying to Fix it During the Foreclosure Process'" p.1, col. 1 (Florida Bar News, October 15, 2010).  See Press Release, National Association of Attorneys General, "50 States Sign Mortgage Foreclosure Joint Statement," October 13, 2010 (Statement of action based on appearance of "procedural defects" in Mortgage Foreclosure Lawsuits).

   If a person swears to Truth as her or his own personal knowledge, and that is not the Truth, it is a fraud upon the Court.

   A witness giving testimony in an Affidavit must also execute (sign) the Affidavit in front of a Notary, ordinarily.  The Notary is supposed to administer an Oath before the witness signs the Affidavit.  In my own personal experience, some Notaries seem not to know how to do that, or even that they have to.

   No-one disputes, however, that witnesses swearing to Affidavits filed in Foreclosure Lawsuits, were swearing or affirming to the Truth of what was in the Affidavits, even if they did not take an Oath before they signed the Affidavit and even if they said they did.

   An Affidavit is also ordinarily required to be executed in the presence of the Notary.  Existing practice has never accepted notarized signatures from people who signed in other States or at other times when the Notary was not present.  One of the problems that may exist with some Affidavits in some Foreclosure Lawsuits is that witnesses executed Affidavits in different States and otherwise at times when Notaries were not present in some cases.

   If witnesses do not execute their Affidavits in the presence of the Notary, but swear that they do, it is not simply a "technical omission" or simply "shoddy paperwork."  See Gary Blankenship, "Faulty Filings Hamper Clearing Foreclosures" p. 1, col. 4 (Florida Bar News, October 1, 2010).

   In that case, it is a lie.

   The Law's (or perhaps many Trial Lawyers') and the Good Book's treatment of lying are based on the same experience:  Human beings are sometimes reluctant to be honest when being honest stands in the way of personal preferences, such as making money.  Arguably, says the experienced Trial Lawyer, those who cannot be trusted in small things, cannot be trusted in large ones.

   If swearing or affirming the Truth of testimony is a "small thing," then that witness is likely not to be trusted in larger things, such as:

   That a Note or other document necessary to proceed with the Foreclosure on a person's home are somehow "missing," and that the absence of that documentation should be excused accordingly; or

   The identity of the correct Plaintiff in the Foreclosure Lawsuit; or

   The correct amount owed by the Defendants.  (In some reports, it is to be doubted whether the Defendants are correctly named as Defendants at all; in some cases, reportedly, Foreclosure Lawsuits have been filed against Homeowners who are either current in their Mortgage payments, or who do not even have a Mortgage.)

To be continued including regarding the Effects of False Swearing on Title Insurance, Mortgage Insurance, and the Court System ....

Please Read The Disclaimer.

 

 

Halloween Treat in Florida: "No Tricks From You!"

   In a new and interesting decision, a Florida Appellate Court has pulled together various strands of settled Florida Law this Halloween.

   In Florida, the Plaintiff in a Foreclosure Lawsuit must present evidence, either in proper support of its Motion for Summary Judgment or at the Trial of the case, that it owns and holds the note and mortgage in question.  Its proof must consist either of a "tender [of] the original promissory note," or of proof that will successfully  reestablish a lost note as provided by the Florida Statutes.

   In addition, if the note does not identify the Plaintiff as the party to be paid on it, then it must either "bear a special indorsement" naming the Plaintiff, or a blank indorsement.  The Plaintiff may, in the alternative, submit proper evidence of either (1) the true payee's assignment to the Plaintiff of proceeds payable under the note, or (2) "an affidavit of ownership," in order to prove that it, the Plaintiff, holds the note.

    This is pretty basic.  These settled rules of Florida Law were recently applied in time for Halloween in the case of Servedio v. US Bank Nat'l Ass'n, Download Servedio v. US Bank National Association (Fla. 4th DCA Case No. 4D10.1898, Opinon Filed October 27, 2010)(PUBLIC ACCESS; STATED NOT FINAL), also published as 35 Fla. L.W. D2368a (Fla. 4th DCA October 27, 2010)(Subscription required to access Florida Law Weekly).  After applying these rules of Law, the Court in this Halloween treat (no tricks, please) held on the facts of record in that particular matter:

The record on appeal does not contain the original note, evidence of an assignment of the mortgage and note to appellee, or an affidavit of ownership by appellee. Appellee filed no other admissible “pleadings, depositions, answers to interrogatories, admissions, affidavits, and other materials” to support its contention that it owns and holds the note and mortgage. Fla. R. Civ. P. 1.510(c). “[I]t is apodictic that summary judgments may not be granted . . . absent the existence” of admissible evidence in the record. TRG-Brickell Point NE, Ltd v. Wajsblat, 34 So. 3d 53, 55 (Fla. 3d DCA 2010). Without evidence demonstrating appellee's status as holder and owner of the note and mortgage, genuine issues of material fact remain, and summary judgment was improper.

[Emphasis added electronically on Halloween.}

The devastatingly bad effects on Mortgage Insurance and on Title Insurance, of shorting these established Rules of Law, are explored in continuing posts over the next several days.

Please Read The Disclaimer.

Day 3 Original Reporting From the National Association of Insurance Commissioners...

... At Their 2010 Fall National Meeting at the overly posh Gaylord Palms Resort in Orlando, Florida.  This follows posts on this Insurance Claims and Issues Web Log on the first day of meetings, posted on Sunday, October 17, 2010, and on Insurance Claims and Bad Faith Law Blog, posted on the second day of meetings, on Monday, October 18, 2010.

   Title Insurance was on the NAIC committee agenda today.  The NAIC's Title Insurance Task Force considered a Private (Developer's) Transfer Fee Covenants proposal.  In testimony before the Task Force, it was stated that Transfer Fees are used by Developers to spread development costs or infrastructure fees.  They allow Developers to reduce the sales price of a house as part of the up-front price of the house and they reduce the Purchaser's Mortgage payments as well because they reduce the Principal.

   The benefits to original Purchasers are pretty clear.  They would pay less than they would otherwise pay under a program in which original Purchasers pay the total Transfer Fee in the original transaction, and subsequent Purchasers do not pay any part of it.   Several times in this morning's testimony, the witness made the point that America's Developers view the situation as more fair and equitable to spread the payment of their Transfer Fees across a range of both original Purchasers and subsequent Purchasers, rather than charging the original Purchaser the full capital recovery cost or Transfer Fee.  Use of Developers' Transfer Fee Covenants therefore results in a reduced sale price paid by the original Purchaser, he said.

   According to the testimony, 12 Million "homes" are subject to Transfer Fees today.  They are in widespread use, he said.  Developers have developed (you should pardon the expression) their Transfer Fee Covenants for 2.5 Million of those 12 Million houses, meaning that 2.5/12 Million houses are actually subject to Transfer Fees in favor of Developers today.  The remainder are to provide weight to Homeowner-Association-Dues-forced-agreements in Restrictive Covenants.  Apparently both types of Fees would "run with the land," i.e., each subsequent purchaser would take subject to them.  Transfer Fee Covenants made with Developers would impose a lien on the land for 99 years.  A "home" will sell an average of 8 times during that period, the witness testified.  That is why they would affect Title Insurance Companies.  Title Insurance Companies are charged with identifying clouds on title to real property like liens and other encumbrances.

    He also said, in response to persistent questioning, that an unpaid Transfer Fee becomes a lien on the property. 

   This morning's witness also testified in favor of the proposal by observing, again several times, that there is no evidence that consumers are harmed by Developers' Transfer Fee Covenants and that, to the contrary, he said, the purchase price paid by original Purchasers is reduced.

   On the other hand, after a few moments, I thought about subsequent Purchasers.  It may be true that no great amount of harm is caused to consumers by Developers' Transfer Fee Covenants of this kind, but clearly a little harm is caused to a lot of consumers under this proposal to spread out Transfer Fees.

   Fourteen States have reportedly passed absolute bans of the practice, however.  If Developers' Transfer Fee Covenants are so good for you, why did any State bar their Transfer Fees Covenants?

   The witness did not say.

   Parenthetically, that particular witness revealed after awhile that he was a Developer in Austin, Texas in very large planned communities.  I did not catch his name.  I thought he was a persuasive speaker with a difficult topic.

   Since Developers' Tranfer Fee Covenants were considered only in a Report at this time, no action was taken by the NAIC.

Please Read The Disclaimer.

 

 

Remanded: Diversity Citizenship Not Disregarded Without Proof Recovery is Impossible.

   One test of whether Diversity Jurisdiction exists as a matter of law in a Federal Case, is whether the co-Defendant alleging the absence of true diversity can demonstrate that there is no possibility of recovery by the Plaintiff against the Defendant which is a citizen of the same State as the Plaintiff.  In Archway Rubicon, LLC v. Lawyers Title Insurance Corp., Download Archway Rubicon, LLC v. Lawyers Title Insurance Corp. (S.D. Tex. Case No.. H.10.1919, Memoranum and Order Filed July 26, 2010) PUBLIC ACCESS also published as 2010 WL 2991091 (S.D. Tex. July 26, 2010)(Westlaw subscription required to access Westlaw), one Austin Title Company sold a Title Insurance Policy to the Plaintiff, which sued both Austin Title and the Title Insurance Company which issued the Policy, Lawyers Title, for alleged violations of the Texas Insurance Code.

   Lawyers Title removed the lawsuit to Federal Court and claimed that Austin Title's Texas citizenship should be ignored for purposes of Federal Diversity Jurisdiction even though the Plaintiff is a Texas corporation.

  The Federal Court in that case disagreed with Lawyers Title's position and granted Plaintiff's Motion to Remand.  The Federal Court reasoned:  "It is well-established and undisputed that Texas law allows a plaintiff to maintain a cause of action for violations of the Texas Insurance Code against individuals other than the insurer, including the insurance agent."  Archway Rubcon, 2010 WL 2991091 at *2.

   Lawyers Title, the co-Defendant which argued in favor of disregarding the other Defendant's citizenship in that case, failed to meet its burden under both Federal and Texas law, in essence, that there was no possibility that Archway Rubicon could recover on its Claims against Austin Title for alleged violations of the Texas Insurance Code.

Please Read The Disclaimer.

Rescission: "Known" Loss or Just Plain Loss Not "Fortuity", Enough?

   A Title Insurance Policy was rescinded on the facts in the record in Nourachi v. First Am. Title Insurance Co., Download Nourachi v. First American Title Insurance Co. (Fla. 5th DCA Case No. 5D09.2554, Opinion Filed August 6, 2010) PUBLIC ACCESS also published as 2010 WL 305662 (Fla. 5th DCA August 6, 2010)(Westlaw subscription required to access Westlaw).  The basis for the Court's holding in this 2-to-1 decision was succinctly stated in the majority opinion:

Where a party does not rely on a title insurance company to advise it of encumbrances prior to acquiring title to property, it may not recover on a material title defect of  which it had actual knowledge and which it failed to disclose to the insurer at the time it applied for the title policy.

Nourachi v. First American Title, 2010 WL 3056602 at *1.  [Emphasis in original.]

   So far, so good.  Then the Court went farther:  "Our decision is also consistent with the general principle that a party may not insure against a loss that he knows has already occurred and that he fails to disclose to the insurer."  Id. at *5.  The concurring opinion seems to be in accord.  The dissent focused instead on the actual language of the insurance policy before the Court in that case.  Id. at *9.

   There was no "known loss" Exclusion in the Policy in that case.  There generally if not always is no such Exclusion to be found in any Insurance Policy in any case.  Is it the fact that the loss for which Coverage is claimed is "known" that defeats the role of Insurance, or is it the fact that there was a previous "loss" that occurred before the Insurance Policy was issued to insure against a risk of something that had already happened and which Insurance will not be allowed by public policy to pay for?

   Or is the "failure to disclose to the insurer at the time it applied for the policy" that forms the basis for Rescission?  The dissent in this case pointed out that "[a]lthough the policy [at issue there] contains an exclusion for known and undisclosed claims, it expressly excepts from that exclusion claims that may be discerned from the public record."  Id. at *9.  [Emphasis added.]  The Policy at issue in that case was, after all, a Title Insurance Policy.  The Title Insurance Company's Underwriters apparently had no problem with effectively requiring their employer to search the public records before issuing Policies.  The majority in this case did have a problem with that, however, and in the face of clear Policy language relied on by the dissenting Judge, two Judges affirmed the Trial Court's Rescission Judgment anyway.

   Sometimes the facts are egregious enough in the eyes of Courts to manifestly require a certain result in order to do justice in their eyes if not in the eyes of most reasonable people, for that matter, that the facts will sometimes overwhelm Insurance Policy language, with or without an analysis of the Policy itself.  This is a lesson that is not lost on experienced Insurance Coverage practitioners.

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Title Insurance Company's 'Inspection, Audit' Held a Right, Not Duty.

   The case of Bluehaven Funding, LLC v. First Am. Title Ins. Co., 594 F.3d 1055 (8th Cir. 2010), involved questions about the rights and duties of a Title Insurance Company under Missouri substantive law.  In that case, a real estate lender sued a title insurance company on several theories, after the lender lost approximately $2.4 million dollars.  The District Court entered summary judgment against the plaintiff-lender and in favor of the defendant-title insurance company on all claims and the Eighth Circuit affirmed.  Id. at 1056.

   One aspect of the decision will likely be of great interest to Excess or Umbrella Liability Insurance Companies everywhere in the United States.  Umbrella Liability Insurance Policies often contain a provision which affords the excess carrier a 'right but not a duty' to associate co-counsel in the insured's defense in the underlying liability case.  There was an analogous provision In First American's "Title Agreement".  First American's agreement afforded First American the right to "'periodically inspect and audit'" its alleged agent's "'escrow accounts and escrow files'".  Id. at 1061.  The Eighth Circuit held that under Missouri law no duty of due care could be constructed on that agreement which, it held, "does not obligate" First American to review the files, in part here pertinent.  Id. 

    Further in the First American case, "First American exercised its right under the Agency Agreement to review Capital Title's files."  Id.  [Emphasis added.]  This did not affect the outcome, which as noted was totally in First American's favor in that case.  Rather, the "right to review" provision made it "evident" that the right "was for First American's own benefit and protection, and not for the benefit of any third party."  Id.

 

Title Insurance Policy Issues in particular in an increasing number of cases of Good Faith - Bad Faith claims and issues are discussed in in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" (Second Edition Shepard's/McGraw-Hill, 2009 Supplement West Publishing Company).  Excess and Umbrella Liability Insurance Issues are also discussed throughout the nearly 4,000 cases and statutes and other citations analyed there.  

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Escrow Accounts, Title Insurance Companies and Their Agents, and Banks.

   Another of the accumulating lawsuits involving Title Insurance Companies presents a twist:  Old Republic Nat'l Title Ins. Co. v. Landmark Closing Co., Download Old Republic National Title Insurance Co. v. Landmark Closing Co. (E.D. Ark. Case No. 4.09.00422, Opinion Filed June 1, 2010) also published as 2010 WL 2228436 (E.D. Ark. 2010)(Westlaw subscription required to access Westlaw).

   Old Republic contracted with Landmark for Landmark to "act as Old Republic's policy issuing agent in White County, Arkansas."  Old Republic National Title Insurance Co., 2010 WL 2228436 at *1.  Old Republic conducted an audit of Landmark and found that funds were missing from an escrow account maintained by Landmark for Old Republic at First Community Bank.

   Landmark was apparently broke.  Old Republic sued First Community Bank for negligence and conversion.  Id. at *2.  Old Republic's negligence claim against the Bank was rejected under Arkansas law, but its conversion cause of action is still active as the Federal Trial Court denied a motion for summary judgment filed by the Bank, as to that conversion claim.

   The Federal Court based its holding on settled Arkansas law to the effect that if a Bank has notice or knowledge of a breach of trust by an improper withdrawal or withdrawals of funds, or benefitted from it or them, then it can be subject to liability.  Id. at *4.  Applying this rule of law to the facts of that case, "there is an issue of fact as to whether the bank ... was on notice and had knowledge of ... misappropriations, participated in her misappropriating the funds, and benefitted financially from it."  Id. at *5.

This is a case which displays the reasons why Courts began to carefully consider that Contract Law may not furnish the appropriate remedies demanded by Fiduciary Law, a development traced by Dennis J. Wall in § 2:2 of "Litigation and Prevention of Insurer Bad Faith" (Shepard's/McGraw-Hill First Edition; West Publishing Co. Second Edition and 2010 Supplement in process).

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Abstention in Insurance Cases: When, and When Not.

   The case of Lawyers Title Ins. Corp. v. Doubletree Ptrs., L.P., Download Lawyers Title Insurance Corp. v. Doubletree Partners, L.P. (E.D. Tex. Case No. 4.08cv243 01.20.10 Order of District Judge Adopting Report and Recommendation) and Download Lawyers Title Insurance Corp. v. Doubletree Partners, L.P. (E.D. Tex. Case No. 4.08cv243 12.30.09 Report and Recommendation of Magistrate Judge) also published as 2010 WL 278877 (E.D. Tex. January 20, 2010)(Westlaw subscription required to access Westlaw) was filed by a title insurance company for declaratory relief regarding "certain policy exclusions, relied upon by Plaintiff in denying the claim," or, alternatively, for reformation to have the title insurance policy reformed to include the exclusions.  Id. at *1.  The Defendant-Policyholder filed a motion to dismiss and argued for abstention due to a pending State Court proceeding, in part here pertinent.

   The Court in that case noted that there are two standards governing abstention in Federal Court.  Id. at *2.  One standard involves "broad discretion" where only declaratory relief is involved, and another standard, "which is more restrictive," applies when the Federal Court action involves "coercive" or "any non-declaratory claim for relief".  Id.   The latter standard involves some six (6) factors, id. at *3, all of which were considered and all of which were held to weigh against abstention in that Insurance case.  Id. at *3-*5.

   The Lawyers Title Insurance decision provides a good source of the factors pertinent to Abstention issues in Insurance Cases.

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Title Insurance: Pricing, Products Coverage Confusing to Many.

    Title Insurance Policies, including Premiums and various Products' Insurance Coverage, are examined in Binyamin Appelbaum, "Title Insurers Face Criticism Over Pricing/Do You Really Need an Owner's Policy?" (Boston Globe, Sunday, April 13, 2008).   In Massachusetts, as in many States or Commonwealths, it is mandatory to purchase a Title Insurance Policy at the closing on a real estate deal for a house, for example, that protects the lender.  It is ordinarily optional, however, to also purchase a Title Insurance Policy that protects the buyer-owner.  The two kinds of Title Insurance provide different Coverages and they come with different Premiums, all touched upon in the linked newspaper article.

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And the Title (Insurance) Belongs To ... Who, Exactly?

    Title Insurance can be a confusing thing.  It is certainly not unknown, because it is reportedly a part of "virtually every real estate transaction," but it is certainly confusing to many people in many respects.  To some degree, participants in the process of obtaining it and explaining it  sometimes seem to intend for it to be that way.

    Title Insurance exists in basic terms to address or "cover" defects in title.   Here is a popular explanation of what Title Insurance is intended to cover: "Defects in title include errors or omissions in deeds, mistakes in examining records, forgery, liens for unpaid taxes or contractor's bills, conflicting wills related to the home and missing heirs who suddenly appear and claim to own the property."   This is what was posted by the Los Angeles Times Online on Friday, February 8, 2007 in an article bylined and entitled Scott J. Wilson, "The Title Insurance Toll/Consumers Usually Trust Recommendations From Real Estate Agents, Lenders and Builders -- And Risk Choosing Insurers Who Give Kickbacks to Boost Business" (Los Angeles Times Online, Fri., Feb. 8, 2008).

    The price of Title Insurance in California is reportedly $1,200.00 - $2,000.00 for a $500,000.00 house.  Those figures would make the Premium at something like a 1/250 ratio of Premium for Title Insurance/Sales Price of the Property.  However, it is also reported in the above article that for "a house with a $400,000 mortgage, the policy would usually cost $500 to $600."  That would be a ratio of more like 1/800 or 1/700.

    In Iowa, the $500,000.00 house bears a Title Insurance Premium of $110.00 through Title Insurance run by the Iowa State Government.  Other costs -- including lawyers -- reportedly raise the total to around $500.00.  At the higher figure of $500.00, that ratio of Title Insurance Premium/Sales Price of the Property would be 1/1,000.  Do not get too excited.  Iowa is the only one of the 50 States to provide a "title insurance program" that is run by the government.

    In 2006, Title Insurance Companies reportedly drew in revenues of $16,600,000,000.00 or $16.6 Billion.  Revenues including Premium monies have undoubtedly declined since the subprime collapse, but figures are not reported in the linked newspaper article.

    Whatever the decline in Title Insurance Company revenues in 2007, it is not because of paying claims, apparently.  "While auto and homeowner insurers return about 70% of their premiums to customers in claims, title insurers pay out just 5%."  The article linked above was apparently so good, that the Los Angeles Times Online offered a Sunday version, to which you can link here:  Scott J. Wilson, "The Trouble With Title Insurance/Consumer Groups Say Policies Are Overpriced; Home Buyers Have Little Choice But to Pay" (Los Angeles Times Online, Sunday, Feb. 10, 2008).

   

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