Posting for

Monday, June 1, 1998

by: Bert Rush

brush@firstam.com

ACCOMMODATION BUSINESS

We hear a lot these days from escrow and closing officers about out-of-town lenders requesting sign-up service, without a formal escrow or closing, and without title insurance. The frequency and urgency of these requests has grown with the increase in lenders doing business over the Internet or via telemarketing.

While the request may be "just for" signup service, you gotta think more will be involved--like "could you also cut some checks for us?" And, since most of these lenders never have face-to-face contact with the borrower, it's inevitable that some borrowers will seek answers about docs they are signing from the escrow or closing officer. And would we mind doing the signup on a Saturday? At some point it occurs to us that we are moving away from the closing and title business, and into the accommodation business.

Now the accommodation business is a very interesting business. In the accommodation business you get all of the headaches and liabilities of closing and title, with a fraction of the revenue. Here are a few of the liabilities involved:

FORGERIES: Anyone seeking to "pull a fast one" will prefer doing business with the out-of-state lender, or telemarketing lender, or lender peddling loans on the Internet. They're even preferred over the hard-money lender--whose high points and interest rates often blind them to warning signs of fraud. And these folks can be good at the rush-rush routine. So welcoming this business can increase your odds of hearing from the surety on your notary bond.

NEGLIGENCE: Remember the "Good Samaritan" rule from law school? When you volunteer to help someone--for free--you do so under the same obligation to exercise due care as you have when you drive your car--or when you charge for a professional service. Not so many years ago we had a claim resulting from our having handled a re-financing of property in Carmel, CA. As part of the refi, one beneficiary/mortgagee was agreeing to release an existing deed of trust in exchange for a new deed of trust against other property in San Francisco (different county). This bene/mortgagee gave our escrow officer the following instruction:

The refi closed and our escrow officer caused to be recorded the new deed of trust, which was not insured. Turned out the new deed of trust wasn't a "2nd"--it was a third D/T behind a true second securing repayment of $39,000. We got sued for failing to advise the bene/mortgagee of his risk in the uninsured transaction, and for failing to put him in the second position as instructed (which could also be called a breach of contract). We lost the case and paid the bene/mortgagee $40,000, plus legal expenses of $27,961.

Another example, from Chico, CA. We were asked to record a deed of trust securing $15,000 against property at "1965 Kennedy Lane." The deed of trust had been prepared by the borrower and given to the lender, a private party. We did the recording as an accommodation--a freebie--with no title insurance. Problem is the legal description on the subject deed of trust was erroneous, and now that the lender has figured this out they learn that the borrower has been foreclosed out of the property involved. The lender is now demanding, through an attorney, that First American make him whole. Again, we allegedly failed to perform as instructed.

Hey, it's a litigious society. The only way to do someone a favor these days is with that someone's agreement, signed and in your file, to hold you harmless and indemnify you in case there's a problem.

STRESS: No need to belabor it--it's a law of nature that the thing you undertake to do for free may be the most inconvenient and troublesome thing you undertake on a given day.

Bottom line: Employees and agents should be mindful of the liabilities and frustrations of the accommodation business--and they should feel empowered to turn it away. This doesn't include accommodations within the First American family of companies, of course, and it shouldn't apply when we need a favor from an agent or the agent needs a favor from one of our direct operations.

But otherwise, let 'em go to the Mail Center next to the video store to do their signups. They're even open Saturdays.

Comments, questions, argument? Press the "Reply" button and send your thoughts to LandSakes.

**********

Here are some replies to yesterday's posting:

John Dahl (Seattle) wrote:

Good stuff, Bert. An accurate account of scenarios we run into every day. The "free stuff" should be gone. When something is done for a fee, there is a little more care taken, a bit more pride involved. A fee may be appropriate even between FATCO agents and branches.

John LaJoie (Tallahassee) wrote:

I reviewed your memo on Accommodation Business. I could not agree with you more. We do not want to do this type of business in Florida, but when we have to for political reasons, we generally charge $100 - $150 for the "signup" so that we don't lose (much) money on the deal.

In Florida, we also have another problem. Under State law, the prohibition against the unauthorized practice of law is interpreted to require that a non-attorney cannot conduct a closing without issuing title insurance. We therefore have to be sure we are not "conducting a closing" when we have to do a signup. For this reason, I require that the lender supply us with a telephone number for a person in their organization who can answer questions which arise at closing. I then instruct the First American notary to direct questions to that person. While I do not know the extent to which this procedure is actually followed in practice, we do make an effort to comply.

In some situations, we are asked to prepare a closing statement as part of the "signup". We have agreed to do so, provided we are supplied with sufficient information such that we are only required to perform per diem calculations. We have taken the position that such calculations do not amount to practicing law.

Finally, we are mindful of the liability issues and we try to avoid having to do signups, as well as accommodation recordings, whenever we can if we can do so without creating negative political consequences.

Palma Collins (Washington, D.C.) wrote:

Your message is very timely for my region. In the Washington, D.C. metropolitan area, we see requests for these "accommodation closings" increasing at a rapid rate. As you have noted, there is a heightened risk of fraud and multiple other problems associated with these transactions, and comparatively little return. Our agents and local offices are tempted to accept this business as a way to increase their volume thinking that a promise of future business may be implied.

I would like to include your latest message in our local First American newsletter. I think that it raises important issues for the agents to think about prior to accepting this type of business. Please advise me if you would be agreeable to its publication. We will certainly give full credit to the author. Thanks.

Reply to Palma: Yes, feel free to use the posting as you see fit. All postings to LandSakes are offered up to promote training and/or marketing--so consider them automatically authorized for dissemination, reprinting, whatever. BR

Paul Hammann (Santa Ana) wrote:

Great reminders for all of us! Thanks. I’ll bet there are similar examples of claims in the "accommodation " context from every state or region in which we operate - many of which are below the dollar level required for reporting to Home Office. The point, of course, is that we are assuming risk whether or not we get paid for our service -- doesn't it make more sense to get paid! There is no question that our service has value -- the problem, perhaps, is that our "customers" do not recognize the value because they do not understand the risks involved. Collectively, we need to do a better job educating our "customers" about these risks and the value of the services we provide. These claims examples will assist all of us in this effort!

John Hollenbeck (Santa Ana) wrote:

I completely agree. One point that we cannot escape: The Internet is here to stay, and so therefore are Internet originated loans. Most of these lenders are completely legitimate, albeit targets for crooks not wanting to meet face to face with anyone if possible. Many of the risks you've outlined will have to be faced by our industry. We cannot afford to shy away from Internet based loan originations because of the increasing dominance of the medium. I know that was not your point; you were talking about accommodations.

Keith Pearson (Glendale/L.A.) wrote:

Just sent a accommodation claim to Laurie Grushen. There was a dispute as to ownership of a church property. A member got a judgment against the property and abstracted (recorded) it. The property was sold but they decided not to get title insurance because the judgment showed up in the preliminary report . . . prepared by Investors Title. The escrow company as a accommodation closed the sale to a new church and sent the deed to Investors Title to record as a accommodation. The abstract holder has named all parties in a pro per lawsuit including Investors, First American, and the Escrow Company and Escrow Officer personally. Thought it might interest you.

Ben Knittel (Houston) wrote:

Bert - Here is a similar article I wrote for our Texas newsletter, The Eagle:

Accommodation Services

Ben Knittel

In the course of our business and personal lives, most of us routinely give assistance in small ways to friends, casual acquaintances and even total strangers we may come in contact with. A car may break down and somebody needs to borrow a telephone to call for help; the copier goes on the blink and we run to a neighboring office to make a copy in a pinch; we ask for directions in unfamiliar locales, or render aid in the event of sickness or injury. All of these little accommodations are a part of leading a civilized, responsible life, and they contribute to the general welfare of our communities.

In one of our offices recently, an escrow officer was approached by an employee of a neighboring business, who asked her to notarize a document. Although the document had nothing to do with a real property transaction, the escrow officer agreed to help out. Some months later, the escrow officer was served with a Petition in a lawsuit, which alleged that she had been a participant in a fraudulent scheme. Now the attorneys are threatening to bring First American into the lawsuit as an additional defendant.

In another instance, one of our escrow officers agreed to do a courtesy recording for one of her regular customers, a contractor who had a mechanic's lien affidavit he wanted to record. Some time later we received a demand letter from an attorney who was accusing First American of deceptive trade practices, slander of title, and an assortment of other dark frauds and conspiracies, all related to this simple service.

The unhappy truth is that some people are genuinely convinced that they are beset by evil plots and machinations on every side. It is also unfortunately true that some attorneys have no compunction about suing any deep pocket that is remotely connected with their client's dispute, in the hope of securing some easy "nuisance value" settlements.

Under the legal doctrine of respondeat superior, an employer may generally be held liable for wrongful acts committed by an employee if the acts are within the scope of the employment, are for the furtherance of the employer's business and for the accomplishment of the object for which the employee was hired. Because of the possibility that a jury might find that it is within the scope of employment for an employee to provide one of these accommodation services, the possibility exists that the title company could be held liable along with the individual employee.

In the First American Escrow Manual (Page 328.2) we recommend that if you get a request to do an accommodation recording that you believe you cannot turn down, it may help if you indicate on the document that it is being recorded by your office "as an accommodation only." A recent California decision upholds the effect of an indemnification and hold harmless agreement that the title company secured from the party requesting the accommodation recording. See Rooz V Kimmel, 64 Cal. Rptr. 2d 177 (Cal.App. 1977).

In view of episodes like those discussed above, should we stop offering the friendly gestures and common courtesies that make life easier for everyone? Probably not, but you may wish to establish a policy in your office that certain services are only to be provided in connection with open title orders on pending transactions.

Reply to Ben: Good article!! Now I see why you don't have any claims in Texas--not many anyway. After the Rooz v. Kimmel decision was published Dave Westcott (Sacramento) went to work on a standard hold harmless agreement for use by our folks in his region. He says he's still not totally happy with it, but one version reads like this:

* * *

Order No. _________

The undersigned requests that you record the following document(s) with the County Recorder as an accommodation to the undersigned. It is specifically understood that you will not undertake to check the facilities of your title plant or to examine the pertinent records of the County of, wherein said property is located, and that you assume no liability whatsoever in connection with the recording of the document(s) listed below, and that you assume no liability as to the condition of title to the land described therein or the sufficiency and accuracy of the said document(s).

(List Documents)

If for any reason, the County recorder rejects any of the document(s) submitted for recordation, FIRST AMERICAN TITLE INSURANCE COMPANY is to return all of the above documents with any County Recorder comments to:

NAME ________________________

ADDRESS _________________________

The undersigned hereby acknowledges receipt of a copy of these instructions.

DATED: ____________________

(Signature)

Address: ___________________

Telephone: ____________________

Also on the heels of the Rooz case, Richard Flory of the Home Office Underwriting Dept. drafted a standard hold harmless form which was distributed to our California branch offices as Underwriting Bulletin No. H.O. 1211. Richard’s version includes an attorney’s fee provision.

Vince Kozsdiy (Bolingbrook/Chicago) wrote:

Your analysis of the dangers of accommodation closings is right on point. In Illinois we have attempted to approach this issue on a case by case basis. Generally, we have declined such requests. However, if the Lender is someone with FATIC contacts we have proceeded with caution and conducted the "closing". Of major concern in our locale is the "unauthorized practice of law." Invariably, the borrower at these closings have questions regarding loan documentation. While we have trained our closers to be mindful of this point in regular escrows the very nature of sign up transactions makes this issue loom even larger.

Reply to all: 'Nuff said--thanks for writing. BR