By: Roy L. Kaufmann and David H. Cox
DISTRICT OF COLUMBIA
DC: Foreclosure Mediation. It is no secret that, since the inception of the Saving D.C. Homes from Foreclosure Act enacted in November of 2010, residential foreclosures in the District have ground to a halt. An amendment to the Act is being considered by the DC Council and the time is ripe for comment.
See Complete Article
The Saving D.C. Homes from Foreclosure Act
essentially requires lenders to obtain a Mediation Certificate from the DC Department of Insurance, Securities and Banking ("DISB") before proceeding to foreclosure. According to numbers
released by the DISB a total of 4 certificates were issued for the 14 months between the enactment of the Act and December 31, 2011 (no more recent information is on the DISB website). In the months prior to enactment, there were approximately 150 foreclosures a month in the District; thus, as of February 2012, there may be as many as 2000 foreclosures clogged in the pipeline.
The original version of the Act contained a provision that declared all foreclosures void if not in conformity with the provisions of the Act. This declaration was softened by a temporary amendment act in 2011 which, unless extended, will expire in July of 2012 (putting that amendment and the Rules in flux). But foreclosures remain stalled.
New legislation to amend the Act has been introduced in the form of Bill 19-676, "Saving D.C. Homes from Foreclosure Clarification Amendment Act of 2012" (Blackline showing proposed changes). The Bill was introduced at the request of the Mayor (which means that DISB is the initiator) and has been referred to Yvette Alexander's Committee on Public Services and Community Affairs. The Bill proposes:
increasing the permitted time for mediation from 90 days to 180 days.
giving the mediation administrator discretion to waive the requirement that borrower deliver written notice of election to mediate within 30 days of mailing of default notice.
removal of the wording that the Act only applies to a situation where the property is the principal place of abode of the debtor or his immediate family. The logic was that it was difficult to determine whether or not this condition was met.
specific paths of judicial review
While the 2011 amendment removed the major impediment to insurability, the individual title underwriters continue to make independent determinations about whether they will insure foreclosures (or sales with foreclosures in the chain of title). While some lenders have made inquiries, it does not appear that there has been much of a unified reaction by the lending industry. We have not yet seen any increase in rates in recognition of the increased costs to lenders, including carrying time, nor indications that lenders are refusing to lend, as was the case with the expansive D.C. statutes involving predatory lending that were introduced and then repealed several years ago.
But, neither lenders nor consumers would be well-served by a protracted mediation process. Consumers may operate under the false impression or hope that resolution is imminent, only to find that, in the meantime, the arrearage has amassed to the point where it is insurmountable. Further, the federal statute that exempts taxation on forgiven home mortgage debt is scheduled to expire at the end of this year.
Recent final rules found in DCMR Rules set forth additional requirements of the mediation process. They are detailed, myriad, and, at times contradictory.
There is DC Council oversight hearing on DISB scheduled for February 23, 2012. To testify, contact: Ed Fisher, Committee Director at email@example.com.
Federal: A bill introduced in the US House of Representatives, H.R. 3595: Mandatory Foreclosure Mediation Act would require mediation by federal statute.
Banks v. Eastern Savings Bank: In early 1999, landlord entered into two renewable, residential leases with tenants named "Banks" and Kebede . Neither lease was recorded with the DC Recorder of Deeds, but both leases did have certain restrictions, including assignments without advance approval. Subsequently, landlord defaulted on a loan with Eastern Savings Bank (ESB) which was secured by the property. In April 2001, ESB foreclosed and purchased the property at auction. When ESB sought judgment for possession of the property against landlord, tenants intervened to assert their possessory rights. ESB then served tenants with notices to vacate or quit. Kebede assigned his lease to Banks. Trials and years later, the DC Court of Appeals ruled that ESB improperly served Banks with notice to vacate because the Rent Administrator was not provided with a copy of the notice within five days of service. The Court also held that the foreclosure action terminated all subservient leasehold estates and converted Banks into a tenant at will. Moreover, tenancy at will is not an assignable possessory interest; therefore Kebede's assignment of the second-story unit to Banks never conferred any rights. Consequently, the trial court had erred when it ordered the removal of Banks's notice of lis pendens to maintain his possession and purchase rights.
DC: New Recorder of Deeds: Ida Williams, formerly Deputy Recorder of Deeds, then Acting Recorder of Deeds, has been named the Recorder of Deeds. Ms. Williams, an attorney who hails from the title industry, has already demonstrated a fresh, dedicated, and pragmatic approach to her position. Of note, the per-page recordation fees are now replaced by flat fees.
DC/MD: WASA. WASA seems to have done completely away with the final water bill request forms and the methodology developed between WASA and DCLTA after many joint sessions. It now appears that settlement has to occur first and then you request the final bill! According to June Adams of the Customer Service Department of WASA “We no long process final bill request forms. In order to process your request you will need to provide us with a copy of the final signed HUD-1. You may [send to WASA by mail, fax or email]. “
DC: Title Insurance Act. There have been several recent developments of interest relating to the Title Insurance Act. One is proposed legislation and the other is pressure being brought to bear on DISB to rescind a bulletin restricting title agents from offering discounts or rebates to consumers.
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Bill 19-669, the title Insurance Clarification Amendment Act of 2012
, introduced by the Mayor, was drafted by DISB. Blackline here
The Bill proposes:
deleting the provision that the Title Act only applies to residential properties. Instead it would only apply to all title insurance transactions. All references to "residential" would be deleted from the Act.
deleting requirement that title binder/commitment be delivered as soon as reasonably possible and, instead, require that it be produced no later than closing.
rescinding the requirement that agents first attend a course before examination. Instead, the agents would need to sign a certification that: "I have met the District of Columbia Department of Insurance, Securities and Banking Pre-Licensing requirement in that I have taken sufficient Pre-Licensing Education to pass the DC Title Insurance Producer's Examination."
deleting the statutory fee of $50 for an insured closing letter.
forbidding a seller to require, directly or indirectly, that the buyer purchase title insurance from any particular title producer or insurance. It should be noted that, in the past, DISB has taken an expansive reading on "indirectly".
requiring title producers to disclose the name of the underwriter on recorded documents (rather than on correspondence).
revising the required insurance that each producer must maintain.
revising the continuing education requirements:
o 16 hours of instruction specific to DC real estate laws every 2 years for resident producers
o 4 hours of same every two years for nonresident producers
o 8 hours of same every two years for DC-barred attorneys
deleting the requirement that nonresident producers maintain a registered agent for easy service of process and notification.
The following section of the Act merits attention:
ง 31-5041.07. Prohibition of rebate and fee splitting.
(a) In a real or personal residential property transaction, a title insurer, or any employee or representative of a title insurer, including a title insurance producer, shall not pay, allow, or give, or offer to pay, allow, or give, directly or indirectly, as an inducement to insurance, or after insurance has been effected, any rebate, discount, abatement, credit, or reduction of the premium named in a policy of insurance, or any valuable consideration or inducement, whether or not specified or provided for in the policy, except to the extent provided for in an applicable filing with the Commissioner as provided by law.
(b) In a real or personal residential property transaction, an insured named in a policy, or any employee of the insured, shall not knowingly receive or accept, directly or indirectly, any rebate, discount, abatement, credit, or reduction of premium, or any special favor, advantage, valuable consideration, or inducement, as specified in subsection (a) of this section.
DISB issued a bulletin (as opposed to rule-making) on August 12, 2011, which interpreted these provisions as precluding title agents from offering any coupons, or matching any prices of competitors. The bulletin stated:
As a consequence, Title Insurance Producers therefore may not offer, either directly or indirectly, any credits, discounts or any type of inducement prior to, during, or after settlement that are contingent upon the purchase of a residential title insurance policy. This includes any inducement that is effectively contingent upon the purchase of a residential title insurance policy, even if not explicitly stated. These prohibitions apply whther the benefit is provided out of the title insurance premium or from another source, including the forgoing of income that would otherwise be payable by the title insurance purchaser. Moreover, because 26A DCMA ง 4108.2 is not limited in scope to residential title insurance policies, the same restrictions that apply to residential title insurance transactions apply to commercial transactions through the regulation.
There has been pressure brought to bear on DISB by a number of title agents to revisit this expansive interpretation of the statute and the procedure followed in promulgating the bulletin.
DC: Mechanic’s Lien. The Recorder of Deeds has issued its new Notice of Mechanic’s Lien Form. A Bill introduced by Phil Mendelson would make some welcome changes to the current law.
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reducing the number of bonds from two to a single bond, when an owner seeks judicial review of a mechanic's lien
permitting the filing of a lien during construction, rather than having to wait for termination of construction
increasing from two days to five days for the period that a contractor has to reply to a court contest of its lien
A particularly thorough report was filed by the Committee on the Judiciary.
Federal: New Combined HUD-1/Truth in Lending Form proposed. No sooner has the title industry adapted to the new HUD-1 form, than the Consumer Financial Protection Bureau has circulated a complete revision.
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The CFPB has circulated a new, unified settlement disclosure form
for review. Currently, when a consumer applies for a loan, he receives a form required by the Truth in Lending Act (TILA) which sets forth the interest rate and cost of financing, as well as a GFE ("Good Faith Estimate") required by RESPA. At closing, two additional forms are delivered to the consumer, the TILA disclosure and the HUD-1. The proposal by CVPB is to combine all into a single form.
DC: Proposed Collection Agency to be part of OTR, to collect parking tickets and other infractions with the power to record liens. The District Debt Recovery Act of 2011, introduced by Mary Cheh, is scheduled for action on May 1, 2012. The new “Central Collection Unit” would collect each delinquent account or other debt owed to the District (excluding taxes, child support and some other minor items). Liens would be filed at the Recorder of Deeds which would have to be handled at closing. One stated purpose of the legislation is to collect parking tickets and other infractions.
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Section 105 of The District Debt Recovery Act of 2011 (18) provides that unpaid debt to the District "shall be a lien in favor of the District of Columbia upon all property (including rights to property), whether real or personal, belonging to the person, and shall have the same effect as a lien created by judgment. The lien shall attach to all real or personal property . . .". There are provisions for recordation of the lien at the Recorder of Deeds.
There are no minimums set. Hence a lien for a parking ticket could end up needing to be cleared before the sale of a home.
Title professionals currently have their hands full in securing information from OTR on debts administered by OTR. The current legislation would charge OTR with collecting other debts. If a parking ticket were referred to OTR to collect, one can imagine the lack of information on OTR's part when trying to resolve the lien, not to mention the sheer volume of liens that OTR would be required to properly service. Closings would be delayed.
Further, since the liens being filed by OTR will be by name, and not by property, the common-name problem would be exacerbated and much time would need to be spent obtaining verification that the "John Smith" who received a $100 parking ticket is, or is not, the seller of the real property.
Even if tax certificates were available from OTR before closing, which they are not, query whether they would cover the debts to D.C. contemplated by this statute, or whether OTR would try to fashion a new exclusion leading to exposure for title claims.
The OTR would also be entitled to sell the delinquent debt and to enter into payment plans. No mention is made as to requiring the filing of assignments so that payoff requests could be sent (brings MERS to mind), nor the effect of payment plans on any lien, e.g. whether the amount would have to be paid in full at closing. Further, if the assignee fails to reply to a payoff request, how does the title industry deal with the lien?
The committee report can be found here.
DC: Taxation of Commercial Deeds of Trust, Refinances, and Modifications. The Office of Tax and Revenue has issued a Notice ratifying the position that tax will be based upon the difference between the face amount of the refinance instrument and the outstanding principal amount of the old debt (providing that tax was paid on the old debt or that the prior instrument was exempt from taxation). This does not apply to certain residential property containing 5 dwellings or less, which are usually exempt.
D.C. LEGISLATIVE UPDATE CHARTS
19th Council Period (2012)
18th Council Period (2009-2010)
Londen Land Company, LLC v. Title Resources Guar. Co.: In 2002, Londen Land Company, LLC bought 142 acres of land in Florence, Arizona. It also purchased a title policy for the property from Title Resources Guaranty Company (TRGC). In 2005, Londen, the sole member of Florence Ventures, LLC, transferred the property via special warranty deed to Florence. In 2007, a utility easement was discovered and Londen made a claim on the TRGC policy. However, after dispute over the property's value diminution, TRGC refused to pay and Londen sued. The court ruled that Londen did not retain an interest in the property after it conveyed its interest to Florence. Instead, Londen had a personal property interest in Florence, and Florence had the interest in the property. Furthermore, the Court ruled that treating Florence as a disregarded entity for income tax purposes did not affect which entity retained an interest in the property. Lastly, the Court ruled that the special warranty deed transferred the easement problem to Florence. Consequently, Londen was not liable to defend the title and thus the TRGC title policy was under no obligation.
NEWS, SEMINARS & EVENTS:
Council of the District of Columbia
Public Services & Consumer Affairs Agency Performance: Dept of Insurance, Securities, and Banking
DISB Performance Hearing
Thursday, February 23, 2012 at 1:00 p.m.
John A. Wilson Building
1350 Pennsylvania Ave NW Room 412
Washington DC 20004
Office of Tax and Revenue and Chief Financial Officer
Monday, February 27, 2012 at 10:00 a.m.
John A. Wilson Building
1350 Pennsylvania Ave NW Room 500
Washington DC 20004
DCLTA Membership Meeting & March Seminar
Tuesday, March 6, 2012
Maggiano’s Little Italy at Friendship Heights
5333 Wisconsin Avenue, N.W.
Washington, DC 20015
For registration form, click here.
Please feel free to circulate this news alert to others in the industry, both within and outside your office.
Real Property and Asset Management Group
Jackson & Campbell P.C.
email: Roy L. Kaufmann at firstname.lastname@example.org
voice: (202) 457-6710
email: David H. Cox at email@example.com
voice: (202) 457-1634