For interested legal observers of the foreclosure crisis, it really doesn’t get any better than this.

Supplemental and amicus curie legal briefs have been filed in much awaited case of Eaton v. Federal National Mortgage Ass’n, and they make for great reading. The briefs were filed in response to the SJC’s concern, mid-appeal, over whether an adverse ruling against foreclosing lenders will have a disastrous impact on foreclosure titles and, if so, whether its ruling should be applied prospectively rather than retroactively. Click here for our past posts on the case.

Notably, the Federal Housing Finance Association, the congressional conservator of the bailed out Fannie Mae and Freddie Mac, filed a rare amicus brief and laid a shot across the SJC’s bow. It suggested that the congressional bailout law would trump an adverse decision by the SJC to the extent that it interfered with Fannie and Freddie’s mission to secure the health of U.S. secondary mortgage market. This is the first time that I’m aware of the federal agency intervening in a particular foreclosure case.

Not surprisingly, Fannie Mae, FHFA, and REBA (Real Estate Bar Ass’n) and the other industry groups argue against a retroactive application of an adverse ruling, claiming that it would have a disastrous effect on homeowners with foreclosures in their titles.

Eaton (which cited thid Blog), the legal services groups and foreclosure defense groups say that the sky will not fall down if the unity rule is applied retroactively; indeed, foreclosures in Mass. have increased post-Ibanez. They also argue that the law is the law, and it’s the lenders fault for creating a securitization scheme in violation of the law, so they should have to deal with the repercussions.

I have also attached REBA’s and Attorney Glenn Russell’s (lead counsel in U.S. Bank v. Ibanez) submissions on the recent Land Court ruling in Wells Fargo v. McKenna where the Land Court Judge Gordon Piper held that Massachusetts does not require the unity rule.

A final decision is expected in February or March.

Click here for the particular brief:

Real Estate Bar Ass’n (REBA) Brief      REBA Letter re. McKenna case

Land Title Ass’n Brief

WilmerHale Legal Services Brief

Appellee Henrietta Eaton Brief (citing this Blog)

Fannie Mae Brief

Federal Housing Finance Ass’n Brief

Ablitt Schofield PC Foreclosure Law Firm Brief

McDonnell Property Analytics Brief

Professor Adam Levitin Brief

National Foreclosure Defense Group Brief

Attorney Glenn Russell Foreclosure Defense Brief (Part 1 and Part 2)

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate litigator and attorney. Please contact him if you are dealing with a Massachusetts foreclosure title dispute.

Plot Plans, also called Mortgage Inspection Plans, were once part of every Massachusetts real estate purchase closing. These days, some lenders do not require them and I will tell you why in this post. However, despite the limitations of a plot plan, I think it’s a good idea for buyers to purchase a plot plan at closing. The typical cost of a plot plan is around $125.00 so it’s affordable.

While it is not nearly as accurate as a full instrument land survey, a plot plan will give the buyer a visual of the lot lines, the approximate location of the home and accessory structures, and any easements running through the land. Also, when you go to sell your property, a plot plan is helpful for prospective buyers to review as part of the marketing package.

What Is A Plot Plan?

A plot plan, also called a Mortgage Inspection Plan, confirms the following information:

• Does the house or building, as well as accessory structures (pools, sheds, etc), conform to the local setback zoning by-laws?
• Does the house or building, as well as accessory structures, fall within the FEMA flood hazard zone (which would require flood insurance)?
• Are there any building encroachments?
• Are there any recorded easements running through the property?

In addition to answering these questions, a plot plan includes helpful reference information such as the deed book and page numbers, property plan numbers, land court plan numbers (if applicable), assessor map and lot numbers and F.E.M.A. rate map numbers. This information can be very helpful to the homeowner and a potential buyer as well.

How Is A Plot Plan Prepared?

It is important to point out that a plot plan is NOT a land survey, and is not prepared using standard instrument survey instruments. A plot plan is prepared using visual inspection and measuring tapes only. A physical inspection of the dwelling’s exterior is made, with tape measurements to show the approximate location of the dwelling. The preparer will review the recorded deed and plan(s) obtained at the Registry of Deeds or town offices to determine the lot configuration. Information from the field is merged with record information to create a drawing of the property (the plot plan) and the approximate location of the dwelling on the lot. The flood zone is determined. A quality review performed by Professional Land Surveyor.

The accuracy of a plot plan is usually within two to three feet. The field work involved in preparing the Mortgage Inspection Plan does not include the setting of property line stakes. Therefore, although tape measurements are sufficient to make zoning and flood hazard determinations, the plan should not be used as a substitute for a “Building Permit Plot Plan” or to determine property lines. A plot plan cannot be used as a substitute for a full instrument land survey.

What is Not Provided by a Mortgage Plot Plan?

As stated before, a plot plan has its limitations, which is a reason cited by lenders for not requiring them, such as:

• No representation is made as to the accuracy of the depicted property lines.
• No attempt has been made to verify the boundary configuration or, typically, the mathematical correctness of the legal property description.
• Property corners can not be located based on this type of plan, therefore no fences, hedge rows or other improvements can be determined or located.
• The location of any improvements shown are approximate, and therefore any planned construction should not be based on the locations as shown.

What is a Certified Plot Plan, Boundary, Land or Instrument Survey?
An accurate instrument land survey involves the location of established monuments or survey control points, which are then mathematically tied in to the property being surveyed. This process utilizes sophisticated, state-of-the-art equipment, and precisely locates both the property lines and the improvements on the property in relation to those property lines. The cost of a full instrument survey can range from $1,000 to $5,000, depending on the property. You can use a land survey for construction, Land Court, and Registry of Deeds plans.

How Do I Get A Plot Plan?

If your lender requires a plot plan at closing — check your Good Faith Estimate or closing cost worksheet — it will order one for you and you’ll have it at closing. If your lender does not require a plot plan, speak to your closing attorney and they will gladly order one for you!

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. Please contact him if you need assistance with a Massachusetts purchase or sale transaction.

Joe Paterno Conveys Home to Wife For $1, “Love and Affection”

For topical reasons, I have had no reason to post about the despicable Penn St. child abuse scandal on this blog. Until now — when I came across an interesting New York Times article on Joe Paterno’s recent real estate activity. The Times reports that this summer “Joe Pa.” transferred title to his State College home to his wife for $1 and “love and affection.” Some say the transfer was intended to avoid the inevitable fallout from the Penn St. child abuse scandal and legal action brought by victims of the scandal. Joe Paterno’s attorney, however, says that this transfer was part of the Paternos’ long standing estate plan.

Fraudulent Transfers

The debate centers over what’s known legally as a fraudulent transfers. Fraudulent transfers are property conveyances made with the specific intent to place the property outside the reach of creditors, or made where “the debtor received less than a reasonably equivalent value in exchange for the transfer and made it while insolvent.” The latter definition, in plain English, means the owner was broke and received less than market value for the sale of the property. Fraudulent transfers can be undone by the courts so creditors can tap into a home’s equity to satisfy legal judgments.

In Joe Paterno’s case, the $1.00 stated consideration for the transfer to his wife typically raises a red flag as a potential fraudulent transfer. If Paterno can prove that the transfer was indeed made as part of a legitimate estate plan, then he could avoid a fraudulent transfer determination. If the transfer is determined to be fraudulent so as to avoid liability for the child abuse scandal, the transfer to his wife can be undone by his creditors with the help of the court. And this is true even if Joe were to file bankruptcy. Moreover, the look-back period for fraudulent transfers is rather long–as long as 4 years under the Massachusetts Uniform Fraudulent Transfer Act, and even up to 10 years in the case of conveyances into trusts (where the debtor holds the beneficial interest) under 2005 bankruptcy law amendments.

Also, fraudulent transfers are typically excluded from coverage under owner’s title insurance policies. So if you purchased a property which later becomes the subject of a fraudulent transfer lawsuit, you may be on your own, which is a scary proposition.

Asset Protection, Homesteads and More

There’s nothing wrong or illegal about protecting your assets for the future. There are a myriad of legal and safe methods from protecting your property. But, if you wait until there is a problem, it’s usually too late to fix it. The same is true for asset protection planning. Simply put, do it as early as possible, well before creditors are chasing you down.

The first choice should almost always be to declare homestead protection on your principal residence. We’ve written about the new, enhanced Massachusetts homestead protection quite a bit. In a nutshell, a homestead will protect up to $500,000 in equity from most creditors. It’s a relatively simply form recorded with the county registry of deeds.

For more sophisticated asset protection devices such as trusts, family limited partnerships, LLC’s, and even offshore vehicles, I would recommend a reputable estate planning attorney. My friends at Pabian & Russell in Boston are a good place to start.

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. Please contact him if you need legal assistance purchasing residential or commercial real estate.

No Easy Fix For Defective Foreclosure Titles After U.S. Bank v. Ibanez Ruling

The Massachusetts Supreme Judicial Court issued its opinion today in the much anticipated Bevilacqua v. Rodriguez case considering property owners’ rights when they are saddled with defective titles stemming from improper foreclosures in the aftermath of the landmark U.S. Bank v. Ibanez ruling last January. (Text of case is embedded below). Where Ibanez consider the validity of foreclosures plagued by late-recorded or missing mortgage assignments, Bevilacqua is the next step, considering what happens when lenders sell defective foreclosure titles to third party purchasers. Previously, I discussed the oral argument in the case here and detailed background of the case here.

The final ruling is mix of bad and good news, with the bad outweighing the good as fixing defective Massachusetts foreclosure titles just got a lot harder and more expensive. But, contrary to some sensationalist headlines, the sky is not falling down as the majority of foreclosures performed in the last several years were legal and conveyed good title. Bevilacqua affects those minority percentage of foreclosures where mortgage assignments were not recorded in a timely fashion under the Ibanez case and were otherwise conducted unlawfully. Importantly, Bevilacqua does not address the robo-signing controversy, which may or may  not be considered by the high court in another case.

The Bad News

First the bad news. The Court held that owners cannot bring a court action to clear their titles under the “try title” procedure in the Massachusetts Land Court. This is the headline that the major news outlets have been running with, but it was not a surprise to anyone who has been following the case. Contrary to the Daily Kos, the court did not take the property away from Bevilacqua. He never held good title it in the first place–and you can blame the banksters for that. If you don’t own a piece of property (say the Brooklyn Bridge), you cannot come into court and ask a judge to proclaim you the owner of that property, even if the true owner doesn’t show up to defend himself. It’s Property Law 101.

The Good News

Next the good news. The court left open whether owners could attempt to put their chains of title back together (like Humpty-Dumpty) and conduct new foreclosure sales to clear their titles. Unfortunately, the SJC did not provide the real estate community with any further guidance as to how best to resolve these complicated title defects.

Background: Developer Buys Defective Foreclosure Title

Frank Bevilacqua purchased property in Haverhill out of foreclosure from U.S. Bank. Apparently, Bevilacqua invested several hundred thousand dollars into the property, converting it into condominiums. The prior foreclosure, however, was bungled by U.S. Bank and rendered void under the Ibanez case. Mr. Bevilacqua (or presumably his title insurance attorney) brought an action to “try title” in the Land Court to clear up his title, arguing that he is the rightful owner of the property, despite the faulty foreclosure, inasmuch as the prior owner, Rodriguez, was nowhere to be found.

Land Court Judge Keith Long (ironically the same judge who originally decided the Ibanez case) closed the door on Mr. Bevilacqua, dismissing his case, but with compassion for his plight.

“I have great sympathy for Mr. Bevilacqua’s situation — he was not the one who conducted the invalid foreclosure, and presumably purchased from the foreclosing entity in reliance on receiving good title — but if that was the case his proper grievance and proper remedy is against that wrongfully foreclosing entity on which he relied,” Long wrote.

Given the case’s importance, the SJC took the unusual step of hearing it on direct review.

No Standing To “Try Title” Action In Land Court

The SJC agreed with Judge Long that Bevilacqua did not own the property, and therefore, lacked any standing to pursue a “try title” action in the Land Court. The faulty foreclosure was void, thereby voiding the foreclosure deed to Bevilacqua. The Court endorsed Judge Long’s “Brooklyn Bridge” analogy, which posits that if someone records a deed to the Brooklyn Bridge, then brings a lawsuit to uphold such ownership and the “owner” of the bridge doesn’t appear, title to the bridge is not conveyed magically. The claimant in a try title or quiet title case, the court ruled, must have some plausible ownership interest in the property, and Bevilacqua lacked any at this point in time.

The court also held, for many of the same reasons, that Bevilacqua lacked standing as a “bona fide good faith purchaser for value.” The record title left no question that U.S. Bank had conducted an invalid foreclosure sale, the court reasoned.

Door Left Open? Re-Foreclosure In Owner’s Name?

A remedy left open, however, was whether owners could attempt to put their chains of title back together and conduct new foreclosure sales in their name to clear their titles. The legal reasoning behind this remedy is rather complex, but essentially it says that Bevilacqua would be granted the right to foreclosure by virtue of holding an “equitable assignment” of the mortgage foreclosed upon by U.S. Bank. There are some logistical issues with the current owner conducting a new foreclosure sale and it’s expensive, but it could work.

That is if the SJC rules in the upcoming Eaton v. FNMA case that foreclosing parties do not need to hold both the promissory note and the mortgage when they foreclose. An adverse ruling in the Eaton case could throw a monkey wrench into the re-foreclosure remedy–it would also be an even bigger bombshell ruling than Ibanez, as it would throw into question the foreclosure of every securitized mortgage in Massachusetts.

In Bevilacqua’s case, he did not conduct the new foreclosure sale, so it was premature for the court to rule on that issue. Look for Bevilacqua to conduct the new foreclosure and come back to court again. The SJC left that option open.

Other Remedies & What’s Next?

The other remedy to fix an Ibanez defect, which is always available, is to track down the old owner and obtain a quitclaim deed from him. This eliminates the need for a second foreclosure sale and is often the “cleanest” way to resolve Ibanez titles.

Another option is waiting out the 3 year entry period. Foreclosure can be completed by sale or by entry which is the act of the foreclosure attorney or lender representative physically entering onto the property. Foreclosures by entry are deemed valid after 3 years have expired from the certificate of entry which should be filed with the foreclosure. It’s best to check with a real estate attorney to see if this option is available.

The last resort is to demand that the foreclosing lender re-do its foreclosure sale. The problem is that a new foreclosure could open the door for a competing bid to the property and other logistical issues, not to mention recalcitrant foreclosing lenders and their foreclosure mill attorneys.

Title insurance companies who have insured Ibanez afflicted titles have been steadily resolving these titles since the original Ibanez decision in 2009. I’m not sure how many defective foreclosure titles remain out there right now. There certainly could be a fair amount lurking in titles unknown to those purchasers who bought REO properties from lenders such as U.S. Bank, Deutsche Bank, etc. If you bought such a property, I recommend you have an attorney check the back title and find your owner’s title insurance policy. Those without title insurance, of course, have and will continue to bear the brunt of this mess.

More Coverage:

• Buyer Can’t Sue After Bad Foreclosure, Bloomberg News
• SJC Affirms Dismissal of Bevilacqua Case, Boston Globe
• Mass. Attorney General Coakley Press Release
• Massachusetts Land Use Monitor

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Richard D. Vetstein, Esq. is an experienced real estate litigation attorney who’s handled numerous foreclosure title defect matters & cases in Land Court and Superior Court. Please contact him if you are dealing with a Massachusetts foreclosure title dispute.

Bevilacqua v. Rodriguez; Massachusetts Supreme Judicial Court October 18, 2011

Don’t Let An Undischarged Mortgage Ruin Your Closing

Real estate attorneys are often confronted with difficult and complex title defects which need to be cured. With the refinancing boom of the last 10 years, sloppy, high-volume closing attorneys occasionally failed to obtain discharges of mortgage they were paying off at closing. Likewise, home equity closings at local bank branches were also notorious for not tracking down and recording mortgage discharges.

These undischarged mortgages and “missing” discharges from years ago rear their ugly heads when the homeowner goes to sell his property and a full 50 year title examination is undertaken by a competent closing attorney. Some of these missing discharges are from old banks and financial institutions which have gone bankruptcy, are now in FDIC receivership, or were merged with other banks several times. Some are with private lenders who are no where to be found. Of course, title must be cleared prior to closing or there is no closing!

This is when even the most experienced real estate closing attorney has to call in the cavalry. And that person is someone like Kurt Stuckel, Esq.

I like to call Kurt the Jedi Master Discharge Tracker. Operating out of a small office in little Pepperell, Mass., Attorney Stuckel handles and solves thousands of title requests every year for real estate attorneys and title companies throughout the Commonwealth. He’s handled several thorny issues for me in recent months – even one where I thought “there’s no way he can get this one” from the FDIC–and low and behold, he did. His fees are reasonable, and he makes the closing attorney look good in front of their clients.

If you are in need of excellent title curative services, please contact Kurt Stuckel, Esq. at 978.443.5241 or email at kurt@kurtstuckel.com. And tell him I sent you!

L to R, bottom: Clarence Thomas, Antonin Scalia, John Roberts, Anthony Kennedy, Ruth Ginsberg; top: Sonya Sotomayor, Steven Breyer, Samuel Alito, Elana Kagan

U.S. Supreme Court To Hear Edwards v. First American Title
In a case closely watched by the title insurance and real estate settlement services industry, the United States Supreme Court has agreed to hear a class action which will decide whether consumers can sue under the Real Estate Settlement Practices Act (RESPA) over a title insurance referral arrangement that allegedly violated RESPA’s anti-kickback provisions. The case’s outcome could shield title insurers, banks and other lenders from litigation under RESPA and a wide range of federal and state laws. If First American wins this case, we could see title insurance companies in Mass. taking a much more active role in the operations of their favorite and most profitable agents.

The case is Edwards v. First American Title Co. For more coverage of the case, read the SCOTUS Blog summary here.

No Kickbacks

Class action attorneys file hundreds of cases each year on behalf of borrowers alleging violations of RESPA, which prohibits “any fee, kickback or thing of value,” in exchange for a business referral. RESPA also forbids that a “portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service” be paid for services that are not actually rendered to the customer. If a violation of the statute is proven, a court can award a plaintiff treble damages, or triple the amount, for any charge paid.

In a lawsuit filed in 2007, Denise Edwards claimed her title insurer, Tower City Title Agency LLC of Highland Heights, Ohio, entered into a “captive insurance agreement” with First American Title that was illegal under RESPA. The lawsuit said that because First American paid $2 million for a 17.5% minority interest in Tower City in 1998, it received the majority of the local agent’s referral business which violated RESPA. The suit sought class action status on behalf of all consumers who purchased title insurance through a title agency that was subject to an exclusive referral agreement with First American, and damages of up to $150 million.

The case went up to the 8th Circuit Court of Appeals which sided with Edwards that “the damages provision in RESPA gives rise to a statutory cause of action whether or not an overcharge occurred.”

Supreme Court Review

The Supreme Court will review the constitutional issue of whether consumers must prove they were actually injured under RESPA and other truth in lending laws. A favorable ruling for First American could mean a significant dent in costly class action suits under RESPA and TILA. Oral argument is expected in the Fall term, in October.

Massachusetts Impact: Cozier Agent Relationships?

Beyond curtailing or expanding consumers’ ability to bring all sorts of claims under RESPA and Truth in Lending (TILA), a favorable result for First American could enable title companies to get into much cozier relationships with attorney agents in Massachusetts.

Massachusetts is a so-called attorney agency state, where attorneys issue title insurance policies. Title insurance companies in Massachusetts cannot (yet) legally invest in or own law firms (although this rule is being challenged nationally). So we don’t have a “captive insurance agreements” or the like. Certainly, some attorney agents prefer to give their business to one or two particular title insurance companies, but to my knowledge, there’s no formal agreement among insurers and agents here in Mass.

If First American wins this case, we could see title insurance companies in Mass. considering captive insurance agreements and taking a much more active role in the operations of their favorite and most profitable agents. We will see….

When you find out you have a major title problem that prevents you from selling or refinancing your home, have fun explaining to your spouse that for a fraction of the cost of your home you could’ve prevented it by buying title insurance.

Enhanced Owner’s Title Insurance Coverage

Available for a few years now, enhanced coverage policies offer vastly improved protection for common title problems at about a 10% cost over a standard coverage policy. (These policies run about $4 per thousand of purchase price). Enhanced coverage policies now cover some of the most common title problems facing Massachusetts residents. Realtors and mortgage professionals should be aware of the benefits of an enhanced coverage policy, and should recommend that their clients opt for the increased coverage. It’s well worth the small cost in premium.

Additional Coverages:

• Appreciation in property value. Standard policies do not increase their coverage amount in a rising market as a home increases in value. The enhanced policy will increase coverage by 10% per year for 5 years up to 150% of the original policy limit.
• Encroachments/adverse possession. Standard policies, to most homeowner’s chagrin, do not cover encroachments like a neighbor’s fence, wall or structure over a property line. Enhanced policies provide coverage for such encroachments, and also cover adverse possession–which occurs when an encroachment exists for 20 or more uninterrupted years. For more info on Massachusetts adverse possession, please read our post “Good Fences May Make For Upset Neighbors”.
• Zoning/Subdivision/Building permit violations. Enhanced coverage policies now provide coverage if the property is not zoned for residential 1-4 family use, in violation of subdivision regulations, or if there is a defect or lack of a building permit. This is a tremendous benefit for commonly arising situations.
• Easements. Enhanced policies offer coverage for easement encroachment situations such as deeded driveways, drainage easements, utility easements, beach paths, walking paths, etc.
• Expanded Insured. Enhanced policies will now transfer to a spouse who gets property in a divorce, inheriting heirs, related family trusts and their beneficiaries.
• Expanded Access Coverage. Enhanced policies now guarantee that your home as adequate vehicular and foot access over adequate streets or roads if there’s a title defect rendering your lot “land-locked.”

Do I Really Need Title Insurance?

The decision to get an owner’s title insurance policy is one of the most important choices you make in connection with your real estate transaction.

As part of every real estate transaction, the borrower/buyer is offered the opportunity to get an owner’s title insurance policy. (For refinances and purchases, your lender will require you to purchase a “lender’s” title insurance policy.) An owner’s title insurance provides the most comprehensive protection available for most every known type of title problem which could affect your property rights. I’m proud to say that every single one of my buyer clients have benefited from an owner’s title insurance policy at their closings, at my strong recommendation.

One needs only to look at the recent controversies over “robo-signing” and the U.S. Bank v. Ibanez defective foreclosure sales, which has stripped thousands of Massachusetts property owners of their property ownership rights, to see why an owner’s title insurance policy could be the best decision a home buyer ever makes. The unfortunate souls who declined owner’s title insurance are now left without legal title to their homes and looking at the prospect of spending thousands of dollars in legal fees to resolve their title issues with no guarantee of success. With a title insurance policy, the title insurance company will hire expert title attorneys to solve title issues at no cost to you, defend against any adverse claims, reimburse you for covered damages, and most valuable, issue affirmative coverage to enable a pending closing to move forward.

When you find out you have a major title problem that prevents you from selling or refinancing your home, have fun explaining to your spouse that for a fraction of the cost of your home you could’ve prevented it by buying title insurance.