Posting for

Monday, November 23, 1998

by: Bob Duffin

rduffin@firstam.com

and: Bert Rush

brush@firstam.com

SIGNATURE SERVICES/ESCROW AND CLOSING/TITLE UNDERWRITING

Bob Duffin (Bolingbrook/Chicago) writes:

Recently, one of our offices in Illinois was approached for title insurance and closing services on a transaction. The lender in the transaction is utilizing an entity called "At Our Fingertips" as part of the loan process. This entity's involvement in the transaction is to obtain the signatures of the borrowers on the mortgage documentation at the borrower's residence. The package, once signed, is sent to the title company who acts as the disbusing/closing agent for the lender.

The title company prepares the RESPA and disburses the loan proceeds. From information received the specific lender has offices in California and may be operating in this manner there already.

Needless to say this type of methodology in the closing process presents a new tier of concern for any title company insuring the loan. Has anyone been involved in a transaction of this type or with this entity?

Reply: I'm afraid we're going to see more and more of this as mortgage lenders increase the amount of business they do from "call centers" (ie., telemarketing) and over the internet. And, perhaps, some lenders will promote this as a convenience to the borrower.

Not long ago we thought we could enforce the discipline of requiring sign-ups before notaries known to us (or our agents) in transactions to be insured by First American. But, in the real world, it ain't happenin'--(I wonder how many branch managers know this). Anyhow, these days I think we'd be happy if we could just enforce this discipline in loan transactions involving reverse mortgages--or in any transaction where a signer is hospitalized or in a nursing home.

About your case in point: I haven't heard of "At Our Fingertips," and neither has our escrow manager in Orange County, CA, nor the folks at Lenders Advantage. But as long as they employ duly-commissioned and qualified notaries, what's the difference between relying on them as opposed to other "outside" notaries--such as may be found in real estate sales offices, law firms and private mail centers?

This is not to say your concern is misplaced. The better practice is for our employees and agents to require sign-ups with known notaries. They should become familiar with mobile notary services in areas where they operate--and to the extent such services may be required, our folks should steer sign-ups to known mobile notaries rather than silently go with the lender's choice. When asked to rely on a mobile notary outside their area, our folks may want to call a local First American branch or agent for a recommendation.

This may help: Lenders Advantage is currently planning its own signature service--employing pre-screened mobile notaries--which they hope to offer nation-wide. Look for an announcement on this early next year (but, please, don't call 'em--I'll let you all know when this is formally announced).

A final thought: Claims handlers should be alert to claims resulting from "outside" sign-ups, so they can alert employees and agents to those notaries with which we've had problems.

"If you trick me once, shame on you--trick me twice, shame on me."

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

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Following Monday's posting Chuck Woods (Albuquerque) writes:

New Mexico has had a few situations where the mortgage broker has arranged for an 'outside' party to take signatures. Our role was to prepare the settlement statements and disburse the loan proceeds. This all went well for many closings, however in one instance, a closing involving a credit line mortgage, the 'outside notary' gave the borrower the checks to draw on the account at signing. The actual lender (not mtg. broker) declined the loan after closing. We returned the loan funds to the lender and notified the mtg. broker. At this time no one knew the 'outside notary' had given the borrower the checks. The borrower wrote numerous checks on the account, in which +$20k were honored until the lender realized the situation. The lender is now holding us responsible for the loss. The mortgage broker is a national company, which provided us with written instructions the loan documents were to be picked up by the 'outside notary', who was to handle the signing, we also had written notice from the broker, that the 'outside notary' was an agent for the broker. The lender claims that they were not privy to this situation and First American as settlement agent was responsible for the checks being given to the borrower before the loan was finally approved, recorded and funded. We are trying to negotiate a settlement at this time. The lesson learned is that the mortgage broker may provide instructions which are contradictory to the actual lender's understanding and (we should) verify all broker instructions with the lender. This is just one of the pitfalls we may encounter in this process.

Kim Davis (Lenders' Advantage/Santa Ana) writes:

Hi, Bert.....thanks for the info re: signature services.....we go into beta testing in only So. Cal. next week....I haven't had any claims involving outside sign ups except when the notary's briefcase with three sets of documents was stolen at a car wash....we paid minimal interest and waived some costs from a customer service standpoint...but I did worry some about all the personal info in those packages...probably the thief wasn't sophisticated enough to take the next step....another good reason for not letting the outside signers accept funds.

We probably did over 1,000 national signings per month with outside notaries in the Nationwide Settlement Services Division in the last 12 months with no known forgery claims to date (knock wood)...the biggest issues are operational in nature....can a high degree of service be provided and who pays when the deal cancels???? We'll keep you and your readers posted as we go forward....kim

And, Jay Dobson (Portland) writes:

In Oregon, the State Real Estate Division considered a service such as "At Your Fingertips" as the "appearance of an escrow" and thus subject to all the State regulations of an escrow agency. One such company was rather largely fined and the fine upheld by the Court of Appeals (Coast Security Mortgage Corp v. Real Estate Agency, 155 Or App 579, 964 P.2d 306 (1998)); very recently in fact.

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Following up on Monday's posting Mike Calder (San Francisco) writes:

I realize that signature services are in fairly widespread use, at least here in California, but I usually caution escrow folks to be wary of the escrow instructions when using a sign-up service. In my experience, it is not uncommon for a lender to include in its escrow instructions something similar to the following actual escrow language:

The point I have tried to make in our escrow training sessions is: Issuing a policy in reliance on forged or improperly executed documents is bad enough, but at least our liability is limited to and defined by the terms and conditions in the policy. If we have a forgery or improper execution where we have closed with escrow instruction language similar to the above, we may have a far tougher situation in defending the escrow negligence claim.

Reply: I agree totally. Let's discuss further.

When there's a forgery of a mortgage or deed of trust--there's usually no monthly payment made. So from day one you have interest incurred over and above the principal amount. Typically, the lender won't learn of the forgery claim until it threatens or starts to foreclose--months after loan origination. Then, after receiving the forgery claim the lender will pause to consider what to do. It may refer the case to outside counsel --and start incurring legal expenses.

Meanwhile, the borrower is upset--and may be told by the lender or lender's counsel that in order to demonstrate the integrity of the forgery claim the borrower should file a quiet title action--or maybe the lender just refuses to release the mortgage when presented with proof of forgery. Either way, the true owner hires an attorney to prepare a quiet title action and, "while we're at it, let's just throw in causes of action against the lender for negligence in making the loan, slander of title, and infliction of emotional distress." That's what good lawyers do.

When this claim is made to the title company, in the absence of the escrow instruction quoted above the insurer would investigate, evaluate, and pay the policy amount (equal to the principal amount of the loan at origination in pre-EAGLE policy days)--and close the file. But with the instruction above we will also be asked to pay all of the lender's incurred but unpaid interest, all of the lender's legal expenses, plus whatever it takes to settle the true owner's lawsuit.

So--I guess we'd prefer not to have the language above in any of our escrow instructions. (I take it, Mike, this is the line you'd prefer to draw.)

On the other hand, where signatures are being taken in-house, and notarized by our trusted employees, maybe we can learn to live with the instruction above.

But not so with outside notaries--selected by the lender or the borrower. Maybe in those cases we have greater reason to say "no" to this lender's instruction. A good talking point.

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Following up on last Monday's posting, Deborah Morrison (Sacramento) writes:

Outside signing companies have been heavily used in the So. Ca. area for over 10 years now. The companies have been "known to us" and we have never experienced any problems. Now that I'm up in Sacramento we've started our own stable of "contract employees" who do our signings for us. Many lenders are now asking if the person conducting the signing is and "employee" of First American. If not, they are requiring some sort of indemnity to be signed by us. My opinion is that if the "signer/notary" is being paid by us and obviously known to us we are taking on the liability as if they were our own employee. In the "old days" any time documents left our control it was necessary to request "permission" from the lender to do so...I think the same holds true if the signing is being conducted by someone outside of our knowledge/control.

This is the wave of the future so we need to be prepared.

Reply: I agree with your "wave of the future" characterization. Not to change the subject, but it seems to me this is another opportunity to market the EAGLE loan policy. I take it the lenders' concern when requesting our indemnity covering signups by independent contractors or "outside" notaries is that the policy amount of their title policy will cover their principal only at the policy effective date. So if there's a forgery claim--or some other claim to the effect that the mortgage was void from the get-go--the lender stands to lose interest due over and above the policy amount. Lenders should be reminded that with the EAGLE loan policy the policy amount is automatically made 125% of the principal amount--so there's added coverage calculated to make the lender whole in the event of a forgery or competency claim.