Over the next two issues, I will be reviewing issues that have resulted in claims against conveyancers and title insurance companies.  I hesitate to repeat the frequently used phrase “traps for the unwary” as “unwary” is defined as “not cautious; not aware of possible dangers or problems”.  I believe most conveyancers in this day and age are extremely wary of possible danger.  That danger, however, frequently is dressed differently than it was in the past and is not easily recognizable.

I hope these “encounters” help and feel to contact me with your own horror stories.

M.G.L. c. 184, §35

The form of Trustee’s Certificate (REBA Form 35 and Title Standard 68) has become a popular tool for conveyancers who do not want to record a trust agreement.  Note, however, that the Statute requires that the “Certificate must be sworn to or stated to be executed under the penalties of perjury”.  A properly executed trustee’s certificate will allow the unrecorded trust to fall outside the parameters of the Indefinite Reference Statute, M.G.L. c. 184, §25.  It is clear that if the certificate is not recorded until the deed out, the reference to the trust in the initial deed will result in an indefinite reference, meaning that any liens against the trustee, individually, will attach.  The question as to whether a trustee’s certificate lacking a jurat has the same result is unknown.  Clearly, a certificate pursuant to M.G.L. c. 184, §35 without a jurat does not meet the provisions of the Statute.  To protect your clients, be certain that the certificates you record are properly executed.

EXECUTING AN INSTRUMENT UNDER A POWER OF ATTORNEY

A recent Decision in the United States Bankruptcy Appellate Panel for the First Circuit, BAP No. MS 13-012, Steven Weiss, Chapter 7 Trustee, Plaintiff-Appellant v. Wells Fargo Bank, N.A., Defendant-Appellee has caused “notary hysteria” in some parts of the conveyancing community.  A copy of the Decision is available on the REBA website.

After a review of the Decision by members of the REBA Board, the belief is that the Court “got it right”, and the Decision should have no impact on any instrument that is not executed under Power of Attorney.  In the opinion of the REBA Board, the case continues to support the use of the Executive Order Notary Format as compliant with the statutory requirement for acknowledgments.

In this case, the Mortgagors executed a Mortgage to Wells Fargo Bank pursuant to a Power of Attorney given to a representative of the Lender, LSI.  The Trustee maintained that the acknowledgment suffered from “’three fatal flaws’:  (1) the use of the phrase “personally appeared,” when in fact it is undisputed the Debtors did not appear; (2) the failure to specify in the appropriate blank space the method by which the notary identified the signer (or signers) of the Mortgage; and (3) the failure to indicate whose free act and deed the notary was verifying.”

The Court cited the seminal acknowledgment case in Massachusetts, McOuatt v. McOuatt, 69 N.E.2d 806, 810 (Mass. 1946):  “[n]o particular words are necessary as long as they amount to an admission that [the grantor] has voluntarily and freely executed the instrument.”

The issue is not whether the language in the Executive Order format is sufficient to comply with the statutory requirement (which it clearly is), but whether it was clear that the mortgage was executed as the voluntary act of the mortgagors, rather than the voluntary act of their attorney in fact.

The Court states:  “We agree with the Trustee’s third argument, however, namely that the foregoing language fails to unequivocally express that the execution of the Mortgage was the free act and deed of the principals, i.e., the Debtors, and that this flaw is, indeed, fatal.  Here, the preprinted form utilized by the notary combined with her failure to attend to the blank space and the inapplicable verbiage creates ambiguity concerning whether the execution of the Mortgage was the voluntary act of the Debtors.  Although the acknowledgment contains a recitation that the Mortgage was signed “voluntarily for its stated purpose,” we are left to speculate whether the voluntariness relates to the principals (the Debtors) or to the attorney-in-fact Obringer).

For the proper way to execute and acknowledge a deed under Power of Attorney, see Land Court Guideline (2009) 15, which is available on the REBA website.

Responding to the financial meltdown of 2008, attempts to make mortgage lenders more financially responsible for their third party vendors resulted in CFPB (Consumer Financial Protection Bureau) Bulletin 2012-03, dated April 13, 2012, the American Land Title Association issued a “Best Practices Framework” in January 2013 and updated July 2013.  The purpose of the “Best Practices” is to assist lenders in satisfying their responsibility to manage third party vendors and “to guide its membership on best practices to protect consumers, promote quality service, provide for ongoing employee training, and meet legal and market requirements.”

The implementation of these “Best Practices” is the “highest priority” for the ALTA in 2013.

The eight page guideline which is available at www.alta.org includes seven sections.

The seven sections are as follows:

1. Establish and maintain current License(s) as required to conduct the business of title insurance and settlement services.

   Although Massachusetts does not require licensing of its title insurance agents, attorneys should be certain to keep their BBO registration and malpractice insurance to date.

2. Adopt and maintain appropriate written procedures and controls for Escrow Trust Accounts allowing for electronic verification of reconciliation.

   The purpose of this Best Practice provision is to “help title and settlement companies meet client and legal requirements for the safeguarding of client funds.”  Procedures include requiring that escrow funds and operating accounts are separately maintained, escrow accounts are prepared with Trial Balances and on at least a monthly basis, Escrow Trust Accounts are prepared with Trial Balances (“Three-Way Reconciliation”), listing all open escrow balances.

3. Adopt and maintain a written privacy and information security program to protect Non-public Personal Information as required by local, state and federal law.

   Federal and state laws (including the Gramm-Leach-Bliley Act) require title companies to develop a written information security program that describes the procedures they employ to protect Non-public Personal Information.  Depending on the size of your office, and the sensitivity of the customer information, these procedures may vary.  As in the case of the maintenance of escrow trust accounts, I suggest a complete review of these “Best Practices”.

4. Adopt standard real estate settlement procedures and policies that help ensure compliance with Federal and State Consumer Financial Laws as applicable to the Settlement process.

   This includes procedures to record in a timely fashion, to track shipment of documents for recording and to maintain written procedures to ensure that customers are charged the correct title insurance premium and other rates for services provided by the Company.

5. Adopt and maintain written procedures related to title policy productions, delivery, reporting and premium remittance.

   Procedures to be incorporated to meet this guideline include the timely delivery of title insurance policies and timely premium reporting and remittance.

6. Maintain appropriate professional liability insurance and fidelity coverage.
7. Adopt and maintain written procedures for resolving consumer complaints.
   The guideline suggests standard procedures for logging and resolving consumer complaints and the development of a standard consumer complaint form.

I would expect that these “Best Practices” will be adopted by each of the title insurance agents and will become a part of the agent audit.  Hopefully, lenders will understand the importance of these “Best Practices” and will no longer be guided towards the need for vetting by independent third party companies.

Issues surrounding the insurability of titles coming out of foreclosure have been a hot topic for the REBA’s National Affairs and Title Insurance Committee.  Starting with the allegations of robo signing and continuing through the amendments to MGL c.244, underwriters for each of the Title Insurance Companies doing business in Massachusetts have considered the issues and prepared guidelines that must be followed to insure a title following foreclosure.

The Eaton decision, which was decided by the Supreme Judicial Court on June 22, 2012, 462 Mass. 569, required Foreclosing Lender to be either 1) the Holder of the Note; or 2) be acting on behalf of the Holder of the Note.

Footnote 28 of the decision, provides guidance for compliance with its ruling:

“It would appear that at least with respect to unregistered land, a foreclosing mortgage holder such as Green Tree may establish that it either held the note or acted on behalf of the note holder at the time of a foreclosure sale by filing an affidavit in the appropriate registry of deeds pursuant to G.L.c. 183, §5B.  The statute allows for the filing of an affidavit that is relevant to the title to certain land and will be of benefit and assistance in clarifying the chain of title.”  Such an affidavit may state that the mortgagee either held the note or acted on behalf of the note holder at the time of the foreclosure sale.  See G.L.c. 183, §54b.”

The title insurance industry is presently divided on at least two issues arising from the reading of the Eaton decision.

The first area concerns footnote 28 noted above and whether an additional Affidavit, referred to as an “Affidavit of Continuing Noteholder Status” must be dated and recorded on or after the date of the foreclosure sale.  This Affidavit must state that the Foreclosing Lender held the Note or was acting on behalf of the Noteholder as of the date Notices of Sale were initially sent pursuant to M.G.L. c. 244, § 14, through and including the date of the foreclosure sale.

Generally, at least one title company requires a copy of the note with the allonge, if applicable, be attached and recorded with the Affidavit.  All underwriters require that a copy of the note with the allonge be obtained and reviewed for compliance with Eaton.

M.G.L. c. 244, § 35A requires the sending of a Right to Cure Notice prior to the commencement of foreclosure proceedings for certain principal residential properties.  The Land Court has issued a form entitled, “Mortgagee’s Affidavit” which is filed with the Land Court prior to the commencement of the foreclosure action.  This form is not recorded with the Registry of Deeds or filed with the Registry District.  The Supreme Judicial Court in the recent decision of U.S. Bank National Association v. Schumacher (Docket No. SJC-11490, March 12, 2014) held that Section 35A is not part of the mortgage foreclosure process.

M.G.L. c. 244 was further amended by the enactment of Sections 35B and 35C which Amendments took effect on November 1, 2012.

M.G.L. c. 244, § 35C codified the ruling of the Supreme Judicial Court in the Eaton case, requiring the creditor to certify that it is the holder of the Note or the authorized agent for the holder of the Note.  The creditor has to record an Affidavit of Compliance with this Section based upon the review of its business records, which is dated prior to the first publication; it appears it can be recorded at any time.

M.G.L. c. 244, § 35B sets forth criteria by which a creditor must offer the mortgagor a means to avoid foreclosure with respect to “certain mortgage loans”.

An Affidavit of Compliance pursuant to Sections 35B and 35C requires that:

1. It is to be provided by the “creditor” as defined therein (usually the foreclosing mortgagee) or its duly authorized agent.
2. It must certify compliance with the applicable sections.
3. It must be based upon a review of the creditor’s business records.
4. It must be dated and acknowledged prior to the publication of the first foreclosure notice and recorded; however, it may be recorded after the foreclosure sale, with the other foreclosure documents.

If M.G.L. c. 244, §§ 35B and 35C are not applicable, an affidavit of non-applicability should be recorded.  The requirements of Eaton must still be satisfied.

As noted above, the majority of title insurers in Massachusetts still require compliance with the Eaton decision after the enactment of the Amendments to M.G.L. c. 244.  The basis for this decision is that since the Affidavit pursuant to Sections 35B and 35C must be dated prior to the publication, it does not satisfy the requirement in Eaton that the foreclosing mortgagee must hold the Note or is acting on behalf of the Noteholder from the date of the commencement of the Power of Sale up to and including the date of the foreclosure sale.

As the Eaton decision affects both residential and commercial properties, while 35B and 35C apply only to residential properties, this is a potential pitfall.

REBA has issued Forms 57A and 57B.  If these forms are used, they must be revised to comply with the Eaton requirement.

There are additional requirements for foreclosures by third party loan servicers.  See the Regulation issued by the Division of Banks and Loan Agencies at 209 CMR 18.00 et. seq. entitled, “Conduct of the Business of Debt Collectors and Loan Servicers”.

If the foreclosure is done by a third party loan servicer, the REBA form must be expanded to include the following: (i) a detailed description of the basis of the affiant’s claimed personal knowledge of information, including sources of all information recited, and a statement as to why the sources are accurate and reliable, and ii) a statement that the third party loan servicer has complied with all provisions of 209 CMR 18.21A(2).

Four final points:

1. Any Affidavit must be signed and sworn to and must use a jurat as opposed to an acknowledgement.
2. No title insurer will authorize the issuance of a policy unless the property is vacated by the mortgagor after November 1, 2012.  Some insurers may insist upon complete vacancy and/or vacancy of related parties of the mortgagor.
3. Any assignment of the foreclosed mortgage must be dated prior to the date of the first publication.
4. The Sections 35B and 35C Affidavit are to be signed by the “Holder” or a party acting on behalf of the “Holder”.  At least one lender has insisted on using the word “Owner”.  This appears to be acceptable with the majority of underwriters.

For additional guidance, see the memo by Edmund A. Williams, Chief Title Examiner, dated November 1, 2012 and the memos issued by the various title insurance companies which have been used in this article.