Posting for

Tuesday, October 6, 1998

by: Bert Rush

brush@firstam.com

COMPETENCY AND CAPACITY/AMERICANS WITH DISABILITIES ACT/ESCROW AND CLOSING

While in Columbus, Ohio, last week I was told the following story of a troubled closing.

The buyer was a woman who had been seriously injured in an auto accident. Her injuries included severe brain damage which left her permanently disabled.

A lawsuit was filed on the woman's behalf which resulted in a large monetary settlement (or verdict, doesn't matter).

Acting through her attorney, the woman contracted to buy an expensive home. A First American agent was asked to insure the woman as owner, and also insure her purchase money lender.

When the woman appeared with her attorney for the closing the closing officer was immediately concerned that the extent of her disability might cause her to be considered legally incompetent. But when the closer expressed this concern to the woman's attorney his demeanor became threatening.

"This woman's rights are protected by the Americans With Disabilities Act--which is federal law," he said. "You can't discriminate against her because of her disability--and you will close this transaction right now just as you would for anyone else."

So....what would you do?

I think the closing officer would be justified in refusing to close without obtaining assurance from the woman's attending physician that the woman was mentally competent to understand the transaction and agree to its terms. This assurance should be in the form of a letter from the physician describing the woman's physical and mental condition, describing the nature and effects of any medication being regularly taken by the woman, and opining as to her ability to make decisions and manage her business affairs.

And, even with such a letter in hand an escrow/closing officer should feel empowered to make his or her own independent call as to whether to close.

This is, in fact, how we would handle anyone's transaction when a question of competency arises--so our requirements have an objective basis and involve no discrimination against this particular individual.

The attorney was plain wrong--and he or she probably knows it. Any transaction (or mortgage) entered into by an incompetent is null and void--and the Americans With Disabilities Act will not operate to validate a legal nullity.

In the past we have seen claims where people who have been adjudged incompetent nevertheless have bought homes, giving purchase money mortgages to unsuspecting lenders. Then their conservator appears and challenges validity and enforceability of the purchase money mortgage--insured by us. These can be very frustrating cases--because sometimes the incompetent gets to keep the house without paying the mortgage--so who's crazy?

No need to speculate on this attorney's motives. Better to keep in clear focus the fundamentals of title underwriting--and of escrow and closing practice. Having assurance about the competency and capacity of parties to a transaction is at the top of my list of the "fundamentals."

Questions, comment, argument? Just press the "reply" button and send your thoughts to LandSakes.

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Following Tuesday's posting Dave Westcott (Sacramento) writes:

Just getting ready to defend a competency/capacity case where the parents had their son included on title which means he also executed the purchase money mortgage. He was a month shy of 18, but now several years later is suing to either own the house free and clear or to recover the entire sum paid to the seller (including the portion borrowed.) This, after parents and son lost the house in foreclosure by the purchase money lender. I'll send you materials by mail.

Reply to Dave: Thanks for bringing this up--when the outcome is known let's post it.

And Oscar Beasley (Santa Ana) writes:

THIS REMINDS ME OF THE YOUNG LADY WHO WAS SORTA NEW IN ESCROW AND ASKED ME IN A MEETING WHEN I WAS DISCUSSING THE COMPETENCE ISSUE IF IT WAS ALL RIGHT TO TAKE A NOTARIZATION IN A REST HOME. SHE AS VERY TIMID IN ASKING. IT IS AL-WAYS NECESSARY TO BE SURE THAT THE INDIVIDUAL SIGNING IS COMPETENT. I AM SURE NO ONE WOULD WANT TO TAKE A SIGNATURE FROM SOMEONE THAT IS OBVIOUSLY DRUNK--OR WOULD THEY?

Reply to Oscar: Reminds me of a near-claim we had some time ago in Colorado. A single man was selling his home. Came to signing straight from a state hospital where he'd completed a course in drug rehab. He didn't have photo i.d.--so in lieu thereof the notary took a photocopy of his hospital bracelet (still on his wrist) showing his name. I swear--I saw it. This never ripened into a claim tho--the seller didn't get much in sale proceeds and, after all, he probably was competent. Hey, they let him out!

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Following Tuesday's posting Michael Kelly (NY) writes:

We have a title application now. Husband and wife are in the process of a bitter divorce, and the husband has voluntarily committed himself to a mental hospital. The wife's attorney says that this is just a ploy on his part to delay the closing. We certainly won't close while he is "away", but what if he decides he is recovered and is persuaded to cooperate? Do we take the chance that he will try this again post-closing?

Reply to Michael: I think I'd ask for the usual attending physician's statement coupled with the agent or closing officer's impression of the husband's ability to understand the transaction and agree to it. If both say husband seems OK I'd probably go with it. By the way--this story, set to music, might do something on the Country charts.