DatabaseID=[[DatabaseID]]|ContactID=[[ContactID]]|Richard B. Abilheira, Esq.
State Counsel
Chicago Title Insurance Company
One State Street, Suite 600
Providence, Rhode Island02908
Phone: 401-450-3820
Fax: 401-450-3757
FORECLOSURE UNDERWRITING GUIDELINES
Re: Foreclosure Underwriting
Insuring title out of foreclosures presents an extra hazardous risk, especially in view of recent reports regarding defects in the foreclosure process. As an agent of the company, you have a duty to reduce the risk when looking to insure these transactions. In order to assist you in evaluating the insurability of a transaction whether out of the foreclosure itself, or an REO sales, you should follow the following guidelines. You should always feel free to contact us directly with any questions regarding a foreclosure transaction.
A. UNDERWRITING REQUIRMENTS
A commitment to insure a current sale by a foreclosing mortgagee must contain the following requirements:
- Duly authorized deed from the foreclosing entity acting pursuant to the terms of the following mortgage: [Describe the mortgage to be foreclosed] and vesting fee simple title in ______.
- Affidavit by the mortgagee that foreclosure of the mortgage recorded in Book ___, Page ___was conducted in accordance with the terms of the mortgage and RIGL §34-11-22, and that the mortgagee has complied with all notice provisions therein
- Affidavit by the mortgagee that borrower(s) is not subject to the terms of the Servicemember’s Civil Relief Act.
B. PRIOR TO FORECLOSURE
1. NOTICE
Notice must be given in accordance with RIGL §34-11-22. Additional notice requirements are set forth in RIGL §34-27-3.1 as well as the local ordinances indicated below.
2. BANKRUPTCY
(a) Immediately upon the filing of a bankruptcy petition, the debtor’s creditors are subject to an automatic stay against enforcement of their debts. The stay includes foreclosure of mortgage on the debtor’s real estate. Prior to foreclosure, the note holder must petition the bankruptcy court to lift the automatic stay and allow foreclosure. Such order must be entered prior to initiation by the note holder of foreclosure proceedings. Agents underwriting a foreclosure in which the borrower has an open bankruptcy case must contact agency counsel for assistance.
(b) Check the Bankruptcy Court records for the mortgagors to ensure that there is no stay in effect
3. THE SERVICEMEMBERS CIVIL RELIEF ACT
The Servicemembers Civil Relief Act (“the Act”) provides that a foreclosure sale is not valid if made during a Servicemember’s military duty and for 9 months thereafter. An acceptable mortgagee’s affidavit will state that the mortgagee has verified the borrower is not subject to the Act.
4. ASSIGNMENTS
There must be a complete chain of title of assignments of record in to the foreclosing lender prior to the foreclosure. The Assignments must be dated prior to commencement of the foreclosure proceeding.
5. DOCUMENT REVIEW
A complete title search including a full copy of the mortgage should be reviewed to make sure that the statutory language is included and there are no unusual requirements that must be met.
6. DOCUMENTS
Review the final foreclosure documents on record as well as the documents that will be used in your transaction for compliance with the above as well as:
a. Proper names of the parties
b. Valid Powers of Attorney
c. Necessary affidavits
d. Compliance with RIGL §44-30-71.3
e. Correct Legal Description
f. Match the grantor’s name with the signature block and acknowledgment.
7. POWES OF ATTORNEY
A note holder will often use a power of attorney to convey real estate bought at foreclosure. Agents must carefully review such instruments and confirm that the principal under the power of attorney is the proper party to convey. For example:
Foreclosing trustee conveys a property to “AnyBank, N.A., as trustee for the bond holders under ABC Trust No. 8765.” Our agent is asked to insure John Doe, who will purchase the property from AnyBank, N.A. The agent is presented with a deed from “AnyBank, N.A., as trustee for the bond holders under 2006 Securitized Trust No. 8765” which has been executed by “ServicingRUs, Inc., its attorney in fact.” Recorded with the deed is a power of attorney executed as principal by a person purporting to be an officer of “AnyBank, N.A., as trustee for the bond holders under 2001 Securitized Trust No. 6543.”
Note in this example that the principal under the power of attorney and the current owner of the property are two different entities. Agents must review all powers of attorney and confirm that they have been properly executed by an officer of the title-owning entity, or by an officer of the current note holder, as the case may be.
Agents must require that any power of attorney used to convey real estate owned by the note holder, be recorded in the jurisdiction of the property prior to the appointment or deed in which the power is exercised
8. IRS LIENS
(a)A memorandum of lien filed by the IRS prior to the recording of the foreclosed mortgage will not be affected by the foreclosure. It remains a lien on the real estate. The purchaser at foreclosure will take title subject to the lien unless it is paid and released at settlement.
(b)26 U.S.C. § 7425 (b) provides that a non-judicial foreclosure sale of property burdened by a junior IRS lien is subject to and does not discharge the IRS lien if (a) the IRS lien was filed more than 30 days before such foreclosure sale; and (b) the United States was not given notice of the sale by registered or certified mail, or by personal service, not less than 25 days prior to the foreclosure sale. An IRS lien filed 30 or fewer days prior to a foreclosure sale will be discharged by such sale and no notice to the IRS is required.
(c)Even if the United States has been given such notice, it will still have 120 days from the date of the foreclosure sale to redeem the property to satisfy its IRS lien.
(d)Agents underwriting the sale by a foreclosing mortgagee, or an out-conveyance within one year of such sale must include the following requirements if the property is burdened by a junior IRS lien.
Foreclosure/Junior IRS Lien Requirement:
Evidence satisfactory to the Company that Notice of Sale was provided to the Internal Revenue Service pursuant to I.R.C. Section 7425 et seq., and that the United States did not redeem the property within 120 days of said sale. Upon satisfaction of this requirement the following judgment will not appear on the final policy: [Describe IRS lien]
Exception if policy is issued within 120 days from the date of the foreclosure sale (whether or not the above requirement is met):
Right of redemption of the Internal Revenue Service pursuant to I.R.C. Section 7425 et seq. under the following lien: [Describe IRS lien]
(e)In satisfaction of the above requirement, the Company must review the notice provided to the IRS and will not rely solely on the mortgagee’s certification that such notice was provided. Contact agency counsel for assistance.
9. POSSESSION:
Verify that the mortgagor has vacated the property. Otherwise, do not delete the parties in possession exception.
REFERENCES
RIGL §34-11-22
RIGL §34-27-3.1
RIGL §34-27-4
RIGL §34-27-5
RIGL §34-27-6
Providence Ordinance 2009-41
Providence Ordinance 2009-42
Providence Ordinance 2010-2
Cranston Ordinance 2009-60
Cranston Ordinance 2009-61
Warwick Ordinance Article V, Chapter 10 §10-36 & 10-40
See also Rhode Island Title Standards Section VII
Come to the Castle, where integrity, strength and experience work for you every day!