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Play By the Rules

MAY 30, 2013 3:28pm ET
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WE’RE HEARING about insurance which I call the symbiotic partner to mortgage lending. Without insurance we could have no lending unless you want to completely ignore risk. Risk of loss with a fire, flood or other disaster and of course risk of title problems. Insurance carriers, like lenders, have rules they are supposed to follow. Sometimes the rules are more clear-cut than others. Take for example the need to be licensed.

I just came across a case out of California where the state Department of Insurance recently served a cease-and-desist order on a company that it alleged was engaged in the business of title insurance without a license. Further it was alleged that the company (Timios Inc.) for a one-year period solicited and obtained title insurance orders from various lenders in connection with California properties involved in purchase and refi loans.

Well everyone here and there tries to cut corners to save on costs. Then again obtaining and having a required license is probably a cost that you should be able to absorb if you are going to be in the business for a while. To save on litigation costs the company involved entered into a stipulation with the California Department of Insurance to stop what it was doing until it obtained a license to do so. Although the company admitted no wrongdoing it paid a fine of $65,000 and kicked in another $20,000 to pay for the state’s costs of the investigation.

I thought lenders were supposed to vet title insurance companies? I guess this one slipped through the cracks. Once upon a time I represented Citicorp and they refused to use one particular title agent in New York based on a suspicion that the title agent was not recording mortgages but rather pocketing the fees to do so. When I was in private practice representing lenders I came across this company again. One day I found out that their title search was rather bare bones. They were not checking for easements or covenants and restrictions. I discovered this by chance when another title search had been done by a different company on the same property.

Speaking of costs I just found out that my homeowners insurance company wants to charge a higher fee if my premium is escrowed. How does an extra $70 a year sound on what is normally a $500 premium. Well obviously I want to avoid the fee. But it gets more complicated. This fee is on a second home where there will be no mortgage. On the main home I am doing a cash-out refi where I want to escrow the taxes and now do not want to escrow the insurance to avoid an extra fee. Sounds simple to me.

Well no, I am told that the lender will charge me an extra fee if I want to waive the insurance escrow but not the real estate tax escrow. I guess the solution is for me to learn how to budget monthly for the taxes and avoid all escrows and get on with my life. Then again I wonder if there is a rule that is not being followed here. Where is the CFPB when you need them? On the state level I know I am probably screwed because we are very pro-business here in Michigan.

Finally in other news out of the great state of California a friendly reminder to credit unions that traditional mortgage lenders, LOs and mortgage brokers will appreciate. The California Department of Financial Institutions in its monthly bulletin has politely reminded credit unions to avoid certain types of advertising. Mainly, the statement that “anyone can join” a particular credit union which is prohibited. This violates the traditional rule that credit union members must have a common bond of membership in addition to the fact that they all have a pulse.

Based in Chelsea, Mich., John McDermott is a real estate and elder care attorney who represents both consumers and businesses. He can be emailed at jamcd@comcast.net.

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