Due diligence is crucial, but sometimes there are many things you don’t realize until you go into foreclosure. Chris Seveney and Jamie Bateman welcome Spencer R. Mobley, a partner/attorney at Bradley. You may miss out on various title issues when you’re buying alone. Plus, you may not know local jurisdictional nuances that differ from state to state. That’s why it’s easier to have a strong attorney to help you out in the process. Join in the conversation to learn more about due diligence, title insurance, and common pitfalls.
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How A Strong Partner Lawyer Can Make Due Diligence Easier With Spencer R. Mobley
I’m your co-host, Jamie Bateman joined by my fellow co-host, Chris Seveney. Chris, how are you doing?
Doing wonderful, Jamie. How about you?
Great. Sun is out. Sun is shining. It’s Good Friday. More importantly, we have a special guest, Spencer Mobley, a title attorney from Bradley. We are going to get into what he does. Spencer, how are you doing?
I’m doing fantastic. I’ve got the same weather you do.
You are in Birmingham. Is that right?
That’s right. I’m located in Birmingham, Alabama. I’m originally from Richmond, Virginia. I found my way down here after law school and got the job with Bradley. I have been here close to ten years now in this title space. I love it down here. It’s always great to connect with folks across the country.
Speaking of connecting, we met at Ironman in West Palm Beach. Is that right?
That’s exactly right. It was fantastic meeting you in person. I have been reading this blog for a little bit now. It was great to meet you. I don’t think I’ve got to meet Chris down there. It was a wonderful conference and I met a lot of great folks. You are top of the list there.
Don’t feel bad for not having met Chris because he knows where I’m going with this. We have been working together for a few years now and we just met for the first time a few days before I met you. Chris is selective as to who he meets in person.
I’m sitting in my basement and I’ve got my red stapler behind me. I don’t like people. Nobody takes it personally or offensive and so forth. I like to hang out by myself. Ironman was a great event to be at and so forth. There were a lot of people there. We have Spencer on the show because when you go to these events, you meet a lot of people who have expertise in varying different aspects of this business. Anytime you can have conversations with them, you will always be learning something.
This is what we want to bring Spencer on the show to talk about some of the intricacies of title and some of the crazy things he has seen and some of the things potentially for us to look for as well. I will make the stipulation Spencer can add to it that while he’s an attorney, he’s not your attorney. Everything on here is informational, purposes only or whatever that legal jargon is because I’m not an attorney either. Jamie tries to play one once in a while but that’s okay.
He’s in Holiday Inn from time to time.
Spencer, what I like to do if you are okay with that is briefly talk about where you are now, your firm, and what you all do, the high-level overview, and then back up and give us a one-minute version of your background, if you would. We will get into some crazy title stories and questions along that route.
That sounds great. As I mentioned, I have been at Bradley for nearly ten years now. When I started at the firm, the default crisis had happened. Rampant litigation going on both on lender-borrower standard litigation but a lot of title issues were coming out of the works. Foreclosure seems to bring those to the forefront for any number of different reasons.
I’ve got into a title lane at that point, both on an insurance coverage side of the house, which is fun, and I will share some stories there but then also on the title curative side. For any number of different reasons, something may not be covered by title insurance but it’s still nonetheless a defect and something that needs to be remedied.
That practice has grown and then shrunk at times, depending on the general flow. With default rates or at least foreclosure activity lower, you have less coming out of that. It’s all fairly cyclical. Even though I’m not out chasing title insurance companies, I may be working on something else. What we have seen more is an influx of condemnation, and eminent domain takings that are occupying some of my time of late but the title issues are still there. They haven’t gone away.
I think of it like a car that’s sitting in your driveway and you don’t know it’s broken until you go to crank it up. A lot of that is what you experience with a security instrument. Regardless of who you are, you are holding a security instrument that is encumbering the collateral for your loan but you don’t know you have a problem until you go to enforce it sometimes.
There are certain things you can figure out beforehand to know whether or not to run a diagnostic if you will. There are a lot of things you don’t realize until you go to foreclose. My practice ebbs and flows with foreclosure activity, I don’t do any foreclosures. I’m not a foreclosure attorney. I’m not an eviction attorney. I’m fairly niched in my focus but I have worked with clients across the country. It traditionally has been the larger banks, mortgage servicers, and helping them in more of a national council type role, managing local counsel.
Bradley is a big firm. We have plus or minus 550 attorneys with offices across the Southeast. We have folks licensed all over the place. I’m licensed to practice in Minnesota and Alabama. We do have a national reach in our practice and in the type of issues that we handle for our financial services clients. It has given me exposure to a lot of different places and a lot of different things, which has been fantastic.
Why did you decide to become an attorney and all that stuff?
I was inspired by John Grisham’s novel, which may be subconsciously true. I was always fascinated by the Political Science major in college. All of that was interesting to me. What I found most interesting is the kind of lawmaking process, all of that. I have realized that I’m probably not going to be a senator or congressman, or something like that, so I’m not going to be making laws. It is pretty interesting if I learn how to read and use them.
Early on in college, I had pegged my lane and decided I wanted to go to law school. Going into law school, I had grand notions along the same lines as being a slicked-back hair lobbyist, then I realized, “That’s not me either. General litigation, I’m going to go litigate. That’s what I wanted to do.” What I tell a lot of law students and others interested in going to law school when they are asking, “How do I find my niche, my lane?” Oftentimes, it finds you.
When I started at a firm, I was working for a partner, Hal. His focus was on this area. I really enjoyed working with him. It was more relationship-building and relational than anything else. Whatever he was working on, I was working on, too. That’s how I fell into this. I haven’t gone back and looked at my law school transcript but I probably eked out a solid B in there. I wasn’t some stellar law study or property student.
At the end of the day, it was the lane I fell into and I enjoyed it. This area of practice is part law and large part detective. You are constantly putting together a puzzle. I don’t care what type of problem it is. It could be a legal description issue and you are putting together a puzzle. It could be a fraud issue, which is fun, and you are playing detective. Each file is a snowflake. I don’t want to sound too hokey in saying that.
Every note has a story. They are all different.
Spencer, as an investor, for people reading, if they had a file that might have some title or curative requirements, can you assist people in basically every state or is it only certain states? I’m curious how that works.There are many things you don’t realize until you go into foreclosure. Click To Tweet
I have started my practice working with large banks, service centers, etc. My practice has dovetailed to helping note buyers and investors. What I’m doing for those types of folks varies. A lot of the same stuff that I’m doing for some of those national servicers but also help with due diligence on the front end. Clearing title exceptions or evaluating the risk associated with title issues on the front end that you are seeing when you are buying a loan. There are certainly local jurisdictional nuances.
Perhaps Massachusetts has a different way of looking at equitable subrogation, for instance than Alabama. That may be the case. Check your local listings. You never know. I do have experience looking at legal issues across all the different states. Even if it’s a state that I’m not in and can’t appear in court, for instance, I can still help and provide some generalized counsel. Often for my note buyer and investor-type clients, that’s what they are looking for on the front end. They are looking to get their head around the risk. That’s certainly something I do and could help with.
I have used a few attorneys in the past who act as if a general counsel can review that stuff. If it’s something that gets nuanced, they will be like, “On this part, you do need a specific attorney in that county or somewhere like that because there’s some quirky stuff that they may know.” From an overall perspective, there are a lot of similarities from one to the other, which I can pick up probably 95%. If something does look out of whack, then sometimes they will tell you to go through.
Being in this side of the industry, the title side of things, I’ve got a lot of contacts. I’m heavily involved in various committees and organizations on a national level like the ABA Title Insurance Committee. I have worked with all sorts of underwriters, under retained counsels, etc., and have good relationships. If there’s something, in particular, that’s a little wonky, you have a torrent or a land court system, in addition to the regular public records. I had to do this not long ago, for instance, in some states, Massachusetts being one and Minnesota is another. Up in Massachusetts, I had an issue.
Chris is from Massachusetts.
You can say everything you want about Massachusetts. That’s okay. I don’t live there. I’m in Virginia now.
You saw the light. That’s good. I had an issue where there was a gap in the chain of assignments, and we have the land court record mortgage. We are trying to release the lien and we had to go through a land court process. When I was looking at it, I scratched my head so I called a colleague, a friend, an acquaintance up in that neck of the woods and said, “Let me run this by you.” I ended up engaging him as local counsel to assist. That type of reach and knowing who to go to in certain places. You are right, you get the sense. That 95%, you are like, “This seems a little hairy. Why do I have to go through all this effort? Let me call up somebody.”
You said a couple of things that resonated with me having been in this space actively for a few years now. One is, even on the front end when you are doing due diligence, as a new note investor, you might have an expectation of like, “I either get a red light or green light.” People make fun of me now for trying to be an attorney and saying, “It depends on all the time.”
You said mitigating risk, and that’s what you are doing up front. It’s almost never, “There’s nothing wrong with this file,” whatsoever, at least from our experience. If so, it’s like, “I’m wondering, as an attorney, if you are doing your job.” When you get a house inspector, their job is to point out potential issues. It’s never like, “There are no issues.” If you are mitigating risk, then it’s your decision as a buyer, as an investor, how much risk are you willing to take on. The other thing that to point out is you never know until foreclosure if it’s going to be an issue if that’s the route it’s going down.
There is any number of wildcards. You can look at something and say, “The law says that this shouldn’t be a problem. The law is clear,” but that doesn’t mean someone can’t see you about it. You still end up in a lawsuit about it.
It’s important to set that expectation that we don’t know how it’s going to go.
It’s not the attorneys’ fault either. I’ve got one now that was a loan that we financed. We moved into the 1st position and the 2nd position holder signed the subordination agreement and everything else. Years later, there’s no equity in the deal and they are going to get wiped because of the legal process.
Suddenly, they get an attorney involved saying, “That was not proper.” We didn’t mean to do that. While our title insurance companies are involved as well, it’s slowing the process down. I’m still confident. Everyone is telling me, “I can’t blame my attorney for that.” I said, “Why didn’t you pick this up?” Who would have ever known that a second position lien holder out of the blue is going to say, “I think I’m in first now.”
Looking at that title report on the front end, it probably looked clean from a lien priority position. Who knows? That’s also why you have title insurance. Good on you, good on your attorney for picking up on that. It’s an interesting insurance product that has a huge information and knowledge deficit. I don’t know that a lot of people understand what that title policy is or can do for them. I’m glad to see that it’s in play in your lawsuit and your dispute.
Let’s break that down quickly if you don’t mind, then we can get into some crazy stories. I got out of college and bounced around a little bit and then ended up at a title company and realized how little I knew about title insurance, which was zero. Title insurance goes backward, whereas most other, if not all other insurance, is this date forward, so the coverage is backward-facing. There’s an owner and a lender policy. These are simple terms. Do you mind giving a high-level overview of what is title insurance for the newer note investor?
That is its primary unique feature, it is backward-looking. Let’s take a standard residential loan closing transaction. We will take a purchase transaction, for instance. The borrower buys a property and finances it with a mortgage. As part of the closing process, there’s a title agent involved and a title insurance underwriter. The agent is the underwriter’s agent. What they are tasked with doing is going and reviewing the title history to the piece of property, to see if any issues are out there that could impact the borrower’s ownership, or there’s a lender policy, mortgages, validity, enforceability or priority.
There’s an abstracting process that happens. Jamie, that’s probably a part of what you were involved with early on in your career. You are doing a title search and abstract, whatever it may be called in your jurisdiction. Out of that comes a title commitment. These should be in the loan files of loans that you are looking at and purchasing. It’s a snapshot in time.
If it’s a closing that was happening now, you are going to have a look back from the past to see if there’s anything out there. Those things could be, for instance, a wild deed has the seller or someone else prior in the chain of title conveyed title to a third party has it gone elsewhere to where we have concerns over what is being conveyed to the borrower or their prior liens that are out there.
In a purchase transaction, if the seller had a mortgage, that’s going to appear on the title commitment. What that means is the title company is saying, “Look, for us to ensure your lien in first lien position, you are going to have to make sure that the seller’s mortgage is satisfied.” That’s what happens at the closing table. You have the closing disclosure, it’s allocating where the money is going, including paying off the prior lien. There could be all sorts of things. There could be easements and rights of the first refusal.
There are Mineral Rights I see sometimes.
You will see Mineral Rights occasionally like a cell phone tower lease, something like that. That’s interesting. That’s more New Age.
I get this question sometimes. How does an IRS judgment or IRS lien affect things, typically speaking?A straw borrower is one of the common problems that you run into if you've got a fraud-type situation. Click To Tweet
I’m going to give you the classic lawyer answer. It depends, the primary thing that it turns on is the type of transaction. Purchase money transactions are treated differently than refinances. The reason for that is a lot of states, I would say the majority law would be that is part of a purchase money transaction. Going back to our example of buying a house now and financing with a mortgage, that borrower would not own the house without the mortgage proceeds.
It’s treated as a simultaneous transaction. Almost a Big Bang Theory type of thing, where the mortgage and the purchase all happens as one. In that instance, the purchase money mortgage is deemed to have superior rights. More importantly, for an IRS lien over the borrower, the purchaser in this instance. IRS liens on a seller, that’s something that you would expect to see on a title commitment because it has been attached to the piece of property.
If I find my note buyer, I’m running due diligence, I run a title report, and I see an IRS lien or IRS judgment pop up, should I be concerned about that?
It depends on where that is in the title search. This isn’t like it depends on order priority. If you are buying a note, however many years down the road from origination, if an IRS lien has popped up in the interim, you are generally under a first in time, first in right scheme. If it’s an IRS lien that predates the mortgage, we are looking at what kind of transaction it was. We are also looking to see what the title policy says. If it’s something that could impact the title in our lane priority, do we have insurance for it? Is the covered matter? That is true. It depends but not in a wishy-washy answer.
It’s not a cop-out answer. I don’t typically play in this space. People who deal with seconds and lines of credit, correct me if I’m wrong but those typically don’t get title insurance policies on them. Also, in the same token, if there’s title insurance on the property from a 1st and I’m in a 2nd position, I can’t use that policy essentially. Correct?
Correct. I will take that in reverse order. The lenders’ policy, interest, and benefit, identifies the mortgage that it insures. First and foremost, no other liens are covered by that title policy. They may be covered risks but they are not insured to that title policy. To your other point, in the second’s world, that has been my experience as well that HELOCs and second liens are typically not purchasing title insurance in connection with their loan.
There’s nothing that says you can’t. If you were to get a policy on a second lien, typically you would have the first lien as an exception. They are not going to insure you as a 1st when you intend to be 2nd. That will appear as an exception. There could be other matters that are out there. If you wanted a 2nd and you didn’t want a 3rd or 4th, that’s what is going to happen.
That’s where Jamie like the IRS, could come in where, “I have a property,” and then they go get a line of credit two years after the IRS lien, then the 2nd is in 3rd. They are behind that IRS as well.
What about a crazy story or two? Any examples you can think of?
I will give you a lawyer caveat here. I am bound by the rules of professional responsibility, attorney-client privilege, respective settlement agreements, and confidentiality provisions. A lot of the examples I’m going to give are going to be a bit more generalized. In preparing for this, I went through this one thing I track. For instance, title insurance recoveries over time. It’s an important thing when I’m talking to folks, either new clients or existing ones, to show the value proposition.
Do you track that as a metric?
Personal metric and understanding where we are there. I did realize it needs a little updating. I was going through it. Also, I keep track of what the issues were and what was the dispute. I went back through that to get a better sense. In going through it, the ones that stood out the most were the fraud examples in different ways.
This has been some number of years ago, two different fraud schemes but similar in different parts of the country. Loan stacking for at least some period was invoked. What that means is, typically it’s an insider job. You must have somebody and it’s usually the title agent level that’s involved in the fraud. What they are doing is they are taking out any number of loans. For the one I was working on, there were 6 or 7 different mortgages. They were taken out on one piece of property.
They were doing all these closings but they were holding the mortgages and not recording them so that when they ran the title, that shows it’s clear. They go and record them all in haphazard order. You have 6 or 7 different lenders that think they have a first lien on the property and only one does. It’s memorable when that happens.
Another one of the common problems that you run into if you’ve got a fraud type of situation is that sometimes there’s a straw borrower. I read some of your other episodes, you guys are focused, rightfully so on doing good deeds for a borrower. In this situation, that’s fiction. All we care about is property. There was a straw borrower. I don’t care what kind of deal we cut down. They are not going to be re-performing. They are long gone. It’s a mad dash for cash almost.
You have criminal indictments that come out of these, wire fraud, bank fraud, etc. You are naturally looking at your title policy because when you’ve got that, you were buying insurance that you were going to be the first lien. Fraud can be tricky because this was an inside job and it depends on which inside. If it’s on the lender side of the house, we talk about covered risks and a policy but there are exclusions. One of them is for matters that are defects, title defects that are created, suffered, assumed, or agreed to by the insured, which is the initial original lender. Did they create this problem?
Were they a part of the fraud?
When you are dealing with that, one of the first things that you are looking to figure out is, “What’s the original lender in on it?” That materially impacts your ability to recover. In that situation, it was the title agent, so not us. Fortunately, we were able to get coverage there and get the last payment. The insurance company continued to pursue its recourse through the Criminal Restitution process against fraudsters.
It doesn’t matter what profession you are in, there are scumbags in every profession. I won’t go into too much detail but attorneys on both sides of the table had the same first name and the title company called the wrong attorney. They left a message that was damning on some of the things that they were attempting to do regarding a property that we were liquidating prior to trying to beat a foreclosure sale. It was extremely shady and what they are trying to do is probably downright illegal.
It’s like any business, there are bad apples. You think, “How can it be a bad apple and title?” In loan stacking and stuff like that, you see that probably more often than you would think. I’m curious, do you see it also in some hard money lending situations? I have heard of people in the past that will go renovate a property and get five mortgages on them, then ask the person, “The title company still hasn’t recorded it.” I’m thinking, “That’s odd.” Usually, it should be recorded just like that. They find out later on that they are suing them because there were five other people at the same time. They are all recorded that day or one right after the other.
I don’t think the type of loan matters. The type of fraud itself is pervasive, regardless. It’s unfortunate but it just happens. There are scumbags everywhere. Another thing that you see sometimes, and I don’t know that it’s limited to hard money lending but property flipping schemes where you are running a property through several different entities and inflating value. That’s not necessarily a title issue. That’s the type of fraud that you can see sometimes. There are those contexts artificially inflating value.
I was reading some title policies and when you read through them, sometimes, there are all the exclusions that are in there written by attorneys and insurance companies. In this instance that I was dealing with this subordinate second, there was a look of like, “Can we sell the property and put the money and hold it in escrow?” My attorney is like, “No, we need to get the title company to sign off on anything you do.” He told me, “Once you even sniff and there’s a potential claim, put the title insurance company unnoticed and make sure you play by their rules because the last thing you want to do is do something that could invalidate that policy.” Is that good advice?
Yeah. One of the first things that we talk about if we are giving training, etc. is to get it in as soon as you can. You don’t want to delay. It’s important to get your claim in as early as possible to the insurer because there is exclusion and that’s in the policy that relates to prejudice to the insurer by the insured.
The classic example, for instance, would be if you settle out a lien dispute, then submit a claim. The insurer may say, “We had all these great defenses that we could have pursued and obtained a first lien position for you without you having to take a loss. We are not paying you for that. You prejudiced our rights.” They have the right to step in and defend that they can and will exercise if the circumstances warrant now.
The flip side of that is even if you realize that, “Somebody forgot to submit a claim, didn’t submit a claim earlier in this,” I wouldn’t let that be a basis for you to not submit a claim. Even if a year has passed, and two years have passed since this title issue was identified, I would still submit a claim because the flip side of that is the insurer can only deny to the extent of the prejudice.
If your attorneys got in there and we are doing a heck of a job defending, pursuing all of these defenses to own priority, all the same things that the insurer would have done, they weren’t prejudiced. It may be a delayed claim but it’s no harm, no foul. I wouldn’t let timing paralyze you from submitting a claim. That’s important for some new investors to never give up. Don’t throw in the white towel just because you have seen some time has passed.Get your claim in as early as possible to the insurer. Click To Tweet
Regarding timing, as note investors, the speed or time, especially on delinquent assets, is important for your return’s perspective. I will see collateral and like, “This title issue in Michigan gets fixed.” I have had people who will be like, “That will take 2, 3 months. I know issues like that.” I will talk to another attorney and they will laugh and be like, “This will take a year two.” On average, depending on the type of claim that’s involved, title claims take time.
When I say time, they don’t take days or weeks, they take quarters. When I say quarters, three months at a time. They take quarters or years. Typically, you are hearing answers in three weeks unless it’s something cut and dry. If there’s a legitimate claim on something, for example, I had one in New Orleans where they recorded the mortgage in the wrong parish and that didn’t get fixed overnight.
That’s one thing that a lot of folks struggle with investors, note buyers, and servicers because time is money, certainly something I understand. The claims process is not a snap-of-the-finger type thing. What I see is that you will submit a claim, and then probably plus or minus 30 days to get a response. That response, if you are in a good spot, “This is a covered risk and we are going to go fix it. We are going to hire counsel.” That’s maybe what the insurer tells you.
When that happens, then they must retain counsel and an attorney. They are going to review it as if they are seeing it for the first time. If it’s something that needs a lawsuit, we are talking about at a minimum, filing the complaint, and if possible, taking a default judgment. That all takes time. If it’s something that can be fixed by working on a resolution with someone else, that wouldn’t be the resolution that you are looking for. In your example, a wrong recording.
It was wrong because there was another mortgage recorded on that property in the right parish. Now, it’s like, “They are going back and forth. Do I just pay you off? Do I pay them off? What do we do here?”
Like any other company or large organization, they are having to get settlement approvals. When they are going through that process, they have higher-ups asking them, “Is there a basis to take priority if we go record in the right jurisdiction? If not, what’s our easiest way out? Is it cheaper to pay off Chris or is it cheaper to pay off that other mortgage?” They are also looking at two different things. It sounds like your attorney is working through this and you are, too. Be able to view both sides of that to understand at least the timing. What they are looking at and what they are thinking about helps you understand. Title issues, be it curative or coverage, take time and longer than some other things to fix.
On technology, do you see blockchain or eSignatures that you are recording? How has that changed your industry in general in the last few years? How do you see that affecting maybe the speed of transactions or in any other capacity going forward?
There’s a tremendous opportunity for technology in this space. I hope it doesn’t take hold too quickly because it might leave me without a job. A lot of my work is the result of human error in some way, shape or form. You mentioned a couple of different technologies. I haven’t seen blockchain deployed yet in that way.
They have always done this. They have always maintained title plants where they are aggregating records from all these places so that they don’t have to send an abstract you are down to the middle of nowhere county. They look through the records right. They are buying information. You have some insurers out there that are leveraging that information to be able to quickly abstract. I don’t know if they are using blockchain technology to do that but they are at least internalizing and digitizing their records. You are seeing counties do that, too. It’s still spotty. You have digitized records all over the place.
The other thing that makes it difficult to employ that type of technology is that recordings are done at the county level. It’s got a situation where you are asking a sparsely populated county with little to nothing going on there and not very much revenue to implement this huge technological overhaul of their information system. It isn’t happening. The problem is that you have a decentralized title information universe.
There are title companies that are doing a good job of aggregating that buying that information. To parlay that into another technology mentioned, eRecording is making that easier. It sounds simple enough to go scan a deed and upload it but when you are doing that at scale, that’s a lot of time and man-hours. We are taking that out of the process by having someone else, not the Recorder’s Office, do the scanning, emailing, and uploading. That’s all going to help speed things up and make more information available.
The other thing you mentioned, eNotes and eMortgages is an interesting space. I had posited that as a question to pose to you guys, not to flip the script, whether or not you are seeing a wide universe of eNotes out there. I have had several clients ask me about eNotes, and bailee letters, for instance, because it’s interesting and different. When you are doing a collateral review, there isn’t the standard wedding piece of paper. Instead, you are being sent a copy, you are having to confirm the custodial chain, etc. which is all done as part of an eVault system.
Allowing you access, I must make sure that we’ve got a bailee process in place, that you aren’t being transferred to the note. That’s an interesting space. That too will speed up a few different things. It will speed up the diligence process on the secondary market. One of the pains of my client’s existence, and I’m sure you see it too, in buying loans is an assignment gap chain issue.
Having to fix those when entities are long gone. That doesn’t exist anymore. That area, among all of them, is most ripe for some blockchain technology that would solve that problem. I know MERS has certain eNote offerings and runs an eVault. I envision that being a platform that is subjected to some disruption, if you will, with blockchain.
To answer your question, I have shied away from a lot of that because I’m more on the conservative side. If you have wet ink, it’s the best thing you can have. If you have a digital signature, how did they sign it? Who was the notary? It still allows even DocuSign or RightSignature. There are so many platforms now for verification, even the online notaries.
I have been more conservative because I don’t need to add another way for a borrower to try and dispute something. I typically have shied away from a lot of the electronic online stuff until I have fully confidence that it is something because I’m risk-averse from that perspective. I’m curious, Jamie, what do I do?
I have used and seen it. I had one where we sold a loan. it was in a launch and the buyer was asking for the actual original. It’s like, “You are looking at it. I can print it out and mail it to you or you can print it out and grab it from your printer because that’s the same thing. There is that element. It has been generally accepted as just as good.
Up in Maine, there’s the Greenleaf case with MERS that throws MERS out the window from that perspective, which we only talk about now. I’m waiting for some rebel judge to rule on something that all of a sudden creates havoc in that world. Now, I like to stay with the old school.
That makes a lot of sense. When you were saying conservative, I’m thinking old school. You certainly still have a judiciary bench that is very much old school. You do have an addition to adopting it within the industry, an education component that you are going to need to educate others on being just as good, Jamie. We may know that but you are going to have to convince somebody else’s of that too.
One of the things I was going to jump back to is because we were talking about timing, where investors sometimes might think differently about the timing. Most people are more familiar with an insurance claim for a fire or water damage, where it’s like, “That’s an insurance claim, okay.” They send the adjuster out and get taken care of. It takes a little bit of time but gets rectified then and there where a title claim, while it’s insurance, is more of a lawsuit.
The mindset that most people should think about is title insurance, any type of claim, a lot of times may have to lead to some type of lawsuit to fix it. When I got into this space, I thought the same thing. I’m like, “It’s just an insurance claim. It doesn’t run like if there was a fire, flood or so forth.” There are the same due diligence processes but then a lot of times, it must get rectified in a lawsuit, which is almost similar to a judicial foreclosure. You’ve got to go to court to file a complaint and see if it’s contested. That’s a mindset for new investors to think about that a little bit.
The curative process is going to be long and drawn out and typically is a lawsuit. That’s running its course. That takes the last payment side of things. Let’s say, sure enough, you thought you had a first and someone else foreclosed and extinguished you. Let’s say you had no arguments for priority or no basis to contest. Even that process, which you would think of as a total loss accident itself can be drawn out and can lead to coverage litigation. Surely, if my car has been totaled, they are just going to send me a check.
Another thing I have noticed, and picking up on your point there, Chris, is where you view it as if it’s a lawsuit. In addition to what you said, the cure is going to take a process. Unlike some other lines of insurance, the claims councils that are employed by these insurers typically all have Law degrees. These claims counselors are lawyers. From that perspective, it can be helpful if you have a lawyer assisting you with a claim. Even if it seems vanilla, you are dealing with a sophisticated party on the other side of the claim.
I was going back through my list, the most memorable fraud but the most gratifying ones, you were like, “I missed something right on the coverage side.” It could be an endorsement. Everybody is proceeding on the claim as if what we are dealing with is a standard ALTA, American Land Title Association, policy because the form itself is a standardized policy. The things that differ are the schedules. There are also endorsements. A lot of people, particularly those that are savvy, pay no attention to the endorsements, either that are available or that were issued.
I had one where the problem was a botched subdivision, a subdivision property but also a subdivision development. The final plat was never done, reported, and approved by the county. It rocks on along. There are some other nuances to the claim but coverage was denied as some of the subdivision issues. They were going to fix something else concerning a legal description but she gets in there. Lo and behold, there’s a specific subdivision endorsement that was issued where the insurer had insured that the property had been properly subdivided and under local rules. Nobody was paying attention to that.
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That’s important, too. You are saying that back with your timing comment. I wouldn’t rush the claims process. I would do my research and homework and pay attention. Don’t treat every policy like it’s a regular policy. There could be something there.
That’s a good note and bolt right there.
The other one was that he dropped to get your attorney to review. One of the things that I have learned is, and this is for new investors, I never deal with this, if you file a title claim and the title insurance company hires your attorney, you don’t pay for that attorney. They pay for those costs. That’s one benefit. If you are thinking, “Now I have to pay for this attorney,” they will pay for all aspects of this question firm. In my case, they have paid for that cost but I’ve had my internal counsel assist and communicate. I’ve got this legal letter once and I’m like, “I have no idea what this means.” I sent it over to my attorney and was like, “Here, you deal with this.” Let them handle it from that perspective.
What you said is accurate. If they have accepted coverage and are going out to either defend if there’s a present lawsuit challenging, and they have hired an attorney to defend you or if they are taking affirmative curative action and empowered attorneys to do that, they are paying those calls right there. Here’s the other thing, that’s different from other insurance policies. The title policy is not a wasting limits policy. What that means is the defense costs don’t reduce the amount of insurance and some other policies do. If, for instance, they run up $100,000, a legal bill fixing a particular problem, that doesn’t mean that your amount of insurance is reduced by $100,000.
I do this for a lot of my clients. I am still serving as a bit of a managing counsel role even when they hire an attorney to go fix a problem or defend the insured. Who better to advocate for the insurance interests, the client’s interest, the client, they are chosen and paid for an attorney but also consistency?
For instance, sometimes a retained counsel may be bright and capable of dealing with a particular title issue. Let’s say that they are the best equitable subrogation attorney that’s ever existed but they may know nothing about how loans get transferred on the secondary market. The last thing that you want is for a misstep to cost you on standing, for instance. Have your attorney work with you to show them the way. I like to talk about curative strategies. The best problem-solving happens in brainstorming. I may fall in love with an idea of how we are going to fix a problem but the beautiful thing about the title is that there are several different ways to skin a cat.
Chris may say, “Timings are important for me here. I get that we can go do something that’s going to be the Cadillac of all fixes but we can get to this place quicker by doing X,” that may be. Having someone to bounce ideas off of, I’m not shy about providing the thoughts to retain counsel and how best to approach something because that benefits the insurer.
I have had some issues in the past that needed quiet titles on defaulted loans. Sometimes I was able to cure it after the foreclosure. This is where having a strong attorney on your side will also help to guide you through that process of, “Do I fix that now, which delays the foreclosure? Do I want to control the property and I can deal with this quiet title issue later on down the line to fix it after the fact?”
That’s something that I have seen in the past as well. The first time it happened to me, I didn’t realize it, so I had to wait eight months for something to get fixed. It’s like, “You could have foreclosed and then fix this after the fact.” I’m like, “That would have been nice to know because I could have gotten in there, done a little light rehab, got it ready, and so forth.” I was going to eventually liquidate the asset, so I needed to get it fixed. I lost that time because I wasn’t controlling the property.
Some you can, some you can’t. Depending on the type of defect, you may need to fix it pre-foreclosure. Having an attorney to help you call that ball and strike is important. You’ve got a great handle on where you want to go with a particular asset or liquidation strategy. Having an attorney that partners with you on that is important because note buyers and private investors lump into that same bucket are nimble.
I love working with them because they have that vision. They know exactly what they want to do. They can call balls and strikes and make decisions quickly. In the situation that you are talking about, if you are dealing with a bank, there may be requirements in place that require them to cure the problem before foreclosure. Someone that’s beholden to a GSE requirement, Government Sponsored Enterprise, Fannie, Freddie, etc. You may have an attorney that is accustomed to that practice. You get blinders on the fact that it could be if you don’t have a GSE requirement fixed after. There are different reasons that different things happen and that’s one of them.
Do you have a good deed you wanted to share? You mentioned some things that probably could apply to the fraud story potentially but any good deed you want to share, and then let our readers know how they can reach out to you.
On the good deed on this Good Friday, what I would say is to be practical. I know this is blending in with a nut and bolt. Ultimately, I’m an attorney that is advocating for my client’s interests. I’m guided by what they want to do. Being practical and listening because sometimes in the title curative space, the good deed example would be being able to solve a title problem while at the same time helping out the borrower.
For instance, if you’ve got a problem with execution on a mortgage, we can fix that maybe through a loan mod but the borrower is getting something out of it, too. We are able to modify the loan and help them while helping ourselves to get a better enforceable security instrument. Be practical. Don’t be stubborn about, “We are going to do it X way. There may be a solution that’s out there that helps you and helps the borrower for their time and trouble helping you fix your security.”
One thing that draws a lot of people into the note space is creating those win-win scenarios where it’s mutually beneficial. We try to work in that direction. You can’t control the borrower. That’s my goal and it’s usually more profitable if you can work with them. Chris, anything you want to add or you want to take us out?
One thing I will add as part of this. When you are dealing with title claims and so forth, I recommend you have an attorney on your side. Any insurance company is looking out for their best interests and they don’t hand money out as the Federal Government does. You need to be cognizant that they will fight tooth and nail in those issues. I always recommend whenever you are dealing with attorneys on any side that you also get representation on yours.
You can go to our firm’s website, Bradley.com, and search for my name. Maybe if you google Spencer Mobley, I might pop up. I have a landing page on our firm’s website. We would love to get any feedback and talk to anybody that may have questions. My contact information is all there.
Thank you all for reading. Make sure to go out and do some good deeds. If you enjoyed this show, make sure to leave a review on your favorite podcast station. Thank you, all.
About Spencer R. Mobley
Spencer Mobley represents financial services clients throughout the country with a focus on resolving issues arising from the enforceability of mortgage liens and note obligations and borrower-driven litigation. He regularly provides counsel to lenders, mortgage servicers, and banks to help maximize recovery and mitigate mortgage loan losses through recoupment efforts involving title insurance, closing protection letters, mortgage insurance and the exercise of mortgage lien rights.
Due to the wide and varied nature of issues bearing on the validity, enforceability and priority of mortgage liens, Spencer takes a creative, solutions-based approach to each matter. Through negotiation and litigation of insurance and real property claims, he has helped clients recoup millions of dollars and resolved title issues to enable clients to exercise their lien rights. Through his involvement in the American Bar Association’s Title Insurance Litigation Committee, Spencer stays apprised of new developments in real property and title insurance law. He has also presented to the committee regarding title insurance issues from a lender’s perspective.
Spencer has defended lawsuits brought against mortgage lenders and servicers involving allegations of wrongful foreclosure, negligent loan servicing, deceptive trade practices and inaccurate credit reporting. In addition to financial services, he also maintains a general litigation practice, representing clients in products liability, construction defect and commercial disputes in litigation and arbitration proceedings.
FV-I, Inc. v. Commonwealth Land Title Insurance Company, 14-cv-00455 (U.S.D.C. for the Middle District of Tennessee)
Obtained summary judgment in favor of the insured on breach of contract claim seeking recovery under a title insurance policy due to the closing agent’s failure to pay off a prior superior lien interest at closing.
Ocwen Loan Servicing, LLC v. Chicago Title Insurance Company, 2014-cv-244272 (Superior Court of Fulton County, Ga.)
Obtained summary judgment in favor of the insured on breach of contract and declaratory judgment claims seeking recovery under a closing protection letter and title insurance policy due to the closing agent’s failure to disburse loan funds in accordance with the lender’s closing instructions. The trial court awarded the insured damages due to the extinguishment of the insured mortgage by the prior lien holder’s foreclosure on the property.