ILTA Standards Committee Meeting Gateway Hotel & Conference Center - Ames, IA Saturday, September 24, 2011 10:00 AM Members Present: Kevin Christie, Mary Dawkins, Geralyn Greer, Daniel M. Kadrlik, Gregory Lievens, Mark Mallicoat, Gary Reeder and Lynette Thompson. Chairperson, Mary Dawkins, called the meeting to order. The minutes from the previous meeting of May 2, 2010 were approved. Questions and Discussion for September, 2011 meeting: 1. QUESTION: Jane is the sole owner of property. She dies, and in her will, she bequeaths a life estate to her spouse in the real estate that she is residing in at her death. Upon termination of the life estate, bequeaths fee simple title to the real estate to her children. The Executor conveys her real estate to lending institution in lieu of foreclosure of two mortgages. Is a search necessary on the surviving spouse because of the life estate and on the remainderman? Are quit claim deeds necessary to divest their interest? I am certifying to the executor to the date of the Special Warranty Deed, Jane to the date of her death. Not sure what to do about the surviving spouse and remainderman. What are your thoughts? ANSWER: If the real estate was specifically bequested in the will a quit claim deed might have cleared things up a bit. I would definitely show the will provisions and search the life tenant and remaindermen and let the attorney decide (hopefully there aren t a bunch of liens against them). If the deed is on over 5 years it is legalized as to claims of the heirs so you would probably be home free then. Did the Executor give a Court Officer Deed or Special Warranty Deed? Probably doesn t matter either way but it seems kind of unusual to convey by Special Warranty deed. REPLY: It was a special warranty deed, did search them out, no unsatisfied judgments. I guess the question is, when does title rest in the beneficiaries? When the will is probated, or when conveyed by the executor, or by order of the Court? The estate is still open and the deed filed was less than a year ago. ANSWER: All you can do is show everything and let the attorney decide. It s probably ok but like I said before a quit claim deed would probably be better. Time will eventually clear it in any event. Glad there aren t any judgments. ANSWER: Generally speaking, title transfers on date of death subject to the administration of the estate. If in the course of the administration the property is transferred out of the estate then the title interest of the beneficiaries is gone and none of their liens would attach. My question is whether the executor had power of sale in the will. If so, then there would be no issue as I see it. If not, the question arises as to whether the executor should get Court approval before the transfer. If he/she didn t get court approval I would probably not search the spouse/children but I would put a stop search note on the abstract (I don t think very many abstractors do stop search notes but we use them to alert the examiner that we are not searching someone but think there may be an issue with what is going on in the abstract. We don t list names searched on our certificate so I think this practice arose from that.) ANSWER: Title vests in beneficiaries at date of death, subject to the administration of the estate. What kind of proceedings were had in the estate? If there is Application to convey, Notice to Heirs and Order Approving, I probably wouldn t have searched the spouse & remaindermen. I agree quit claim deed(s) would have cleared things up. COMMITTEE CONSENSUS: If the assumption is that the executor did everything they should have in the estate proceedings and all the parties were served notice, the Special Warranty Deed should be adequate. There would be no need to search the spouse or the remaindermen.
2. QUESTION: Is there a cite or a title standard that states fees in probate are not a lien against the real estate? ANSWER: They are not a lien and it is not necessary to show them. Are they listed in the lien index? I know this issue has come up years ago but I can t get you the exact reference but unless they are listed in the lien index you do not need to show them. REPLY: It looks like title standard 9.12 applies. It was indexed in the lien index against the Estate. ANSWER: I m surprised that they would index it. That might change the situation but I think I d be inclined not to show it. Is a Court Officer deed being given or are the heirs inheriting it? REPLY: The property was conveyed by Court Officer s Deed. The Estate closed. The other company brought it forward twice. I did not show it in the continuation I did. I emailed the examining attorney title standard 9.12. They are amending their opinion and excluding the reference to the unpaid costs. ANSWER: It shouldn t be a problem if it was conveyed by Court Officer Deed. Kind of strange the way your county handles things though. Shouldn t have allowed the estate to be closed without paying the costs. ANSWER: I would agree with the discussion already presented that Title Standard 9.12 states that no showing is required with regard to the payment of costs of administration of an estate. This standard does address the situation where there is a transfer of real property from the estate but I think it is generally accepted that the costs are not liens when the property is passed through to the beneficiaries. Part of this would come from the fact that if the beneficiaries do get it then the estate closing would be required to end the administration of the estate and the costs should be all taken care of before the closing, unlike the fact situation presented. I find that quite odd also that that happened along with the indexing of the fees in the lien index. ANSWER: Title Standard 9.12 applies to real estate that is transferred during the administration of an estate. States that no showing is required with regard to the payment of costs of administration of the estate. Further Authority: Iowa Code 633.78,.395,.430. Expenses of administration and claims do not constitute liens on real property in the estate. COMMITTEE CONSENSUS: Differing opinions. We really don t feel that we have enough information to give a proper answer. Some felt that if the judgment is in the lien index, they would show it. If there is a Court Officer Deed, and the fees are indexed as a lien subsequent to the filing of the Court Officer Deed, the fees would attach to the proceeds of the sale, and they would not show it. Still others said that their Clerk would not close a probate matter without the fees being paid, thus this issue would never be a problem. Iowa State Bar Association Standard 8 th Edition, last updated June, 2011, shows, in part: Standard 9.12 (4) No showing is required with regard to the payment of costs of administration of estate. See Iowa Code Sections 633.78,.395,.430 (2011). 3. QUESTION: I was reading the ALTA Title News and saw this case on page 17 of the July issue. Do we as abstracters need to make note if an assignment refers to a Promissory Note, or is Iowa law different than New York law? ATTACHMENT: In re: Ferrel L. Agard 444 B.R. 231 (Bankr. E.D.N.Y. 2001) Facts: Prior to Ferrel L. Agard s bankruptcy, U.S. Bank, as loan pool trustee, obtained a foreclosure judgment against him in a New York state court. After filing bankruptcy, Agard asked that bankruptcy court to void the foreclosure. He argued that the bank s only interest in the mortgage was received by way of an assignment from MERS, as nominee for the original lender. Agard s argument raised the fundamental question of whether MERS had the legal authority to assign a valid and enforceable interest in the mortgage. The bankruptcy court ruled on this question because a number of cases before the court presented the same issue. Holding: The bank won, but only because the bankruptcy court had no authority to disturb the prior state court foreclosure judgment. The bankruptcy court went on to rule that a MERS assignment does not transfer a mortgage under New York law. The court reasoned that the secured lender is the only person who has a right to enforce a mortgage. The secured lender is the person who holds the promissory note the mortgage secures. For the bank to prove it was the noteholder, the bank needed to supply proof of a written
assignment of the note or to produce the original note, endorsed over to the bank. The MERS assignment was ineffective because MERS never owned the note. Relevance to the Title Industry: While court rulings across the country have varied whether or not MERS can launch foreclosure procedures when it lacks possession of the promissory note, the New York bankruptcy court ruled a MERS assignment is ineffective to transfer ownership of a mortgage or deed of trust. If ownership of a mortgage is an issue, the person claiming to own the mortgage must produce an assignment from the original lender or the original promissory note, and that it s properly endorsed. ANSWER: I don t recall seeing an assignment that also refers to assignment of the note but I haven t been looking for it so it could be in all of them. Lately it seems as though MERS is assigning mortgages to the Lender (who probably is the note holder) and then the Lender is proceeding with the foreclosure. I don t know if this is an Iowa practice or not but I have not seen many (if any at all) foreclosures done by MERS in the last year or so. COMMITTEE CONSENSUS: It was suggested that you might watch the wording of your assignments very carefully and set out the wording contained in the assignment, ie: ASSIGNS: Mortgage shown at Entry No. and all promissory notes evidencing said debt. Iowa State Bar Association Standard 8 th Edition, Title Standard 7.6, last updated Dec. 2010, essentially states that MERS has the power to do all things that the owner of the mortgage could do. 4. QUESTION: Our competitor did a new abstract where there was property original held in husband and wife, they divorced and then there was a foreclosure of a mortgage. The award of real estate was to the wife, and the husband was to give a Quit Claim Deed to the wife. He did not give a Quit Claim Deed. The competitor did not search the husband and now we have the abstract to continue and in searching the husband, we find several judgments. What should we do? ANSWER: The practice we have used is to show the judgments by an Addendum before our continuation. ANSWER: Who received property in divorce? Husband and wife should have been searched to date of decree; and from there forward, whoever was in title should have been searched. Is there a Sheriff s Deed of record? If so, original owners need only to be searched to date of Lis Pendens. I m assuming from the way your question is phrased, that the wife received the property, in which case the husband should have been searched to the date of decree of dissolution. Would need to know the dates of the judgments and the date of the decree to know if judgments against husband should be shown. COMMITTEE CONSENSUS: Again, more information is needed to give a proper answer. If you do a search and feel that there is an obvious title defect, ethically, you may feel obligated to show such title defect. Some felt they would kick dirt on their competitor, others would not. Others felt the addendum idea mentioned above would be a good thought. You are only certifying from a date to a date, however if you have knowledge of something prior to that date that was omitted, you could show it, perhaps by addendum, but you do not certify to it. 5. DISCUSSION TOPIC: From Marcia E-MAIL 8/8/11 she has an attachment to this: Marcia says: I thought this was an interesting proposal although once they think it out I believe they will discover that it is somewhat unworkable. I don't know if you've had a chance to see the attached news item from ALTA concerning a new senate bill which would require the IRS to file tax liens in a centralized registry instead of local property tax records. Tim went online and found a copy of the bill which is also attached. The bill says that they would index liens by "at a minimum, taxpayer name, the state of the taxpayer's address as shown on the notice of lien, the type of tax and the tax period." That really doesn't seem to narrow it down much and seems as though the lien would follow a person wherever they went. I don't think I want to search John Smith! There is an ALTA contact person email address shown in the article if you want to express concerns about this. Just thought I would pass this on!
COMMENTS: Suggest that you contact your Congressman with your concerns about this issue. Such a registry as currently proposed, would be impossible to search accurately. We will direct the Board to have Jan Gemar address the Iowa Delegation about our opposition to this proposal.
6. DISCUSSION TOPIC: New Title Standard 15.3. When real property is held in the name of a limited liability company, how should title be conveyed: The part that concerns us as abstracters is that there is now a requirement that the record must disclose: (1) whether the LLC is member-managed or manager-managed; (2) whether the conveyance is in the ordinary course of LLC s business or affairs; and (3) the authority of the signer to act on behalf of the LLC. Absent actual or constructive knowledge to the contrary, and unless a property filed and recorded Statement of Authority contradicts any of the following showings, evidence of the foregoing matters may be provided of record by one or more of the following: (1) the LLC s written operating agreement; (b) a duly filed and recorded Statement of Authority; (c) an affidavit signed by a person with knowledge; or (d) a recitation contained in the instrument of conveyance (including the acknowledgment of such instrument). Any instrument of conveyance signed by the person or persons (whether members, managers, or officers) so authorized of record shall be presumed to be authorized by the LLC. If the transaction is not in the ordinary course of business, the consent of all members is required. COMMENTS: When abstracting such a conveyance, it is suggested that you show an affidavit supporting such a conveyance as a separate document, if filed. If there is not such an affidavit filed, you would want to show the wording in the document supporting the requirements of 15.3. This Title Standard was passed Dec. 2010. (A copy of the new standard is attached.) 7. QUESTION: What is the difference between in rem jurisdiction and quasi in rem jurisdiction? I am searching a City and there is a huge judgment against an individual unrelated to my property I am now searching, naming Jane Doe as defendant. The City is named as a Defendant because of a junior lien they hold against Jane Doe. In the decree in the unrelated case, there is an in rem judgment entered against the Defendant Jane Doe and a quasi in rem judgment entered against all the junior defendants, including my City I am now searching for an enormous amount. Do I need to show this quasi in rem judgment at all on my City search? ANSWER: Quasi means a mixed judgment. You can only tell by looking at the decree from the Jane Doe foreclosure, as to whether or not there would be a lien against the City you are now searching. 8. DISCUSSION TOPIC: Electronic Abstracts. COMMENTS: This seems to be a very volatile issue that could be something facing every one of us in the future. E-mailing abstracts, reports, etc. are and will be something we are asked to do. Position yourself to address such requests by updating your own office(s) to prepare for such situations. Our next meeting will be scheduled to coincide with the date for the Convention in 2012. Respectfully submitted Lynette Thompson