TITLE INSURANCE CLAIMS

Over the past several years, the title insurance industry has seen a dramatic increase in the number of title insurance claims. This can be attributed to a number of factors. One major reason is the recent real estate boom. This increased flurry of activity has resulted in numerous claims based on mistakes made both by title examiners and by closing attorneys.

Another reason for the rise in claims over the past several years is the increased creativity and success of plaintiff's counsel against title insurance companies. Plaintiffs have been successful under theories of recovery that were never contemplated under the terms of the title insurance policy.

Regrettably, a third reason for the rise in claims has been the decrease in the ethical standards of a few title insurance agents and approved attorneys. Defalcation claims in which the agent or approved attorney embezzles funds held in escrow have substantially increased over the past few years. These kinds of claims are particularly destructive since there are frequently few assets left against which recovery can be made once the dust has settled.

We at Old Republic are committed to a strong program of education and quality control. By adhering to these two concepts, we can hopefully obviate a large percentage of unnecessary title insurance claims. Unfortunately, there are a certain percentage of claims that inevitably will occur due simply to bad luck. While we hope that you never experience such an event, we offer the following instructions in case this does occur.

1. Notify the company immediately.
2. Provide us with all documentation and correspondence in your files relating to the claim.
3. Do not approve or deny the validity of the claim to the insured.
4. Under no circumstances are you to represent Old Republic in a negotiation or resolution of the matter without the express written authority of the company.
5. All inquiries concerning the matter from the claimant or other parties must be forwarded directly to Old Republic.

The most important of all these requests is the first one. It is imperative that we receive prompt notification of any pending claim. Even if you feel that the particular allegation is unfounded or not insured under the terms of the policy, you must notify us at once. Once we have received notification of a claim, we will initiate an investigation concerning the underlying facts. In the event that it is determined that liability is owed to the insured, we will promptly act to resolve the underlying problem. In such instances, we may request your assistance in helping us to resolve the problem.

In many situations involving claims, agents prove to be very useful in the final resolution of the problem. We would again emphasize, however, that you should not undertake any action or representation with respect to a claim without the express written approval of Old Republic. Your actions or comments may be directly construed to be those of Old Republic. As such, you may expose the company to liability under the various consumer protection and unfair claims settlement procedures statutes.

The sooner we are notified of a problem, the sooner we can work towards finding a solution. Your cooperation is both essential and greatly appreciated.

AVOIDING FRAUD AND FORGERY CLAIMS

The real estate recession of the early 1990’s led to a sharp increase in the number of fraud and forgery claims made against title insurance companies. While there is no doubt that desperate times create desperate people, such times also led to very creative schemes. I must regrettably concede that there is no way to avoid a well-perpetrated fraud or forgery scenario. There are, however, certain steps that you can take in order to lessen your possible exposure to loss.

The real estate recession of the early 1990’s led to a sharp increase in the number of fraud and forgery claims made against title insurance companies. While there is no doubt that desperate times create desperate people, such times also led to very creative schemes. I must regrettably concede that there is no way to avoid a well-perpetrated fraud or forgery scenario. There are, however, certain steps that you can take in order to lessen your possible exposure to loss.

  1. Always require photographic identification for any signatories at a real estate closing. Requiring the presentation of a Massachusetts Driver's License at a closing is not an unduly harsh burden to impose on the parties. While it is possible that an individual does not have a driver's license, a bell should certainly go off in the event that the individual refuses to produce such identification claiming that he or she "lost it" or does not drive. Always make a copy of the identification presented for your files.
  2. Beware of documents executed out of your presence. The classic example is the situation where one co-grantor appears at the closing to tender a deed, which has already been signed by the other co-grantors. If the other co-grantors' signatures have been acknowledged, it is wise to contact the notary who took the acknowledgements in order to make certain that the signatures are valid.
  3. Beware of "naked" mortgage discharges (i.e., discharges that appear in the public records and do not relate to a particular closing). It is highly unlikely that an individual would come up with adequate funds to pay off an existing mortgage without the benefit of either a sale or a refinance. Be particularly alert for instances where a mortgage discharge or partial release goes on record only a few days prior to your contemplated transaction. There is a strong likelihood that such a document is a forgery. Any time you have a suspicion concerning a mortgage discharge or partial release, you should contact the mortgagee directly. Most mortgagees will be able to easily confirm whether the mortgage is still outstanding.
  4. Do not assume that mortgage payoffs have been made. If you are not the closing attorney, follow up on the file to make certain that all the funds were forwarded to their appropriate destinations. Devious attorneys who misappropriate mortgage payoff funds are capable of simply making monthly payments on those mortgages so that a seller and buyer are never even aware the seller's mortgage is still outstanding. Some attorneys have actually serviced mortgages in such a fashion for several years. Since the closing attorney is supposed to forward the mortgage payoff funds to the lender immediately after closing, you should create a "tickler system" that reminds you to contact the lender shortly after the closing to confirm that it has received the payoff funds from the closing attorney. If it has not, you should contact the closing attorney immediately and request documentation with respect to the payoff transmission.
  5. Beware of powers of attorney. While a power of attorney is a valid mechanism that allows an individual to act on behalf of another, it should always be viewed with suspicion. By its very nature, the document is both easy to forge and difficult to authenticate. In most instances, a power of attorney is necessary because someone is unavailable or incapable of executing documents. In our current world of fax machines and overnight mail delivery, it is becoming less likely than an individual is truly unreachable. Always attempt to verify the power of attorney (e.g., you may wish to contact the attorney who drafted the instrument and/or who took the acknowledgement of the signatory).
  6. Beware of private mortgage discharges that are tendered to you by the seller. Always attempt to obtain a copy of the mortgage discharge in advance of the closing. Try to contact the mortgagee and obtain confirmation that the discharge is legitimate. Because private mortgagees are much harder to track down and tend to be less reputable than lending institutions, you must always use great caution when accepting such a document.