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May 2010Official Publication of theAmerican Land Title AssociationTop Lawsuits Impactingthe Title IndustryALTA’s Title Counsel breaks downseveral cases decided in 2009
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vice.TitleNews Volume 89, Number 510Cover StoryTop LawsuitsImpacting the TitleIndustryBy ALTA Title CounselALTA’s Title Counselbreaks down several casesdecided in 2009 , andoffers analysis as to theimportance to the titleinsurance industry.Features07Inside alta22Ru nning Your BusinessStandard Procedures andControls Created by InternalAuditing CommitteeTitle Agents Starting to Reap‘Unintended Benefits’ fromNew RESPA RuleThe standard audit guidelines werecreated to help improve the title industryby imposing consistent and fair standardsagainst which every company is measured.By Barbara MillerDepartments4Calendar of Events5From the Publisher’s DeskThe new GFE/HUD-1 forms have forcedtitle agents to upgrade their technologyand rethink how they do business.618Inside ALTA25INDUS TR Y N EWSPeople on the MoveALTA Meets With HUD, MajorLenders to Promote RESPAImplementation ConsistencyUtah Governor Signs BillBanning Private Transfer FeesThe discussion with HUD provided anopportunity for greater cooperation amongsettlement provider partners and lenders.Utah became the fourth state to ban theuse of private transfer fees, whichrequire consumers to pay thousandsof dollars to third parties that hold noownership interest in the property.ALTA News2728TIPAC Contributors29New Members30The Last Wordwww.alta.org May 2010 TitleNews 3
calendarALT A Eve nt sOctober 13-162010 AnnualConventionSan Diego, CASt ate Co nve ntio nsMay 23 - 25CaliforniaJune 2 - 6ArkansasJune 4 - 6VirginiaJune 7 - 8WyomingJune 9 - 12New JerseyJune 9 - 12PennsylvaniaJune 10 - 11South DakotaJune 17 - 20New England (CT,ME, MA, NH, RI, VT)June 23 - 25TexasJuly 18 - 20MichiganJuly 22 - 23IllinoisAugust 5 - 7Northwest(ID, MT, OR, UT, WA)August 12 - 14KansasAugust 15 - 18New YorkAugust 19 - 21MinnesotaSeptember 9 - 12Dixie Land(AL, GA, MS)September 9 - 11North DakotaSeptember 12 - 14OhioSeptember 15 - 16NebraskaSeptember 15 - 17ColoradoSeptember 16 - 17MissouriSeptember 16 - 18North CarolinaSeptember 16 - 18IndianaSeptember 22 - 24MarylandNovember 3 - 5FloridaDecember 1 - 2LouisianaPublisherKurt PfotenhauerEditor in ChiefJeremy YoheAssocia tion officersPresidentMark E. WinterStewart Title GuarantyWashington, DCPresident-ElectAnne L. Anastasi, CLTPGenesis Abstract, Inc.Hatboro, PATreasurerJohn HollenbeckFirst American Title Insurance Co.Santa Ana, CAChair, Finance CommitteeDiane EvansLand Title Guarantee CompanyDenver, CODesign/ElectronicProduction ManagerShawn SullivanAssoci ation st affChief Executive OfficerKurt PfotenhauerSenior Vice Presidentand Chief of StaffMichelle L. KorsmoDirector of CommunicationsJeremy YoheDirector of Education& TechnologyKelly Romeo, CAEDirector of Government AffairsJustin AilesDirector of MeetingsCornelia Horner, CMPChair, Title InsuranceUnderwriters SectionChristopher AbbinanteFidelity National Title GroupJacksonville, FLBoard Representatives,Title InsuranceUnderwriters SectionPeter BirnbaumAttorneys’ Title Guaranty Fund, Inc.Chicago, ILRobert ChapmanOld Republic National Title Insurance Co.Minneapolis, MNChair, Abstracters and TitleInsurance Agents SectionFrank PellegriniPrairie Title, Inc.Oak Park, ILBoard Representatives,Abstracters and Title AgentsSectionHerschel BeardMarshall County Abstract Co.Madill, OKJack Rattikin, IIIRattikin Title CompanyFort Worth, TXImmediate Past PresidentMichael B. PryorLenders Title CompanyLittle Rock, ARTitleNews is published monthly by theAmerican Land Title Association, Washington,DC 20036. U.S. and Canadian subscriptionrates are 30 a year (member rate); 100 ayear (nonmember rate). For subscription information, call 1-800-787-ALTA.Send address changes to TitleNews,American Land Title Association, 1828 LStreet, N.W., Suite 705, Washington, DC20036.Anyone is invited to contribute articles,reports, and photographs concerning issuesof the title industry. The Association, however, reserves the right to edit all materialsubmitted. Editorials and articles are notstatements of Association policy and do notnecessarily reflect the opinions of the editoror the Association.Reprints: Apply to the editor for permissionto reprint any part of the magazine. Articlesreprinted with permission must carry the following credit line: “Reprinted from TitleNews,the monthly magazine of the American LandTitle Association.” 2010 American Land Title AssociationMembers Call Toll Free: 800-787-ALTA Members Fax Toll Free: 888-FAX-ALTAVisit ALTA Home Page: www.alta.org E-mail Feedback to: service@alta.org4 TitleNews May 2010 www.alta.org
from the publisher’s deskTitle Protection on Refi TransactionsMust be MaintainedRefinance volume will always be a significant portion of total originationvolume. And refi booms will always be part of the housing and mortgagecycle. But imagine if your company no longer issued title insurance policiesfor refinances. What would that do to your revenue? What would that meanto your employees? How would that affect the quality of the public records you searchfor purchase mortgage transactions? What would that mean to your claims?The Uniform Law Commission (ULC) has appointed a study committee toconsider whether a uniform or model act on mortgage subrogation should be created.Your attorneys could provide a better definition, but subrogation essentially means therefinancing lender would simply assume the lien position of the original lender. Statelaws on this vary, but some are wondering whether this could be an incentive for thetitle industry to substantially lower the costs of title insurance for refinances or evenremove the need for the protection of a title insurance policy altogether.The ULC’s study group has already met by phone on two occasions, and hasbeen well represented by the title industry. ALTA will be playing a greater role inthe discussions about the challenges and opportunities of mortgage subrogation, and we’ll be engaging ALTAcommittees for their feedback.Our message on this issue is consistent with the positions we’ve taken in the past: the accuracy of our publicrecords should be strengthened, not weakened. If we learned nothing else in the mortgage crisis, it’s that we shouldadvocate for stronger underwriting standards, not weaker ones. This is our opportunity to explain the value weprovide to our communities.In addition, mortgage lenders need to manage the risk of having to defend against claims to the mortgagedproperty. They do this by shifting the risk of defense costs to the title insurer. This reduces the risk of loss to thelender which reduces consumers’ cost of borrowing.The title industry has a high number of fixed costs to maintain the ability to identify risk and defend againstclaims. If revenue from issuing policies on refinanced mortgages were lowered in order to lower costs for reficonsumers, the cost of insuring purchase mortgages would inevitably increase, leading to higher costs forhomebuyers. This kind of cost shifting may be penny wise but dollar foolish, and would also diminish the accuracyof our public records.– Kurt Pfotenhauerwww.alta.org May 2010 TitleNews 5
ALTA newsALTA Urges HUD to ClarifyPosition on Private Transfer FeesThe American Land TitleAssociation and theNational Association ofRealtors sent a letter March23 to the Federal HousingAdministration requestingthat HUD clarify its positionprohibiting the use of privatetransfer fees for FHAinsured mortgages andoppose private transfer feesfor other mortgages as well.Private transfer feesrequire consumers to paythousands of dollars tothird parties that hold noownership interest in theproperty for the right to buyor sell real estate. Thesefees usually require a fee(typically 1 percent of thesale price) be paid to adeveloper or their trusteeeach time a property issold for a set period oftime (usually 99 years.)Freehold Capital Partnersis attempting to securitizethe revenue streams to sellas investments, and theirscheme is being promotedaggressively to state andfederal authorities as wellas to Wall Street.ALTA’s Board voted tooppose private transferfees, noting they costconsumers money and willresult in increased costsof underwriting, claims,escrow services andcompliance.FHA Withdraws Approvalof Two LendersThe Federal HousingAdministration (FHA) ispermanently withdrawingits approval of Atlantabased RSA Financial Inc.and 1st Alliance MortgageLLC of Houston. Theactions prevent the lendersfrom originating andunderwriting new FHAinsured mortgages or from6 TitleNews May 2010 www.alta.orgparticipating in the FHAsingle-family insuranceprogram. The U.S.Department of Housingand Urban Development’sMortgagee Review Boardalso voted to impose a 15,000 civil penalty againstRSA and seek 267,900from 1st Alliance.National Flood InsuranceProgram ReauthorizedThe National FloodInsurance Program (NFIP)has been reauthorized,allowing the program toonce again issue newpolicies or renewingpolicies to cover flooddamage.The bill (HR 4851)reauthorizing the NFIP waspassed by Congress onApril 15 and signed intolaw by President Obamathe same day. It extendsthe NFIP through May 31.It is retroactive to March28, when its last extensionexpired.“This reauthorizationwill allow for policies tocontinue to be issuedor renewed,” said BradCarroll, a spokesman forFEMA. “Individuals whowere seeking to renewtheir policies or purchasea new policy during theperiod between March28 and April 15 maynow proceed with theirpurchase. Existing policieswere not impacted by thelapse in Congressionalauthorization and continueuninterrupted.”The NFIP sunset couldhave caused short-termproblems for consumerswaiting to close on thesale of a property within aspecial flood hazard area,according to the NationalAssociation of InsuranceCommissioners.When the NFIP’sauthority lapsed, severalagencies, including FreddieMac and Fannie Maeissued guidance.Freddie Mac reported itspolicies on flood insuranceremain unchanged,including: Seller/Servicersoriginating mortgages forsale to Freddie Mac mustcontinue to perform floodzone determinations.Dwellings on mortgagedproperties in SpecialFlood Hazard Areas,and mortgages deliveredto us secured by suchproperties, must haveflood insurance coverage.Fannie Mae statedthat it will purchase loanssecured by propertieslocated in those areas thatdo not have an active floodinsurance policy as long ascertain conditions are met.
inside altaStandard Proceduresand Controls Createdby Internal AuditingCommitteeThe standard audit guidelines were created to helpimprove the title industry by imposing consistentand fair standards against which every company ismeasured.Urged by ALTA’s Board ofGovernors, the InternalAuditing Committeedeveloped standardaudit guidelines that should beimplemented within each title agencyto ensure the acquisition or transferof property can be handled witha maximum degree of efficiency,security and safety.The committee, comprised of thesenior auditor from a number oftitle insurers, created the StandardProcedures and Controls for the TitleIndustry, which was then approved bythe Board.Kevin Gauer, chairman of theInternal Auditing Committee, saidthe Board wanted the committeeto develop standard agency auditguidelines that would be acceptableto all title underwriters and couldbe used to demonstrate that the titleindustry is taking one more step toimprove the industry.“The committee felt that thefocus for any initiative to improvecontrols and set standards should beon company operations and not onlyauditing,” he said. “The committeewanted to promote a certainfoundation of essential controls andprocedures and stress that thosecontrols need to be installed andmaintained. The committee alsowanted to avoid having audit reportfindings and recommendations be theonly source of this information.”In 1991, ALTA published astandard Agency Audit Program thatwas intended to be a generic auditprocedure allowing title insuranceunderwriters to build their ownagency audit program. But over theyears, there has been considerablevariation among the insurers inthe application of the agency auditStandard Procedures and Controlsfor the Title IndustryPrepared by the ALTA Internal Auditing CommitteeA LT Aprogram for various reasons, not theleast of which is the lack of commonindustry control standards foragencies, Gauer said.What is treated as a significantdeficiency by one insurer may betreated as a medium or low prioritymatter by another.“Lacking written control standards,auditors are left to measure controladequacy judgmentally or againsttheir company’s expectations, whichcan vary widely among the insurers,”Gauer said.He added that agency agreementswith underwriters usually do notspeak to internal controls in anydetail. Until now, other than the 2000Escrow Internal Control Guidelines,ALTA has never issued a set ofcommon agency control standards.These Standard Procedures andControls are not designed to replacethe 2000 Escrow Internal Controlwww.alta.org May 2010 TitleNews 7
inside altaGuidelines, but rather to be used inconjunction with them.The Board concluded it will benefitthe industry as a whole to have a setof standard procedures and controls.These guidelines will help improvethe title industry by imposingconsistent and fair standards againstwhich every company is measuredand by making it more difficult forthose who do not wish to meet theminimum standards to remain asactive participants in the industry. General Agency Administration and ControlSettlement / Closing ProcessEscrow AccountingPolicy Production and UnderwritingPolicy Control and AdministrationMarket ConductSome general minimum controlstandards include maintainingfinancial information or statementsin a manner that will be providedto the underwriter(s) upon request;maintaining the appropriate, validn “Lacking written controlstandards, auditors are left tomeasure control adequacyjudgmentally or against theircompany’s expectations, which canvary widely among the insurers.”ALTA’s Agents and AbstractersSection also reviewed the standardprocedures.“Having a standard benchmark isa positive development for the entireindustry ,” said Frank Pellegrini, chairof ALTA’s Agents and AbstractersSection, “The Agents and AbstractersSection reviewed and approved thestandard procedures , and is in totalsupport of the industry adopting thesemeasures.”These control standards are forvoluntary adoption and use by ALTAmembers; however, ALTA encouragesall of its members to incorporate theseprocedures and controls into theirdaily business practices.The control standards areorganized within the followingprocesses:8 TitleNews May 2010 www.alta.orglicense for all the states where theagency conducts business; currenterrors and omissions, malpracticeand fidelity insurance policies andsurety bonds; a filing and file storagesystem that adequately safeguardsthe closing files and escrow records,whether paper-based or electronic;a document retention program thatcomplies with applicable federal,state and underwriter guidelines;procedures to ensure compliancewith underwriter(s) contracts;submission of monthly escrow bankreconciliations to underwriter(s);and immediately reporting tounderwriter(s) any occurrence orsuspected occurrence of fraud,embezzlement or misappropriation offunds.The implementation of thesecontrols helps achieve severalimportant goals, including improvedcustomer service, reduction of errors,protection of depositors’ funds,reduced potential for losses, andmore effective and efficient control ofoperations.Agents are responsible formaintaining adequate procedures andinternal controls considering the sizeand complexity of their operationsand local statutes.The Standard Procedures andControls for the Title Industryshould be viewed as a controlfoundation, but not an all-inclusivelist of internal control standards thatwould cover every risk of a particularagency operation.Whether it’s a multi-state agencyor a single-county operation, Gauersaid the standard procedures werewritten in a generic fashion to setforth the minimum internal controlprocedures that should be in placeand operating within any title agency.“They are primarily key controls asopposed to procedures,” he said. “Inpractice, each operation will have itsown detailed procedures underlyingeach of the controls that will varywith the size and complexity of theoperation.”Gauer said it should not be toodifficult for smaller-sized titleagencies to implement these controlsas most already have a majority of thecontrols and procedures in place insome fashion.“Small agents can use the documentas a checklist to ensure they have theminimum controls in place,” he said.“If a small agency needs help witha particular control that is lacking,the agent may want to consult withagency supervision personnel of theirunderwriter.”
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Top LawsuitsImpacting theTitle IndustryALTA’s Title Counsel breaks downseveral cases decided in 2009With the title insurance industry under constant scrutiny these days,there were a plethora of court cases handed down in 2009 thatcould impact title agents. To keep title agents abreast of what’shappening in court rooms across the country, ALTA’s TitleCounsel Committee provided a synopsis of six lawsuits they believe havesignificant ramifications on the title insurance industry. by ALTA Title Counsel Committee10 TitleNews May 2010 www.alta.org
cover storyCases range from issues dealingwith policy exceptions and RESPAviolations to those focusing on IRSliens and foreclosures involving MERSmortgages. Members of Title Counselproviding the summaries includeMarjorie Bardwell, Fidelity NationalTitle Group; Stephen Gregory,Stewart Title Guaranty Co.; EricSalter, Fidelity National Title; and EllaGower, Miller Starr Regalia.“Title professionals should takenotice of these decisions, even if theyare not from their state or jurisdiction,”Bardwell said. “The decisions could beused as precedent in their respectivemarkets, and may indicate a trend inthe interpretation of these legal issues.If agents and underwriters are unawareof these outcomes, their operationscould be potentially vulnerable tounsuspected liabilities.”In no particular order, the followingare summaries of the facts from thelawsuits, the court’s decision andrelevance to the title insurance industry.Nationwide Life Insurancev. Commonwealth Land TitleInsurance CompanyU.S. Ct. of Appeals, 3rd Circuit,Case 06-
Fidelity National Title Group Jacksonville, FL BoARD REPRESENTATIvES, TITLE INSURANCE UNDERWRITERS SECTIoN Peter Birnbaum Attorneys’ Title Guaranty Fund, Inc. Chicago, IL Robert Chapman old Republic National Title Insurance Co. Minneapolis, MN CHAIR, ABSTRACTERS AND TITLE INSURANCE AGENTS
