BANKRUPTCY AND TITLE INSURANCE

Transcription

1 BANKRUPTCY AND TITLE INSURANCE Presented March 15, 2014 Oregon Land Title Association 2014 Educational Seminar Embassy Suites Hotel Washington Square George N. Peters Jr. Executive Director Washington Land Title Association Mail: PO Box 328, Lynnwood, WA Delivery: th St SW, #328, Lynnwood, WA (Mobile) (Fax) Updated May 2004 Updated August 2005 Updated January 2006 February 2014 This Material Originally Prepared for the Washington Land Title Association This material is general in nature, but Sections 7.6 (non-judicial foreclosures), (homestead exemption amounts) and 8.11 (transfer taxes) contain information that is specific to the following states: Alaska Montana Arizona Nevada California Oregon Colorado Utah Hawaii Washington Idaho Wyoming

2 This material is general in nature and does not purport to be exhaustive of all issues concerning Bankruptcy. Each title insurance underwriter determines individual company practice for issues discussed herein. This material represents the opinion of the author, and not of any title insurance company, and the author makes no express or implied warranties in regard to the use of the materials and/or forms. Each reader must depend upon his or her own knowledge of the law and expertise in the application, use or modification of these materials. George N. Peters Jr. is the Executive Director of the Washington Land Title Association, and has served as the Education Chair. He retired as an Assistant Vice President and Division Underwriter for Chicago Title Insurance Company, Fidelity National Title Insurance Company, Ticor Title Insurance Company and Security Union Title Insurance Company, and has 47 years experience in the title insurance and real estate fields, including five years as a paralegal coordinating national title insurance requirements for a Boston law firm. He is the author of the chapters Title Insurance and Waterfront Titles in the Washington State Bar Association s Real Property Deskbook, and has written numerous papers on various title insurance topics, including condominiums, leaseholds, bankruptcy, Indian lands, probate, mineral lands, timber, water boundaries, easements and foreclosures. He has organized and participated in many seminars for the title insurance, lending, and escrow industries and the legal profession. He currently represents the title insurance industry on a subcommittee of the Real Property, Probate & Trust section of the Washington State Bar Association which is reviewing the Uniform Common Interest Ownership Act for possible adoption in Washington State. He was the representative of that industry on the statutory Condominium Task Force which drafted the current Washington Condominium Act and authored a paper Condominiums and Title Insurance in Washington.

3 BANKRUPTCY AND TITLE INSURANCE TABLE OF CONTENTS 1.0 TITLE INSURANCE JURISDICTION PROPERTY OF DEBTOR DEATH OF A BANKRUPT INTEREST OF SPOUSES PARTNERSHIPS AND LIMITED LIABILITY COMPANIES CO-TENANTS BANKRUPTCY CHAPTERS CHAPTER 7 ( LIQUIDATION ) CHAPTER 11 (BUSINESS REORGANIZATION) CHAPTER 12 (FAMILY FARM OR FISHERMAN REORGANIZATION) CHAPTER 13 (WAGE EARNER) CONVERSION BETWEEN CHAPTERS TITLE TO REAL PROPERTY VESTING OF TITLE CONVEYANCE OF DEBTOR S PROPERTY PARAGRAPH EXCEPTION PRE-PETITION TRANSFERS PREFERENCE DEFINED FRAUDULENT TRANSFER DEFINED EFFECT OF FRAUDULENT TRANSFER INSURING INVOLUNTARY TRANSFERS UNAUTHORIZED POST-PETITION TRANSFERS AUTOMATIC STAY STAY PROTECTS DEBTOR S PROPERTY RELIEF FROM AUTOMATIC STAY HOW THE STAY IS LIFTED REDEMPTION AFTER FORECLOSURE LABOR OR MATERIAL LIENS PENDING NON-JUDICIAL FORECLOSURE ALASKA ARIZONA CALIFORNIA COLORADO HAWAII IDAHO Table of Contents Page i

4 BANKRUPTCY AND TITLE INSURANCE TABLE OF CONTENTS MONTANA NEVADA OREGON UTAH WASHINGTON WYOMING PENDING CONTRACT FORFEITURE SALE OR MORTGAGE DURING BANKRUPTCY WHO MUST CONVEY SALES SUBJECT TO LIENS METHOD OF SALE SUBJECT TO LIENS NOTICE AND HEARING OBJECTIONS BY CREDITORS AUTHORITY TO SIGN DEED LIENS MUST BE SATISFIED SALES FREE AND CLEAR OF LIENS METHOD OF SALE FREE AND CLEAR OF LIENS NON-DISCHARGEABLE DEBTS SALES PURSUANT TO PLANS (CHAPTERS 11, 12 AND 13) AUTHORITY TO SELL IN A PLAN NOTICE TO CREDITORS ACCEPTANCE OR REJECTION OF PLAN CONFIRMATION OF PLAN EFFECT OF CONFIRMATION EXEMPT PROPERTY (INCLUDING HOMESTEAD) WHEN THE EXEMPTION IS CLAIMED CHOICE OF EXEMPTIONS OBJECTION TO CLAIM OF EXEMPTIONS HEARING FAILURE TO OBJECT TO EXEMPTION LIENS NOT EXTINGUISHED ABANDONED PROPERTY WHO MAY REQUEST ABANDONMENT GROUNDS FOR ABANDONMENT HOW ABANDONMENT IS ACCOMPLISHED LIENS NOT EXTINGUISHED Table of Contents Page ii

5 BANKRUPTCY AND TITLE INSURANCE TABLE OF CONTENTS 8.7 AVOIDED LIENS MORTGAGES APPEALS TITLE INSURANCE OF SALE OR MORTGAGE TRANSFER (EXCISE) TAX EXCISE TAX STATES OTHER THAN WASHINGTON EXCISE TAX WASHINGTON STATE ACQUISITION OF PROPERTY DURING BANKRUPTCY SALES BY DEBTOR AFTER BANKRUPTCY PROPERTY ACQUIRED AFTER BANKRUPTCY CLOSED EXEMPT PROPERTY PROPERTY OR DEBTS NOT SCHEDULED ADMINISTERING SALES OUT OF A COMPLETED PLAN STATUTORY LIEN PERIODS TOLLED JUDGMENTS AND OTHER STATE LIENS FEDERAL TAX LIENS JUDGMENTS ENTERED DURING BANKRUPTCY EFFECT OF DISCHARGE DEBTS NOT DISCHARGEABLE LIENS NOT AFFECTED BY DISCHARGE EXHIBITS EXHIBIT A... Bankruptcy Opinion Form EXHIBIT B... Bankruptcy Checklist EXHIBIT C... Life Cycle of a Bankruptcy EXHIBIT D... PACER? Table of Contents Page iii

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7 BANKRUPTCY AND TITLE INSURANCE 1.0 TITLE INSURANCE A checklist for insuring property subject to bankruptcy is attached as EXHIBIT B. An abstract form, useful when checking the court case, is attached as EXHIBIT A. These forms should be utilized by the examiner when writing any title evidence, including a commitment, policy or guarantee. Also attached as EXHIBIT C is a chart showing the several bankruptcy plans and the general progression of a case from the perspective of a title insurer. EXHIBIT D is a discussion of the PACER web service which can provide quick and inexpensive searches of bankruptcies from all bankruptcy courts around the United States. 2.0 JURISDICTION Bankruptcy is governed by federal law which usually supersedes state law when there is a conflict. Our present bankruptcy law is codified in the Bankruptcy Reform Act, 11 U.S.C. 101, et seq., of 1994, as amended April 20, 2005 with many provisions having an effective date of October 17, 2005 (herein the Code ). Certain rules (herein, with cites, BR ) were adopted by the U.S. Supreme Court pursuant to 28 U.S.C. 2075, and apply to all bankruptcy courts. There are also local rules in each bankruptcy court that may affect timing and procedural issues. These local rules may vary. A bankruptcy filing is made in the United States District Court, Bankruptcy Division. The purpose of bankruptcy law is twofold: to give the debtor (the party filing bankruptcy) a fresh start and to pay creditors in an orderly fashion. The bankruptcy will result in either liquidation or reorganization of the debtor s estate. Bankruptcy may be voluntary (filed by the debtor) or involuntary (filed by creditors). Title insurers are concerned about bankruptcy filings because of the effect a filing has upon the debtor s real property interests. This can even include those interests disposed of by the bankrupt party before the bankruptcy was filed. 2.1 PROPERTY OF DEBTOR The bankruptcy court assumes jurisdiction over all of the property that the debtor has at the time the petition for bankruptcy is filed, wherever it is located, and whether or not that property is scheduled as an asset. The court also has jurisdiction over all property acquired by the debtor after the petition is filed but before the case is closed. 11 U.S.C Bankruptcy is a capacity question that is important in general index searches. However, the debtor may file for bankruptcy in a different jurisdiction than where the property is located, and thus it probably would not be discovered during the typical search and examination. Nonetheless, all property of the debtor is affected. The trustee should file notice of the bankruptcy in each jurisdiction, but this is not always done. If the title insurer has any reliable knowledge of the bankruptcy (for example, being told of it by the seller, buyer, lender or other party involved in the bankruptcy) an exception for the bankruptcy must be shown, even if all details are not known. See Conveyance of Debtor s Property in 4.2 below. If third parties, such as the real estate agent or closer, advise that they BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 1 OF 33

8 think a bankruptcy might have been filed, a state or regional underwriter should be contacted for advice on how to proceed. Note also that even though notice of the bankruptcy has not been filed locally, the debtor will often advise the lender or the title company of it in connection with a pending foreclosure, since one effect of the filing is to stay proceedings in a foreclosure action. 2.2 DEATH OF A BANKRUPT Bankruptcy rules may permit a bankruptcy to proceed in spite of the death or incompetency of the debtor. USCS Bankruptcy Rule However, title will have vested at death in the heirs and/or devisees (who, if not the surviving spouse, will not be a party to the bankruptcy action). COMMENT Refer any request to insure without a deed from the heirs or devisees to a state or regional underwriter. Consent by the heirs or devisees may be required. 2.3 INTEREST OF SPOUSES The bankruptcy court assumes jurisdiction over all of the interests of the debtor and the debtor s spouse in community property. 11 U.S.C. 541(2). In other instances (such as joint tenants or tenancy by the entirety) the Code states that the trustee may sell the interest of not only the debtor but the other parties in interest. 11 U.S.C. 363(h). An adversarial proceeding in the bankruptcy would be appropriate, with notice in the county records. COMMENTS Show the pending bankruptcy of a spouse even when vesting only the non-debtor spouse. Do not insure a sale by the non-debtor spouse without approval from your state or regional underwriter. When the debtor spouse s interest is being sold, we will generally want deeds from the non-debtor spouse. Refer any request to insure a sale by the trustee of a non-debtor spouse s interest to a state or regional underwriter. Among the factors to consider will be adequate notice to the spouse, and the reasonableness of the sale price. 2.4 PARTNERSHIPS AND LIMITED LIABILITY COMPANIES A bankruptcy filing by a general partner in a partnership or a member of a limited liability company may dissolve the entity or affect ability of that partner or member to participate in the entity. COMMENT Contact your state or regional underwriter concerning the bankruptcy of a partner of a partnership or member of a limited liability company. 2.5 CO-TENANTS Per 11 U.S.C. 363(h), the trustee has the authority to sell the interest of any co-tenant. For title insurance purposes, the bankruptcy of a co-tenant does not affect the title of the other co-tenants, but the court can obtain jurisdiction over them. The trustee can bring an adversary proceeding to BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 2 OF 33

9 sell the interest of the co-tenant, or to partition the property in order to sell the debtor s interest. Bankruptcy of Lyons, U.S.C.A., 9th 93 WSW A.R COMMENTS Show the pending bankruptcy of a co-tenant when vesting non-debtor co-tenants. Do not insure such interests without approval from a state or regional underwriter. Generally, when there is a sale of all co-tenant interests pursuant to a court order that is entered in the bankruptcy of fewer than all co-tenants, we will want a deed from all parties. Contact a state or regional underwriter if requested to insure without such a deed. Lacking affirmative consent by the co-tenants, among the factors to consider will be adequate notice to the parties, and the reasonableness of the sale price. 3.0 BANKRUPTCY CHAPTERS There are four chapters of the Bankruptcy Code that title insurers will commonly see debtors use. A fifth, Chapter 9, is for municipalities, and is not discussed in this material. COMMENT Contact a state or regional underwriter if requested to insure any transaction involving any public, governmental or quasi-governmental entity. These four chapters of particular interest to title insurers and their main features are as follows: 3.1 CHAPTER 7 ( LIQUIDATION ) This is a liquidation of all the debtor s non-exempt assets for distribution to creditors. An individual or a business may file under Chapter A trustee is appointed. 2. The debtor may exempt certain property. 3. An individual debtor may obtain a discharge from personal liability on debts. Partnerships, corporations and similar entities are liquidated and do not receive a discharge. 11 U.S.C. 727(a) (1). 4. Unsecured creditors may receive no payment. After completion of the bankruptcy and discharge of an individual Chapter 7 debtor, that individual debtor may not file again for eight (8) years. 11 U.S.C. 727.a(8) and (9). As noted above, a corporation would not have survived the bankruptcy and thus there is no discharge. Because it was liquidated, the same entity should not be selling the property later (although a new entity may have been created with the same name after the other one was liquidated). COMMENT Contact a state or regional underwriter if there are any questions about the current bankruptcy of a party that apparently filed a Chapter 7 within the previous eight years. BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 3 OF 33

10 3.2 CHAPTER 11 (BUSINESS REORGANIZATION) This is a reorganization (rehabilitation) of a business, whether a corporation, partnership, limited liability company, sole proprietorship, individual, etc. It results in a plan for the continuing operation of the business. 1. A trustee may be appointed. If not, the debtor is granted the same powers of a trustee. When that happens, the debtor is referred to as a debtor-in-possession. The debtor-in-possession may do anything a trustee would do in the normal (or ordinary) course of business of the debtor s business. However, any activity, including a sale, lease or mortgage of real property, which is outside the debtor s normal course of business (unless the plan already specifically provides for it) must be approved by the court, whether or not there is a trustee. COMMENT It is sometimes difficult for us to determine whether or not an action is in the normal course of business. See also Authority to Sell in a Plan in below. Refer to a state or regional underwriter if there is any question whether the transaction is claimed by the debtor to be in the normal course of business. 2. A plan of reorganization must be filed and approved by the court. It will set forth detailed information on who will be paid, how much, when, etc. A secured creditor is normally entitled to payment in full from the collateral for its loan. The plan governs the proceedings. Many actions contemplated by the Code do not apply if the plan provides otherwise. Creditors may object to the plan, and in some circumstances may submit their own plan. COMMENT The title insurer will look for specific plan approval (or separate court order approving the action) of the transaction to be insured. With respect to a discharge under this plan, there are two things to keep in mind: (1) discharge in a Chapter 11 plan occurs upon confirmation (not completion) of the plan unless otherwise provided in the plan (11 U.S.C. 1141(d)(1)(A)), except that (2) discharge for an individual in a Chapter 11 occurs upon completion of the plan (11 U.S.C. 1141(d)(5), and (3)). Compare this to a Chapter 13 plan, where discharge always occurs upon completion of the plan. See Chapter 13 (Wage Earner) in 3.4 below, and see also Effect of Confirmation in below and Effect of Discharge in 11.0 below. The bankruptcy court retains jurisdiction until the plan is completed, even if the bankruptcy case is closed. An exception to the pending bankruptcy must be shown at least until the case is closed. Contact a state or regional underwriter if requested to insure prior to formal closing of the bankruptcy without showing an exception for the pendency of the bankruptcy case. Any Chapter 11 bankruptcy filed within 5 years prior to the date of the title search should be shown as an exception, even if the case is closed. Elimination of the exception will require review of the plan and all modifications of it. BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 4 OF 33

11 3.3 CHAPTER 12 (FAMILY FARM OR FISHERMAN REORGANIZATION) This reorganization is similar to a Chapter 11, but reserved for farms and fishermen. 1. The farmer must file a plan but the process is shorter than for a business under Chapter 11 or for an individual under Chapter 13. It is intended to be less likely to result in liquidation, as under a Chapter 11, and the debt limits are higher than in a Chapter Unsecured creditors receive substantially less protection than under a Chapter 11 filing. 3.4 CHAPTER 13 (WAGE EARNER) This is a reorganization of the debts of an individual. It also results in a plan. 1. A trustee is appointed. 2. The debtor files a plan of payment, which must be approved by the court. Most likely the plan will provide for partial payment. The creditors may challenge the plan. 3. Unlike the usual discharge in a Chapter 11 plan (see Chapter 11 (Business Reorganization) in 3.2 above, discharge occurs upon completion of plan (not confirmation). 11 U.S.C. 1328(a). (See also Effect of Confirmation in below and Effect of Discharge in 11.0 below.) 4. A discharge under a Chapter 13 bankruptcy may be available to the debtor prior to completion of the plan in limited circumstances. 11 U.S.C. 1328(b). This is sometimes referred to as a hardship discharge. COMMENT If a hardship discharge is encountered, contact a state or regional underwriter before eliminating exceptions for any judgments or security interests in reliance upon such a discharge. As with all bankruptcies, however, discharge will not eliminate a lien on land owned when the bankruptcy is filed. See Liens not Affected by Discharge in 11.2 below. However, the discharge will be needed before ignoring such liens on land acquired after the bankruptcy was filed. 5. The plan must provide for completion within three years but extensions for up to an additional two years may be granted by the court. 6. The debtor is not prevented from refiling again at any time. However, the ability to get another discharge is limited. A discharge would not be granted if an earlier discharge was granted during the preceding four (4) years under a Chapter 7, 11 or 12 bankruptcy, nor if an earlier discharge was granted during the preceding two (2) years under a Chapter 13 bankruptcy. 11 U.S.C. 1328(f). As in a Chapter 11, the bankruptcy court retains jurisdiction until the plan is completed, even if the bankruptcy case is closed. An exception to the pending bankruptcy must be shown at least until the case is closed, even if the three year period (or any extension time period) has elapsed. Any request to insure prior to formal closing of the bankruptcy without showing an exception for the pendency of the bankruptcy case should be referred to a state or regional underwriter. Conversely, any Chapter 13 bankruptcy within 5 years of the date of a title search should be shown as an exception, even if the case is closed. BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 5 OF 33

12 COMMENT Before removing the exception for the bankruptcy the plan and all modifications must be reviewed to confirm that: (1) the plan is completed and (2) the bankruptcy is closed. This does not apply to a sale of an exempt residence. See Exempt Property in 8.5 below and Exempt Property in 10.2 below for a discussion of exempt property. 3.5 CONVERSION BETWEEN CHAPTERS Any case filed under any chapter can be converted to another chapter. 4.0 TITLE TO REAL PROPERTY As long as the debtor is in bankruptcy, the debtor and the property are subject to the jurisdiction of the court unless the property has been abandoned. COMMENT In other words, the property of the estate is still subject to the jurisdiction of the bankruptcy court until the case is closed, even when there is a Chapter 11, 12 or 13 plan that has been approved and is still being administered. See How the Stay is Lifted in 7.3 below for a discussion of property of the estate. 4.1 VESTING OF TITLE The filing of bankruptcy does not affect the vesting of title. The title of the debtor does not re-vest in the trustee, assuming one is appointed, but continues to be held by the debtor. Therefore, continue to vest title in the debtor as if no bankruptcy has been filed, and show the pending bankruptcy as a Schedule B exception. Note also that while a Chapter 11 debtor may also be a debtor-in-possession (see Chapter 11 (Business Reorganization) in 3.2 above) this designation need not be added to the vesting recitals. 4.2 CONVEYANCE OF DEBTOR S PROPERTY Notwithstanding the continued vesting of title in the debtor, a trustee, if one has been appointed, must convey any non-exempt property except in the case of a debtor-in-possession in a Chapter 11 bankruptcy. See also Chapter 11 (Business Reorganization) in 3.2 above. COMMENT In other words, the trustee normally administers the estate of the bankrupt except that in some Chapter 11 cases, no trustee is appointed and the debtor (known as a debtor-in-possession; see Chapter 11 (Business Reorganization) in 3.2 above) has certain powers of a trustee. 4.3 PARAGRAPH EXCEPTION An exception for the pendency of the bankruptcy must always be shown in any title evidences (including commitments, preliminary reports, policies and guarantees). Such an exception should read substantially as follows:. Pendency of United States Bankruptcy Court, for [insert court where case is filed] Case No. : [insert case number] Wherein : [insert name of debtor(s)] BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 6 OF 33

13 filed a petition for bankruptcy. On : [insert date of filing] Trustee : [insert name of bankruptcy trustee] Attorney for Debtor : [insert name of debtor s attorney] Any transactions involving this property must be made pursuant to a confirmed plan or by proper bankruptcy court order. A copy of the plan and/or court order should be presented to the Company. This exception would appear in any title evidence written during the pendency of the bankruptcy, even if there is a confirmed plan. It would be deleted only after a sale, as permitted by the court, or after the case is closed. If the property has been declared exempt (see Exempt Property in 8.5 below and Exempt Property in 10.2 below) or abandoned (see Abandoned Property in 8.6 below) in the bankruptcy, it is recommended that the above exception be shown in a commitment or preliminary report with the following added: Said premises have been abandoned [or, if applicable: are exempt]. The transaction can be insured in this situation without further court approval, however. Show the exception the local title search discloses, or there is reliable information (from the parties to the transaction, for example) that a bankruptcy is filed. If all details are not known the paragraph may need to be modified accordingly (delete reference to a case number, the name of the trustee, etc.) COMMENTS IMPORTANT: Do NOT show an exception for the possibility of a bankruptcy with the statement that the records have not been searched for one. That statement might suggest or imply responsibility for searching records outside the county where the property is located. The only records to be searched are those located in the county where the property is located, and which are covered in the local general index search. If there is a bankruptcy court in the same county, the title insurer is responsible for searching those records. However, DO take exception for a known bankruptcy, even if in another jurisdiction. Note that the exception is not based on a search of records, but rather information that is obtained outside of the search process. Attached as EXHIBIT A is a suggested form of examiner s abstract for use when reviewing the bankruptcy court file. 5.0 PRE-PETITION TRANSFERS A bankruptcy filing may affect transfers made by the bankrupt prior to such filing. The court has the power to set aside transfers based on preference (preferential transfers) or fraud (fraudulent transfers). Note that the term fraudulent in context of a bankruptcy is not used in a criminal sense. A bankruptcy trustee (and the debtor-in-possession in a Chapter 11) has broad powers including all the power of a bona fide purchaser for value. A trustee may upset a transaction that occurred up to two years before the bankruptcy in some circumstances, such as if the debtor was insolvent BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 7 OF 33

14 or made insolvent by the transaction, or if the debtor entered into the transaction to hinder, delay, or defraud creditors. 5.1 PREFERENCE DEFINED A preference is a transfer of the debtor s property 1. to a creditor for a debt owed before the transfer 2. within 90 days of a bankruptcy filing 3. that enables the creditor to receive more than the creditor would have received out of the bankruptcy (11 U.S.C. 547). 5.2 FRAUDULENT TRANSFER DEFINED The trustee may void a fraudulent transfer, which is any transfer of the debtor s property within two years (or within 10 years for transfers to a self-settled trust e.g., a living or inter vivos trust) prior to bankruptcy if the debtor received less than a reasonably equivalent value in exchange for the transfer and was insolvent on the date of the transfer. 11 U.S.C Transfer includes a deed in lieu of foreclosure or forfeiture. Until recently, a non-judicial foreclosure (trustee s sale under a deed of trust with the power of sale) or judicial foreclosure had both been considered a possible preference under the Code. This was based on Durrett v. Washington National Insurance, 621 F.2d 201 (5th Cir. 1980). 11 U.S.C. 548(a). Even though a sale to a bona fide purchaser prevented the trustee from recovering the property, the trustee could still sue the original transferee for monetary damages. This is no longer the case as a result of a recent Supreme Court case, BFP v. Resolution Trust Corp., 114 S. Ct (1994). Now, the price paid at a real estate mortgage foreclosure sale is reasonably equivalent value under 548 of the Code. A mutual agreement between a landlord and tenant prematurely terminating a lease may also be deemed a fraudulent conveyance, permitting a bankruptcy trustee to set aside the termination agreement. Edward Harvey Company, Inc. v. Carroll L. Cheverie, Jr., 68 Bankr. Rptr. 851 (D. Mass. 1987). 5.3 EFFECT OF FRAUDULENT TRANSFER The trustee may recover for the benefit of the bankrupt s estate the property fraudulently transferred. 11 U.S.C. 550(a). However, the trustee cannot recover the property from a subsequent purchaser from the initial transferee if that purchaser paid value and was without knowledge of the voidability of the transfer. 11 U.S.C. 550(b). 5.4 INSURING INVOLUNTARY TRANSFERS A title insurer will be reluctant to insure a title derived through a deed in lieu of foreclosure where the deed was given within one year before a bankruptcy was filed by the grantor. Refer such situations to a state or regional underwriter. However, title derived through a trustee s sale or sheriff s deed should be insurable if the title insurer is satisfied that the sale was properly conducted, because of BFP v. Resolution Trust (see Fraudulent Transfer Defined in 5.2 above). Any questions about the sufficiency of the foreclosure proceedings are to be referred to a state or regional underwriter. BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 8 OF 33

15 6.0 UNAUTHORIZED POST-PETITION TRANSFERS The trustee may set aside any unauthorized transfer of the debtor s property which occurs after the petition for bankruptcy has been filed. 11 U.S.C. 549(a). However, the trustee may not void such a transfer to: 1. a good faith purchaser 2. without knowledge of the bankruptcy 3. who gives fair equivalent value. 11 U.S.C. 549(c) unless notice of the bankruptcy petition is filed with the recorder of the county where the property is located. Notwithstanding this bona fide purchaser protection, a title insurer will probably not insure any unauthorized post-petition transfers where any form of notice has been received or if the title insurer has any knowledge of the bankruptcy of the transferor. 7.0 AUTOMATIC STAY All bankruptcy filings have certain features in common. One of these is the automatic stay. There is often confusion, even among attorneys, about the effects of the automatic stay. 7.1 STAY PROTECTS DEBTOR S PROPERTY The Code provides that upon filing the Petition for Relief, both the debtor and the debtor s property are protected against further actions by creditors. 11 U.S.C Sometimes petitions are filed solely to obtain this relief even if it is temporary. Any action taken by a creditor in violation of the stay is void. The bankruptcy petition must disclose all of the debtor s property interests, any pending suits the debtor is involved in, and all debts. If a debt is not disclosed in the schedules, it cannot be discharged. All creditors that are scheduled are sent notice of the filing and instructions on filing a claim. However, it is not necessary that the creditor have knowledge of or receive notice of the bankruptcy. The stay is automatic and protects all of the debtor s property wherever located. 1. Actions by creditors that are stayed: a. Collection activities. b. Enforcement of a judgment. c. Creation, perfection, or enforcement of liens. However, we should not ignore any lien or make any decision on the relative priorities of liens that are filed after the date of the filing of the bankruptcy. The bankruptcy code gives particular protection to certain types of liens, including labor and material liens, real estate taxes, and Uniform Commercial Code financing statements. 11 U.S.C. 546(b). See also Labor or Material Liens in 7.5 below. d. Commencement or continuation of a court action (outside of bankruptcy court) to recover a debt. 2. Actions that may continue despite the existence of the stay: a. Criminal proceedings. BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 9 OF 33

16 b. Collection of domestic support obligations support from the debtor s exempt property. c. Governmental regulatory actions. d. Certain actions by the Secretary of HUD to foreclose liens. e. Issuance of notice of a tax deficiency to the debtor. f. Certain other actions in limited and special circumstances. g. Bad faith filings. h. Leaseholds of residential real estate. 7.2 RELIEF FROM AUTOMATIC STAY The automatic stay continues until either the property is no longer subject to the jurisdiction of the bankruptcy court or an order is entered lifting the stay. 11 U.S.C. 362(c)(d). Only the bankruptcy court can lift the stay; state courts do not have that power. 7.3 HOW THE STAY IS LIFTED 1. As to the debtor and the debtor s exempt property (see Exempt Property in 8.5 below and Exempt Property in 10.2 below): a. by a discharge, or b. by a dismissal of the case, or c. by a court order permitting a creditor to proceed (usually in a foreclosure). 2. As to property of the estate: a. (1) by abandonment of the property (see Abandoned Property in 8.6 below); or b. (2) by dismissal of the case, or c. (3) by court order. No bankruptcy court order will ordinarily be required to lift the stay on exempt property. Non-exempt property may be abandoned. Property of the estate is essentially non-exempt property. (See Exempt Property in 8.5 below and Exempt Property in 10.2 below for a discussion of exempt property.) An order approving the abandonment should be entered. A letter from the trustee disclaiming any interest in the property is not considered sufficient for title insurance purposes. If the trustee offers a letter disclaiming any interest in the property rather than a formal abandonment, contact a state or regional underwriter. COMMENT Note that a discharge of the debtor does not release the automatic stay on actions against property of the estate. See also Effect of Discharge in 11.0 below concerning the effect of a discharge. 7.4 REDEMPTION AFTER FORECLOSURE If the debtor files for bankruptcy during any statutory redemption period after foreclosure, the expiration of that redemption period is extended by the bankruptcy filing. Contact a state or regional underwriter if there is an attempt at redemption during the pendency of the bankruptcy. BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 10 OF 33

17 Refer also to Pending Non-Judicial Foreclosure in 7.6 below for a discussion of other foreclosure issues. 7.5 LABOR OR MATERIAL LIENS If the debtor files for bankruptcy after a statutory labor or material lien is recorded against the debtor s property, the statutory period for the lien creditor to file suit to foreclose that lien is also extended by the bankruptcy filing. 11 U.S.C. 362 (a)(4). Also, a bankruptcy filing by a labor or material lien claimant will extend the statutory time periods for filing a lien or enforcing a filed lien. A title insurer obviously cannot be aware of the bankruptcy of a potential lien claimant when no liens have been recorded. COMMENT However, if any liens are recorded, the name of all known lien claimants must be run in the general index for possible bankruptcy, even if such liens might otherwise be ignored because the time period for enforcing them has passed without any apparent action to foreclose. See also Stay Protects Debtor s Property in 7.1 above for the effect of the automatic stay on the priority of labor and material liens. 7.6 PENDING NON-JUDICIAL FORECLOSURE Because the non-judicial foreclosure procedure is statutory, it is strictly construed by the courts. How the deed of trust trustee must handle a bankruptcy stay and its lifting depends upon the stage of the foreclosure at the time of the stay. Sometimes the order lifting the stay will provide at what point the foreclosure may resume. This material is not intended to address foreclosure issues impacting title except to the extent affected by bankruptcy of the debtor. If a lender wants to foreclose after the property has been abandoned, an order lifting the stay is still required. If asked to insure through a foreclosure after the property was abandoned, an order lifting the stay must still be obtained if the debtor is still in bankruptcy. 11 U.S.C. 362(a)(5). COMMENT Generally, unless there is a specific state statute outlining a procedure to proceed with a non-judicial foreclosure that was interrupted by a bankruptcy filing, the foreclosure should be started anew. Any request to insure based upon a non-judicial deed of trust foreclosure which was interrupted by the filing of a bankruptcy petition should be referred to a state or regional underwriter. Refer to the following sections for additional comments for certain Western states, effective as of the date of this material ALASKA Non-judicial foreclosure of a deed of trust, by a trustee sale at public auction, is permitted in Alaska pursuant to AS , so long as certain requirements are met. AS (e) further provides that the trustee may postpone the scheduled sale multiple times by giving notice as provided in that section. BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 11 OF 33

18 However, neither Alaska statutes nor case law address the particulars of what is supposed to happen when a debtor declares bankruptcy under the federal bankruptcy code while a nonjudicial foreclosure is pending. COMMENT Any request to insure based upon a non-judicial deed of trust foreclosure which was interrupted by the filing of a bankruptcy petition should be referred to a state or regional underwriter, unless the foreclosure was started anew ARIZONA Arizona Revised Statutes C. provides that a sale shall not be complete if the sale as held is contrary to or in violation of any federal statute in effect because of an unknown or undisclosed bankruptcy. A sale so held shall be deemed to be continued to a date, time and place announced by the trustee at the sale and shall comply with subsection B of this section or, if not announced, shall be continued to the same place and at the same time twenty-eight days later, unless the twenty-eighth day falls on a Saturday or legal holiday, in which event it shall be continued to the first business day thereafter. In the event a sale is continued because of an unknown or undisclosed bankruptcy, the trustee shall notify by registered or certified mail, with postage prepaid, all bidders who provide their names, addresses and telephone numbers in writing to the party conducting the sale of the continuation of the sale. COMMENT Nonetheless and regardless of whether a trustee had notice of a pending bankruptcy or not any request to insure a purchaser at a non-judicial foreclosure that is in violation of a bankruptcy stay, or a non-judicial foreclosure that is resumed following the lifting of the stay, must be referred to a state or regional underwriter CALIFORNIA Pursuant to C.C. 2924g(e), a non-judicial foreclosure sale in California may be conducted at the expiration of the automatic stay in bankruptcy without the necessity of waiting the additional seven (7) day period of time prescribed in C.C. 2924g(d). Therefore, a non-judicial foreclosure sale may be conducted when the following has transpired: 1. the order granting relief from the automatic stay has been entered on the bankruptcy court docket, and 2. ten (10) days has expired after the order granting relief from the automatic stay has been entered on the bankruptcy court docket, and 3. no appeal or order granting a stay pending an appeal has been filed. Please note that the above time period may be altered or rendered inapplicable by the court in the order granting relief from the automatic stay. COMMENT Contact a state or regional underwriter if requested to insure based on this procedure. BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 12 OF 33

19 7.6.4 COLORADO Colorado Revised Statutes (2) (a) provides that if all publications of the combined notice prescribed by section (5) or by section (1) have been completed before a bankruptcy petition has been filed which automatically stays the officer from conducting the foreclosure sale, then the officer shall (1) announce, post or provided notice of that fact on the then-scheduled date of sale, (2) take no action at the then-scheduled sale, and (3) allow the sale to be automatically continued from week to week in accordance with (1) (a), unless otherwise requested in writing prior to any such date of sale by the holder of the evident of debt or the attorney for that holder. On the other hand, (2) (b) provides that if (1) the publications of the combined notice of sale prescribed by section (5) or by section (1) C.R.S. have not been started or (2) all of the publications have not been completed before the day a bankruptcy petition has been filed that automatically stays the officer from conducting the sale, the officer shall (1) immediately cancel any remaining publications of the combined notice, and (2), on the date set for the sale, announce, post or provide a notice that the sale has been enjoined or has been stayed by the automatic stay provisions of the federal bankruptcy code. In addition, it says that the sale shall not be continued under the standard statutory continuation provisions of (1) (a). For a sale by the public trustee, the public trustee shall rerecord the notice of election and demand and proceed with all additional foreclosure procedures provided by this article, as though the foreclosure had just been commenced, upon (1) the termination of any injunction or upon the entry of a bankruptcy court order dismissing the bankruptcy case, or (2) abandoning the property being foreclosed, or (3) closing the bankruptcy case, or (4) granting relief from the automatic stay, and (4) receipt of a request from the holder of the evidence of debt or the attorney for that holder to restart the action. The notice shall be rerecorded within ten business days of the request. For a sale by the sheriff under either a statutory or judicial foreclosure or upon execution and levy pursuant to court order or decree, upon the notification of (1) termination of any injunction or (2) upon the entry of a bankruptcy court order either dismissing the bankruptcy case or abandoning the property being foreclosed, or closing the bankruptcy case, or granting relief from the automatic stay, the sheriff shall establish a new date of sale and republish a new combined notice pursuant to section (1). Note also that if a sale is held in violation of the automatic stay, and an order is subsequently entered the bankruptcy case that either (1) dismisses the bankruptcy, or abandons the property or closes the bankruptcy case, or (2) grants relief from the automatic stay, then the evidence of debt and the deed of trust or other lien being foreclosed shall immediately be deemed reinstated, and it shall have the same priority as if the sale had not occurred. The reinstatement shall be confirmed by the officer s indorsement on either the original evidence of debt and deed of trust or other lien (if deposited with the officer), or a copy (if one has been submitted pursuant to section (1) C.R.S.). The statute provides language for the indorsement form. Note, however, that the failure to indorse doesn t affect the validity of the reinstatement. Immediately upon reinstatement, any power of sale is deemed revived. BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 13 OF 33

20 COMMENT Contact a state or regional underwriter if requested to insure based on this procedure. Note also that the filing of a bankruptcy will affect a borrower s rights under workout procedures available to a borrower under the foreclosure deferment statute (see C.R.S &.805.) HAWAII Hawaii statutes do not address a bankruptcy s effect on a foreclosure, nor any interruption of a foreclosure by an act of the borrower. HRS provides in part Any sale, of which notice has been given as aforesaid, may be postponed from time to time by public announcement made by the mortgagee or by some person acting on the mortgagee s behalf. HRS (a) provides that the public sale may be either postponed or canceled by the foreclosing mortgagee, with notice of the postponement or the cancellation of the public sale (1) announced by the foreclosing mortgagee at the date, time, and place of the last scheduled public sale, and (2) provided, upon request, to any other person who is entitled to receive the notice of default under section (c). HRS (b) further provides that if the public sale is postponed, a new public notice of the sale shall be published once in the format described in HRS , which shall state that it is a notice of a postponed sale. The public sale shall take place no sooner than fourteen days after the date of the publication of the new public notice. No sooner than fourteen days before the date of the public sale, a copy of the new public notice shall be posted on the mortgaged property (or on such other real property of which the mortgaged property is a part), and shall be mailed or delivered to the mortgagor, to the borrower, and to any other person entitled to receive notice under section HRS COMMENT Notwithstanding that judicial foreclosure and private power foreclosure under power of sale proceedings may be recommenced when a bankruptcy stay is lifted, contact a state or regional underwriter if requested to insure a purchaser at a judicial or non-judicial foreclosure that is in violation of a bankruptcy stay, or for any non-judicial foreclosure that is resumed following the lifting of the stay. This is particularly important if there is any question about the right of the borrower to cure a default IDAHO I.C A and B provide for additional notice, including publication, at least 30 days before the rescheduled sale date. If the stay is lifted prior to the scheduled sale date, the sale can be postponed for a period of time which would allow at least 115 days to elapse from the recording of the notice of default to the rescheduled date exclusive of the stay period. The actual provisions vary depending on the stage of the foreclosure proceeding at the time of the stay. The foreclosure trustee must also execute an affidavit stating compliance with the statutes. COMMENT A sale out of the bankruptcy court, with no express order lifting the stay, is not to be interpreted as a lifting of the stay for purposes of permitting abbreviated notices or BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 14 OF 33

21 continuation of a foreclosure under this statute. In such cases the court should enter an order lifting the stay. In general, any request to insure through foreclosure proceedings that are recommenced after the stay is lifted are to a state or regional underwriter MONTANA MCA (3) provides only that a non-judicial foreclosure may be postponed because of a bankruptcy stay, but each postponement may not exceed 30 days and all postponements may not exceed, in the aggregate, 120 days. Each postponement must be effected by a public proclamation at the time and place fixed in the notice of sale or fixed by previous postponement. No other notice of the postponed sale need be given. COMMENT Nonetheless, a state or regional underwriter must be contacted if there is a request to insure a purchaser at a non-judicial foreclosure sale pursuant to this statute (assuming the stay was lifted within the 120-day period). If the stay is for a longer period, the foreclosure proceedings must be started anew, once the stay is lifted NEVADA NRS provides that a non-judicial foreclosure under NRS must be rescinded and any pending foreclosure cancelled if under it is not conducted within 90 calendar days after notice of sale is recorded pursuant to 4 of NRS ; HOWEVER, that time period is tolled if the borrower files for bankruptcy under Chapters 7, 11, 12 or 13, until the bankruptcy court enters an order (1) closing or dismissing the bankruptcy case or (2) granting relief from the stay. COMMENT Any request to insure based upon a non-judicial deed of trust foreclosure which was interrupted by the filing of a bankruptcy petition should be referred to a state or regional underwriter to confirm proper adherence to NRS and proper resumption of the process, including calculating the necessary time periods OREGON ORS (12)(a) provides that after release from the bankruptcy stay, foreclosure proceedings can continue as if uninterrupted, if, within 30 days after such release the foreclosure trustee gives an amended notice of the sale. The amended notice shall (1) be given at least 15 days prior to the amended sale date, (2) set an amended sale date (which can be the original date or the postponed sale date, but meeting the requirements of ORS and ), (3) specify the time and place of the sale, (4) conform to requirements of ORS , and (5) state that the original proceedings were stayed and the date the stay was terminated. The amended notice is to be given to by registered or certified mail to the last known address of (1) the persons listed in ORS and (1) (grantor, successor(s), those who ve requested notice under ORS , lienholders including those whose lien arose after the date BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 15 OF 33

22 of the deed of trust occupants, etc.), (2) each person who was present for the originally scheduled but delayed sale (suggesting that the trustee needs to attend the cancelled sale and collect that information), and (3) each member of the Oregon State Bar who requests the amended notice. A true copy of the amended notice must also be posted to the trustee s website. COMMENT A sale out of the bankruptcy court, with no express order lifting the stay, should not be interpreted as a release from the stay for purposes of permitting a foreclosure under this statute. In such cases the court should enter an order releasing the stay, or foreclosure proceedings should be started anew. Contact a state or regional underwriter if there are any questions about this procedure UTAH There are no provisions in Utah statutes dealing with foreclosure and bankruptcy. Provisions of UCA (2) provide that the person conducting the sale may, for any cause considered expedient, postpone the sale. The person conducting the sale shall give notice of each postponement by public declaration, by written notice or oral postponement, at the time and place last appointed for the sale. No other notice of the postponed sale is required, unless the postponement exceeds 45 days. In that event, the sale shall be re-noticed in the same manner as the original notice of sale is required to be given. COMMENT If there are any questions about a non-judicial deed of trust foreclosure which was interrupted by the filing of a bankruptcy petition, refer them to a state or regional underwriter WASHINGTON RCW (4) authorizes the deed of trust trustee to set a new sale date when the original sale date was stayed as a result of the filing of a bankruptcy petition and an order in the bankruptcy court (1) lifts the stay, or (2) closes or dismisses the case, or (3) discharges the debtor (all with the effect of removing the stay). The new foreclosure sale date shall not be less than 45 days after the date of the bankruptcy court order lifting the stay. The deed of trust trustee must comply with RCW (1) starting with (a) through (f) at least thirty days before the new sale date by recording and posting a new notice of trustee s sale and transmitting it to the grantor and borrower, lienholders including those intervening between the date of the deed of trust and the new notice vendees, lessees, etc. The new notice must be published once between the 35 th day and the 28 th day before the new sale date and once between the 14 th day and the 7 th day before the sale. Also, if the trustee has properly postponed the sale prior to the imposition of the stay, the sale can still occur on the postponed date following termination of the stay. RCW (5). COMMENT If there are any questions about a non-judicial deed of trust foreclosure which was interrupted by the filing of a bankruptcy petition, refer them to a state or regional underwriter. BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 16 OF 33

23 WYOMING Non-judicial foreclosure of a deed of trust or mortgage with power of sale is permitted in Wyoming pursuant to Wyo. Stat. Chapters 34-3 (deeds of trust) and 34-4 (mortgages with power of sale), so long as certain notice and other requirements are met. Although the deed of trust chapter does not expressly permit postponement of the foreclosure sale by the trustee, WS provides that a foreclosure sale may be postponed by giving notice as provided therein. Wyoming statutes do not address the particulars of what happens when a debtor declares bankruptcy under the federal bankruptcy code while a non-judicial foreclosure is pending. However, the U.S. Bankruptcy Court for the District of Wyoming confirmed, in dicta, that the filing of the debtor s bankruptcy petition automatically stayed a pending foreclosure sale. In re Duran, 271 B.R. 888, 889; 2001 Bankr. LEXIS 1806; 48 Collier Bankr. Cas. 2d (MB) 219 (2001). The Duran court further confirmed that a secured creditor is entitled to relief from the automatic stay unless the debtor or trustee can provide adequate protection for the creditor s interest in the security. Id at Thus, before any foreclosure sale may occur, a court order lifting the stay and authorizing a foreclosure sale is required. Unfortunately, the Duran court did not address, and no Wyoming court has addressed, whether the relief from stay requires the foreclosing creditor to start the foreclosure sale process over, or whether the creditor can simply pick up where it left off. Because the notice and sale periods are relatively short in Wyoming, it is the better practice to require the creditor to start over, to ensure no questions arise as to adequacy of notice. COMMENT Any request to insure based upon a non-judicial deed of trust (or mortgage with a power of sale) foreclosure which was interrupted by the filing of a bankruptcy petition should be referred to a state or regional underwriter, unless the foreclosure was started anew. 7.7 PENDING CONTRACT FORFEITURE The same concerns about foreclosures apply to a forfeiture of a real estate contract. A judicial action to forfeit can be resumed after the stay is lifted, as long as all parties get additional notice. COMMENT To the extent reliance may be placed on a non-judicial process, any forfeiture interrupted by a bankruptcy filing must be re-commenced. This includes both Washington and Oregon, notwithstanding the fact that both of these states have a statutory non-judicial forfeiture procedure. It also applies to a bankruptcy filed during any statutory period following the forfeiture during which the vendee can challenge the forfeiture. The bankruptcy trustee would have the right in any event to seek to set aside prior foreclosures or forfeitures within the 90 day or one year period prior to the bankruptcy. 8.0 SALE OR MORTGAGE DURING BANKRUPTCY The title insurer will sometimes be able to confirm the authority of the debtor or trustee to sell or mortgage the property by checking the court records. If this is not practical, reliance might be placed on this information if it is provided by the debtor or the debtor s attorney with underwriter approval. However, see EXHIBIT D for information about PACER, which allows ready access to all bankruptcy courts. BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 17 OF 33

24 Sales out of bankruptcy are the most common transactions for a title insurer. They can be divided into several broad categories: (1) subject to liens, (2) free and clear of liens, (3) reorganization, and (4) exempt or (5) abandoned property. Transactions to be insured must be pursuant to a court order or be provided for in the plan. Orders authorizing a sale or mortgage are subject to appeal. See Appeals in 8.9 below. A mortgage by the debtor in bankruptcy is less common. For the most part, the provisions in the following sections will apply also to a mortgage. COMMENT However, the property will still be subject to the jurisdiction of the court, and so the pendency of the bankruptcy will continue to show as an exception in Schedule B Part I (not in Schedule B Part II as a subordinate matter) of any loan policy insuring the mortgage. Further, the order authorizing the mortgage may establish relative priority among existing liens and the mortgage to be insured. 8.1 WHO MUST CONVEY A conveyance must be executed by (1) the trustee, if there is one, for property of the estate, or (2) the debtor-in-possession for property of the estate in a Chapter 11 (if no trustee has been appointed) or (3) the debtor for exempt property. 11 U.S.C. 363(b). See How the Stay is Lifted in 7.3 above for a description of property of the estate and Exempt Property in 8.5 below and Exempt Property in 10.2 below for a discussion of exempt property. 8.2 SALES SUBJECT TO LIENS This is the most common situation. For title insurance purposes, it is similar to any non-bankruptcy sale, except for the party who will execute the conveyance METHOD OF SALE SUBJECT TO LIENS Sales may be private or by public auction. Rule 6004(e)(1). Title insurers will normally be requested to insure private sales. Auction sales are less common. COMMENT Contact a state or regional underwriter if you are requested to insure a sale pursuant to an auction in bankruptcy NOTICE AND HEARING The Clerk shall give the debtor, trustee, and all creditors 20 days notice by mail of a proposed sale of property. Rule 2002(a)(2). The notice shall include the time and place of any public sale, the terms and conditions of any private sale, and the time fixed for filing objections. It is sufficient if it generally describes the property. Rule 2002(c)(1). Notice is not necessary in a Chapter 11 reorganization if the approved plan provides for the sale. BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 18 OF 33

25 8.2.3 OBJECTIONS BY CREDITORS Any objection to a proposed sale shall be filed and served not less than 5 days before the date set for the proposed sale. Rule 6004(b). If no objection is filed, the proposed sale can take place without a hearing or specific approval by the bankruptcy court. Rule 6004(e)(2). 11 U.S.C. 363(b). Neither a written court approval nor a hearing is required unless an objection is filed. COMMENT Nonetheless, a title insurer will usually require a court order approving the sale. Contact a state or regional underwriter if requested to insure without a court order AUTHORITY TO SIGN DEED The trustee or debtor-in-possession (when the bankruptcy is a Chapter 11 reorganization and there is no trustee; see Chapter 11 (Business Reorganization) in 3.2 above), as the case shall be, shall execute any instrument necessary or ordered by the court to effectuate the transfer to the purchaser. Rule 6004(e)(2). Thus, in a Chapter 7, the trustee will sign the deed LIENS MUST BE SATISFIED COMMENT IMPORTANT: This sale procedure does not eliminate nor affect any liens or interests encumbering real property other than the interest of the debtor. All liens and other interests must be dealt with as in a non-bankruptcy sale. Releases or satisfactions must be obtained before they can be cleared or they will remain as liens on the title. Discharge of the debtor has no bearing on such liens. 8.3 SALES FREE AND CLEAR OF LIENS This is less common than a sale subject to liens. The bankruptcy court will provide that liens on the property are to be transferred to the sale proceeds. The Code permits the trustee to sell property free and clear of liens by giving the same notice as required for a sale subject to liens. The Code does not impose any additional requirements or hearings even though the sale is to be free and clear of liens. COMMENT However, a title insurer will not insure a sale free and clear of liens without (1) confirming that notice was sent to all creditors of the trustee s intent to sell property free and clear of liens and (2) reviewing an order signed by the bankruptcy court specifically approving the sale (including the buyer s name and the sale price) free and clear of liens. The order should also specify which liens are to be affected. This is sometimes not done. Any ambiguities about the sufficiency of the order should be referred to a state or regional underwriter. IMPORTANT: If a written satisfaction or release is not to be recorded, the bankruptcy order authorizing the sale should be recorded. BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 19 OF 33

26 Generally, non-dischargeable debts will continue to show as exceptions until paid, even if the order identifies them as included among those liens of which the property is to be sold free and clear. This especially includes real estate taxes and assessments METHOD OF SALE FREE AND CLEAR OF LIENS Sales free and clear of liens must be approved by the bankruptcy court. The court must find one of the following to approve a sale: 1. Non-bankruptcy state law would allow sale free and clear. 2. The secured creditors consent to the sale. 3. The sale price is greater than the lien amounts. 4. The lien is disputed by the trustee or the debtor. 5. The lienholder could be compelled to accept money to satisfy the lien (e.g. the lien is monetary, and not in the nature of a covenant or an easement, etc.). Unless all secured creditors stipulate in writing to the sale, the order approving the sale is subject to a 10 day appeal period. The liens removed from the real property normally attach to the proceeds of the sale in the same priority as they attached to the property NON-DISCHARGEABLE DEBTS Non-dischargeable debts, such as federal tax liens, are normally paid and released of record (i.e., the free and clear does not apply to them). However, most such liens usually can be deleted from a policy if there are reliable assurances from the closer or the bankruptcy trustee that they will be paid in full from the proceeds. COMMENT IMPORTANT: an exception for ad valorem real estate taxes or assessments is not to be deleted based on an order of sale free and clear even if the order includes such taxes or assessments. Full payment of such taxes and assessments must be confirmed by the taxing agency before deleting them from a policy, as with any non-bankruptcy transaction. 8.4 SALES PURSUANT TO PLANS (CHAPTERS 11, 12 AND 13) Any plan of reorganization should specifically authorize the sale or mortgage to be insured. If not, the plan should be amended (requiring additional notice to creditors) or an order should be entered which authorizes the transaction. Such an order would be subject to the appeal period (see Appeals in 8.9 below) AUTHORITY TO SELL IN A PLAN The authority to sell (or mortgage) property in a Chapter 11, Chapter 12, or Chapter 13 proceeding derives from the plan. The plan is proposed by the debtor (but may also be proposed by creditors) and confirmed by the court. The plan should provide for the disposition of the property. The property may be (1) retained by the debtor, (2) encumbered by the debtor, (3) sold BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 20 OF 33

27 subject to liens, (4) sold free of liens, or (5) distributed to creditors. 11 U.S.C and 11 U.S.C. 1322(b). Confirmation of the plan vests title to property in the debtor free and clear of any claims or interests of any creditor provided for by the plan unless otherwise provided in the plan. 11 U.S.C COMMENT Nonetheless, this does not mean that the debtor may deal with the property in any way the debtor pleases. The debtor may only sell or encumber property if the specific sale or encumbrance is described in the plan. As discussed in Notice to Creditors in below, it must be verified that all creditors received notice of the hearings on confirmation of the plan. If the plan does not describe the specific terms of the transaction we are being asked to insure (including the parties and the amounts), a separate court order modifying the plan is authorized by 11 U.S.C and we will require such an order. COMMENT It must be verified that all creditors received notice of the proposed amended plan by mail not less than twenty (20) days before the date the court order to accept or reject the modification of the plan was entered or is to be entered. BR 2002(a)(b). Once a plan is confirmed, it is self-executing. No further order by the bankruptcy court is necessary to carry out the terms of the plan. 11 U.S.C However, if the plan does not contemplate the transaction to be insured, an order of the court is needed, or the plan must be amended to authorize the transaction. The order or the amended plan is subject to the appeal period (see Appeals in 8.9 below). Nonetheless, confirmation that the action of the debtor is in fact in conformance with the plan will generally be required. Ambiguities in the plan will result in a requirement to have the plan amended to clarify the debtor s authority. EXAMPLE A Chapter 11 plan will usually permit the debtor to continue to operate a business. The debtor may then wish to sell (a real estate developer, for example) or encumber property to continue such operations in accordance with the plan. However, unless the particular sale or mortgage is specifically permitted by the plan (identifying the buyer/lender and amount), the title insurer cannot determine whether it would be construed as in the ordinary course of business (see also Chapter 11 (Business Reorganization) in 3.2 above), and will require a bankruptcy court order or an amended plan approved by the bankruptcy court. The title insurer may make an exception if the debtor is also a developer and the sale is in the ordinary course of business (e.g., a sale of inventory, for example, and not a sale of a personal residence). Refer such situations to a state or regional underwriter NOTICE TO CREDITORS All creditors must receive copies of: BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 21 OF 33

28 1. The plan, or a court-approved summary of the plan. 2. A disclosure statement of the debtor s assets approved by the court (for Chapter 11 only). 3. Notice of the time within which acceptances and rejections of the plan may be filed. 4. Notice of any date fixed for the hearing on confirmation. 5. Such other information as the court may direct. Rule 3017(d). All creditors shall be given not less than 25 days notice by mail of the time fixed for filing objections to and the hearing to consider confirmation of the plan. Rules 3020 and 2002(b) ACCEPTANCE OR REJECTION OF PLAN All creditors are entitled to vote whether or not to accept or reject the plan. Rule Unanimous acceptance, however, is not a prerequisite to confirmation of that plan by the court. 11 U.S.C. 1129(a) and 11 U.S.C CONFIRMATION OF PLAN The Code contains a number of requirements that must be met before a plan can be confirmed. A title insure usually will assume that the requirements have been met if the court has confirmed the plan, except that it must be verified that all notice requirements have been met EFFECT OF CONFIRMATION The plan should specifically deal with the debtor s property. The plan will be reviewed in detail by us, and generally will be relied upon to support the vesting of title, disposition of liens, and sale of the property (see Authority to Sell in a Plan in above). COMMENT Confirmation does not mean that an exception to the pendency of the case (see Conveyance of Debtor s Property in 4.2 above) will not be shown in a commitment or policy, nor does it mean that proof need not be required that the proposed transaction is permitted by the plan. 8.5 EXEMPT PROPERTY (INCLUDING HOMESTEAD) Individual debtors (not businesses or farms) may exempt certain property (for example, homestead property) from the bankruptcy estate, and if the exemption is granted may deal with that property as though there were no bankruptcy. COMMENT If such property is the subject of a transaction to be insured during the pendency of the bankruptcy, it must be verified that creditors have not objected to the exemption. Review the bankruptcy file, including the schedules filed with the petition and the plan, if there is one. All property not exempt is assumed to be property of the estate. See How the Stay is Lifted in 7.3 above. BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 22 OF 33

29 8.5.1 WHEN THE EXEMPTION IS CLAIMED The debtor must list any property claimed as exempt on the schedule of assets filed with the petition. Rule 4003(a). 11 U.S.C. 522(1). After the conclusion of first meeting of creditors, they have 20 days within which to file an objection to a claimed exemption (unless additional time is granted by the court). Rule 4003(b). Note that we should confirm the creditor s meeting has in fact concluded. That date may not have been the same day it first met. If qualified property is not originally scheduled or claimed exempt, an amended schedule can be filed, but the title insurer will need to confirm notice has been given to all creditors CHOICE OF EXEMPTIONS The debtor may choose either the state homestead exemption or the federal exemption for real property used by the debtor as a residence, whichever exemption is more generous. There is a cap of $125,000, however. The federal exemption is for the debtor s aggregate interest, not to exceed $18,450 in value, in real property that the debtor or a dependent of the debtor uses as a residence 11 U.S.C. 522(b)(1) and (d)(1). Since most state exemptions are higher than the federal exemption of $18,450, in those cases a debtor will select it. However, the federal bankruptcy code limits a state claim of exemption to $125,000 for most properties. 11 U.S.C. 522(p)(1). Therefore, in some states (such as Arizona, California, Montana and Nevada) this federal cap would control in a bankruptcy situation. Following is a list of maximum homestead exemption amounts for several Western states. COMMENT In some cases the typical amount available to an owner is lower than these amounts based, for example, on marital status, physical disability, etc. but where the state has more than one exemption amount, only the higher amount is shown in this chart. Also, note that some states require the filing of a declaration of homestead, but in other states it is automatic. NOTE: These amounts should be checked for statutory changes after the current date of this material. CHART SHOWING STATE HOMESTEAD EXEMPTIONS State Amount State Amount Alaska 79,000 Montana 250,000* Arizona 150,000* Nevada 550,000* California 175,000* Oregon 50,000 Colorado 90,000 Utah 30,000 Hawaii 30,000 Washington 125,000 Idaho 100,000 Wyoming 20,000 BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 23 OF 33

30 * As noted above, a debtor in bankruptcy could not use this state exemption, but would be limited to the maximum exemption of $125,000. NOTE: Even if a homestead exemption is granted and the property is no longer subject to the bankruptcy filing, that does not affect the lien of judgments on the land. (See Liens not Extinguished in below.) Nonetheless, in some situations a judgment lien might be ignored. Whether or not land can be insured without exception for judgments would be based on underwriting guidelines unrelated to the bankruptcy itself. In general, if the debtor appears to be receiving value substantially in excess of the state (not federal) homestead exemption, contact a state or regional underwriter OBJECTION TO CLAIM OF EXEMPTIONS The trustee or any creditor must file an objection (if one is to be filed) to the list of property claimed exempt within 30 days after the conclusion of the meeting of creditors unless, within such period, further time is granted by the court. Rule 4003(b). The title insurer will want to determine if such additional time is requested and/or granted HEARING If there is an objection, the objecting party has the burden of proving that the exemption is not properly claimed at a hearing scheduled for that purpose. Rule 4003(c) FAILURE TO OBJECT TO EXEMPTION Unless a creditor or the trustee objects then the exemptions as claimed by the debtor stand. There is no court order entered LIENS NOT EXTINGUISHED Just as with a sale of non-exempt property, the exemption procedure does not affect or remove any liens which encumber the property, including mortgages, deeds of trust, judgment liens, and any and all other liens. The exempt property remains subject to the liens unless and until released of record by the creditors. After the exemption is allowed, the debtor may then deal with exempt property as though the bankruptcy did not exist. COMMENT IMPORTANT: The title insurer may be willing to insure a sale free of the lien of judgments that do not exceed the homestead exception, but this would be based on the state homestead law and not due to the bankruptcy exemption or a discharge of the debtor. Refer to state underwriting guidelines or contact a state or regional underwriter about this procedure. If the debtor is getting proceeds in excess of the homestead exemption then the closer should check with the bankruptcy trustee. In case of doubt, obtain assurances that the bankruptcy trustee is aware of the amount of proceeds going to the debtor. BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 24 OF 33

31 8.6 ABANDONED PROPERTY The bankruptcy court no longer exercises any jurisdiction over the abandoned property. As with exempt property, the debtor may deal with the property as though there were no bankruptcy. COMMENT This does not apply to foreclosures, however. Even if the property is abandoned to the debtor, a stay is still in effect with respect to any action to collect property of the debtor until the case is closed or dismissed. 11 U.S.C. 362(a)(5). See also Pending Non-Judicial Foreclosure in 7.6 above. If asked to insure through a foreclosure after the property was abandoned, an order lifting the stay must still be obtained if the debtor is still in bankruptcy. Other transactions, however (for example, a proposed sale of the land by the debtor), would be permitted. Unless ordered otherwise by the court, any property scheduled and not otherwise administered at the closing of the bankruptcy case is considered abandoned to the debtor. 11 U.S.C. 554(c). COMMENT If, after a bankruptcy is closed, property still owned by the former debtor is the subject of a transaction, it must be confirmed that the property was scheduled in the asset schedule filed with the original petition. If so, and there was no action taken with respect to it, the debtor is free to convey or encumber it. Contact a state or regional underwriter before ordering a review of a closed bankruptcy file, however. A decision will be made on a case-by-case basis as to the risk of whether or not the file needs to be checked or bankruptcy reopened to deal with that asset. Factors will include the passage of time since the filing, the type of filing and the nature of the asset WHO MAY REQUEST ABANDONMENT The trustee, debtor in possession, or a creditor may seek abandonment of any property by the bankruptcy court. 11 U.S.C GROUNDS FOR ABANDONMENT The grounds for abandonment are that the property is either burdensome to the estate or is of inconsequential value. A common reason for abandonment is that the liens exceed or equal the value of the property and there is no equity to protect. 11 U.S.C. 554(a) HOW ABANDONMENT IS ACCOMPLISHED The trustee or debtor in possession must give notice of a proposed abandonment to all creditors, who then have 15 days to object to that abandonment. Rule 6007(a). A hearing is not required unless an objection is filed. Rule 6007(c). A creditor may file a motion to require abandonment of property. A hearing is required to consider the merits of that notion. Rule 6007(b) and (c). Refer also to How the Stay is Lifted in 7.3 above. BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 25 OF 33

32 8.6.4 LIENS NOT EXTINGUISHED Abandonment also does not affect or remove any liens that encumber the abandoned property. COMMENT IMPORTANT: The property remains subject to all liens which had encumbered it going into the bankruptcy. If not released by the creditors, they remain as liens on the property during the pendency of the bankruptcy and continue as such after it is closed. These liens may be enforced (executed on or foreclosed) against the land after the abandonment has taken place. See How Abandonment is Accomplished in above. 8.7 AVOIDED LIENS The bankruptcy court may enter an order avoiding liens as the result of what is commonly known as the trustee s strong arm powers, or upon a showing that judicially imposed liens (i.e., judgments) impair the homestead exemption. 11 U.S.C. 544, 545, 547, 548, 510 and 522(f). (Not all of these types of liens on the homestead property can be stripped in this manner.) This option available to the debtor is not commonly utilized, however. COMMENT Following such an order, such liens are not shown as exceptions in title evidences. Note that this is an exception to the general rule discussed in Liens not Affected by Discharge in 11.2 below. Note that it may be possible to reopen a closed bankruptcy to take advantage of this option. However, one case suggests that if not taken when the bankruptcy was open, the debtor has lost that relief. Bankruptcy of Cortez, U.S.B.A.P. 9th, 96 WJ W.A.R. 63 (1995). COMMENT CAUTION: Occasionally a debtor will file bankruptcy, obtain an order avoiding liens, and then close the bankruptcy before completing a plan (usually a Chapter 13 plan). Do not rely on an avoidance order if the bankruptcy is closed without completion of a plan. Unless the court, for cause, orders otherwise, a dismissal of a case other than under section 742 of this title reinstates any transfer avoided under section 522, 544, 545, 547, 548, 549, or 724(a) of this title and any lien voided under section 506(d) of this title and vacates any order, judgment, or transfer ordered, under section 522(i)(1), 542, 550, or 553 of this title [emphasis added]. 11 U.S.C. 349(b)(1)(B) and 349(b)(2). Contact a state or regional underwriter if requested to ignore avoided liens under such circumstances. 8.8 MORTGAGES It is not common that a mortgage by the debtor free and clear of liens would be authorized by the court. The court may, however, authorize a mortgage and establish its priority relative to existing liens. The title insurer will usually require confirming subordination agreements among secured creditors before showing existing liens in Schedule B Part II as subordinate matters. BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 26 OF 33

33 COMMENT IMPORTANT: The pending bankruptcy would continue to be shown as an exception in any loan policy insuring a mortgage given by a debtor in bankruptcy (see Conveyance of Debtor s Property in 4.2 above) even though the mortgage is permitted. The property would still be subject to the jurisdiction of the court (particularly in reorganization with a continuing plan) and the lender will not be able to foreclose without dealing with the bankruptcy. 8.9 APPEALS Every order of the bankruptcy court authorizing a sale or mortgage is subject to appeal. The title insurer must wait until the appeal period has passed before clearing the bankruptcy exception when relying on that court order. (The exception is for a stipulated order, where all creditors have approved.) The appeal is taken by filing a Notice of Appeal with the court clerk within fourteen (14) days of the date of entry of the judgment, order or decree that is being appealed. Note that an announcement of a judgment or order by the judge is not the same as entry of the judgment or order. Also, it requires the expiration of the 14 day period. COMMENT Start counting the 14 day period on the day after the date of entry, and include weekends and holidays (BR 8002). Thus, for example, if the order is entered on Wednesday, February 5, 2014, the last day an appeal could be filed would be Wednesday, February 19. You must have evidence after the end of the 14 th day (February 19) that no appeal has been filed. Thus, the earliest day a policy could be written would be Thursday, February 20. If the 14 th day falls on a weekend or holiday, go to the next regular business day. Thus, if the order is entered on Monday, January 6, 2014, the 14 th day would be Sunday, January 19. The final day on which an appeal can be filed is Monday, January 20, and the earliest day a policy could be dated would be Tuesday, January 21. BR 6004(h) does provide that an order of sale is stayed for 14 days after entry of the order, unless the court orders otherwise. Additionally, the title insurer might be asked to waive the 14 day appeal period, on the basis of 11 U.S.C. 363(m). However, this provides that a reversal of an order of sale upon appeal does not affect a good faith purchaser. A title insurer is not likely to rely upon that provision for title insurance purposes. For one thing, that provision may not be applicable if the order of sale was made over the objection of some interested party. In Re Halladay Enterprises, Inc., 85 BR 83 (Bankr. S.D. Texas 1980). COMMENT Contact a state or regional underwriter about such a request, or if the court shortens the stay period to less than 14 days, because it reduces the time available for objections. Before contacting the underwriter, the bankruptcy court file must first be reviewed to look specifically for objections to the sale. Also, the docket must be reviewed to see if any adversary action was filed. If so, the court file for that adversary proceeding must also be reviewed to determine if the action has any effect on the property to be insured. BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 27 OF 33

34 In any event, a policy could not be issued until it is confirmed that no appeal has been filed TITLE INSURANCE OF SALE OR MORTGAGE The title insurer will need to review at least the following: 1. The bankruptcy court order authorizing the proposed transaction, especially a Notice and Order to Sell Free and Clear. 2. The Plan (if a Chapter 11, 12 or 13). 3. The bankruptcy file to determine if any creditors object. (See EXHIBIT A for an abstract designed to organize this process.) 4. A current title commitment to be sure all secured creditors shown in the commitment were given notice. (See EXHIBIT B for a checklist to help the examiner.) The existence of a confirmed plan does not mean the property can be sold or encumbered without reference to the plan. See Authority to Sell in a Plan in above. The plan must provide for the transaction and the trustee may give direction as to disposition of proceeds and preparation of documents. Any proposed sale free and clear of liens must be carefully reviewed, as it would be an impairment of the creditor s normal rights TRANSFER (EXCISE) TAX Some states provide for a transfer (or excise) tax on real estate conveyances or transfers EXCISE TAX STATES OTHER THAN WASHINGTON As of this writing there are no transfer taxes applicable in Arizona, Idaho, Montana, Utah or Wyoming. Property located in some cities and boroughs in Alaska, in some cities and counties in California, in Colorado, in Hawaii, in Nevada and in Washington County, Oregon may be subject to transfer tax when selling under any bankruptcy chapter. (NOTE: This information should be checked for changes after the current date of this material.) COMMENT Exception for the transfer tax should be shown as in any non-bankruptcy transaction until evidence of payment of the tax, or state or local acceptance of exemption from payment of the tax, is provided. Contact a state or regional underwriter if requested to insure a sale without payment or proof of exemption for payment of the tax EXCISE TAX WASHINGTON STATE In Washington State, WAC (general statutory authority: RCW and ) provides that the real estate excise tax does not apply to conveyances made under a Chapter 11 plan or Chapter 12 plan (stating that they are exempt under federal law). A copy of the order of confirmation or an extract from the confirmed bankruptcy plan, showing the date the BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 28 OF 33

35 bankruptcy plan was confirmed, the court case cause number, and the bankruptcy chapter number must be attached to the real estate excise affidavit claiming an exemption under this section. The WAC is silent as to conveyances made under either Chapter 7 or a Chapter 13 plan. An excise tax affidavit is always required, and ultimately the Department of Revenue decides whether a conveyance will require payment of the tax. COMMENT The tax is payable even under a Chapter 11 or Chapter 12 sale if the plan is not confirmed at the time of the sale. A refund, with interest, can be requested once the plan is confirmed. It would also appear that a Chapter 11 or Chapter 12 sale that is not pursuant to a confirmed plan is taxable. This is an unlikely scenario, since the plan would probably be amended to approve the sale rather than obtaining a special court order. 9.0 ACQUISITION OF PROPERTY DURING BANKRUPTCY A debtor will sometimes acquire real property during the pendency of the bankruptcy. The title insurer may require court approval because of the question of the source of assets or credit used to acquire the property. COMMENT Contact a state or regional underwriter in all such situations SALES BY DEBTOR AFTER BANKRUPTCY After an estate is fully administered and the court has discharged the trustee, the court closes the case. 11 U.S.C. 350(a). The title insurer will require this last step to be taken before insuring title to property remaining in the debtor. Until the bankruptcy is closed, the sale or mortgage of the bankrupt s property must be pursuant to court order or specifically authorized by the plan, even if the debtor has been discharged PROPERTY ACQUIRED AFTER BANKRUPTCY CLOSED Property acquired by the debtor after the bankruptcy is closed is not, of course, subject to the jurisdiction of the bankruptcy court. The debtor is free to acquire such property and sell or mortgage it. Such property is not subject to the liens of any judgments which had been (1) scheduled and (2) discharged in the bankruptcy. Those liens would not be shown as exceptions in title commitments or policies. COMMENT The property would, however, be subject to the lien of any judgments (1) not scheduled, (2) not discharged, (3) not dischargeable, and (4) entered after the closing of the bankruptcy. Never assume that a particular judgment has been discharged, simply because of a closed bankruptcy, especially if it is a large dollar amount. The title insurer should normally require evidence from the court file that the lien was scheduled and discharged. The discharge would be BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 29 OF 33

36 sufficient evidence of the dischargeability of a lien (if the lien was a dischargeable lien see Debts not Dischargeable in 11.1 below EXEMPT PROPERTY In many situations property claimed as exempt (usually the homestead) will not be sold by the debtor until after the bankruptcy is closed. COMMENT IMPORTANT: Exempt property remains subject to all liens that encumbered it prior to bankruptcy, including judgment liens. Notwithstanding a discharge of personal liability for a judgment, the lien of the judgment remains against the property. Creditors may enforce (execute on or foreclose) such liens. Again, if the title insurer is willing to insure a sale of homestead property free of the lien of a judgment, that decision will be based on state homestead law, and not based on the bankruptcy exemption or discharge. Also it must be confirmed that the liens have not been tolled (i.e., the time period extended) by the pendency of the bankruptcy. See Statutory Lien Periods Tolled in 10.5 below PROPERTY OR DEBTS NOT SCHEDULED All property owned by the debtor at the time the petition for bankruptcy is filed, or acquired during the pendency of the bankruptcy, is subject to the jurisdiction of the bankruptcy court. Even though the bankruptcy has been closed, any unscheduled property, or property not disposed of by any of the procedures set forth above, remains subject to the jurisdiction of the bankruptcy court and we will not insure it without further action by the bankruptcy court. This will usually involve reopening the bankruptcy. Creditors not scheduled are also not affected by the bankruptcy, even if the debt is dischargeable. See Effect of Discharge in 11.0 below ADMINISTERING SALES OUT OF A COMPLETED PLAN As noted in Authority to Sell in a Plan in above, after approval by the court of a Chapter 11 or Chapter 13 plan, the bankruptcy may be closed before the plan is completed (fully administered). COMMENT The exception for the pending bankruptcy case should not be deleted, nor should any exceptions for liens affecting the title be deleted, simply because the plan is in the process of being fulfilled. Contact a state or regional underwriter if requested to do so. The title insurer might consider taking exception to the terms and provisions of the plan, including a full reference to the court case, in lieu of an exception for the pending bankruptcy case, but this would also require approval from a state or regional underwriter. The debtor or creditors can reopen the bankruptcy for various reasons. If the title insurer is requested to insure based on the assertion that the plan has been fully administered and all payments have been completed, proof of such will be required from the BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 30 OF 33

37 debtor At the minimum all creditors of record may need to be contacted to obtain confirmation (preferably by recorded release) that the liens have been paid in full STATUTORY LIEN PERIODS TOLLED The filing of a bankruptcy petition may cause the time periods for federal tax liens, judgments or other state liens created by state or federal non-bankruptcy law to be tolled. When such a lien is established before the filing of bankruptcy, the automatic stay may prevent enforcement of the lien prior to termination of its statutorily prescribed life. When this happens the running of the statutory period is stopped when the bankruptcy petition is filed and will start running again when the property is no longer subject to the automatic stay. Sometimes tolling doesn t take place, but the period in which a creditor is given to act on its lien is extended by bankruptcy law for a limited period of time after the termination of the automatic stay. State or federal law might cause these time periods to be extended. COMMENT Contact a state or regional underwriter if requested to ignore a lien based on the assertion that time periods for enforcing the lien was not tolled by the filing of a bankruptcy JUDGMENTS AND OTHER STATE LIENS Each state has varying time periods for the life of a judgment lien, and some have extended periods for child support or similar judgments. Bankruptcy law provides that if a judgment lien is created before and is in effect when the debtor files bankruptcy, the period allowed to the creditor for executing on the lien will not expire until the later of the following: 1. the original state statutorily prescribed life of the judgment; or days after termination of the automatic stay; or 3. if state law (where the property is located) provides for suspension of the running of the period of the judgment lien during a bankruptcy, then the time that the suspension is in effect is added to the life of the judgment lien. In other words, if a judgment can otherwise be ignored after ten years (for example, or any other applicable statutory period), but the judgment debtor was in bankruptcy during part of that period, the time between the filing of a bankruptcy petition and the termination of the automatic stay is added to that 10 year life. 11 U.S.C. 108(c). In Re: Morton, 866 Fd.2nd 561 (1 Cir. 1989); Hazel v. Van Beek, 954 P.2d 1301 (Wash 1998) TITLE PRACTICE The tolling or extension of the life of a judgment lien may become an issue if requested to eliminate a judgment from Schedule B of the policy to be issued. If asked to eliminate a judgment before the statutory life of the judgment lien plus the period of time between the filing of the bankruptcy petition and the termination of the stay do not ignore the judgment. Although state law (where the property is located) may not contain a provision tolling the life of a judgment lien during bankruptcy, some courts have held that the filing of bankruptcy tolls the life of the judgment lien even if there is no such state law. That is now a minority position with the courts, but if the judgment is big enough it would be worth it to a creditor to make the argument in the appropriate case. BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 31 OF 33

38 Contact a state or regional underwriter if unsure about how to respond to a request to eliminate a judgment lien which may have been tolled or extended FEDERAL TAX LIENS After November 5, 1990 a federal tax lien expires ten years, plus 30 days, after the date of the assessment (unless refiled during the last year). However, the life of the lien is tolled during the period in which the debtor s assets are in the control of the bankruptcy court. In addition, under 65.03(b) of the Internal Revenue Code, the lien remains tolled for an additional six month period following the release of the property from the control or custody of the bankruptcy court. The lien then resumes for the balance of the ten year period (exclusive of the tolled period). EXAMPLE A federal tax lien was recorded on March 5, It was not refiled between March 5, 1995, and April 5, 1995 (the 30 day period following the end of ten years), and might therefore normally be ignored after the latter date. However, the taxpayer filed bankruptcy on June 6, 1987, and the bankruptcy was closed on June 6, This lien would be effective until October 6, 1997 (10 years + 2 years + 6 months +30 days). Refiling would also be possible during the last year of this extended period JUDGMENTS ENTERED DURING BANKRUPTCY A bankruptcy stays any action against the debtor, including the entry of a judgment or other lien. COMMENT However, for title insurance purposes, no judgment or other lien entered or filed during bankruptcy is to be ignored. A release should be filed EFFECT OF DISCHARGE A discharge frees the debtor from that personal liability for a debt (but does not affect the lien of those debts on real property). For title insurance purposes do not rely on a discharge as the basis for eliminating judgments or other liens as exceptions in title evidences. A discharge is often granted early in a bankruptcy case, but the disposition can take years. Again, remember that the property of the estate is still subject to the jurisdiction of the bankruptcy court, even where there is a Chapter 11, 12 or 13 plan, until the case is closed DEBTS NOT DISCHARGEABLE Not all debts are dischargeable. 11 U.S.C. 523(a) Examples are debts based on the following: 1. Fraud or false representations. 2. Federal income taxes or fines. 3. State taxes. 4. Ad valorem real estate taxes and assessments. 5. Penalties or forfeitures due governmental agencies. 6. Domestic support obligations. 7. Debts obtained by fraud, false pretenses or misrepresentation. BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 32 OF 33

39 8. Certain homeowner s association assessments, and 9. Certain educational loans. Debts that are not scheduled (see also Property or Debts not Scheduled in 10.3 above) are also not discharged LIENS NOT AFFECTED BY DISCHARGE A discharge in a Chapter 7 bankruptcy does not affect or extinguish any liens which encumbered the debtor s property when the bankruptcy was filed. This includes mortgages, deeds of trust, judgment liens, federal tax liens, taxes and assessments, etc. The discharge only affects personal liability for the debt. COMMENT These liens must continue to be shown as exceptions in all title evidences on land retained by the debtor after bankruptcy. They can be enforced (executed on or foreclosed) (1) during bankruptcy if the stay is lifted or if the property is abandoned or exempt, or (2) after the bankruptcy is closed. Such liens (if scheduled and discharged) can be ignored as to property acquired by the debtor after the bankruptcy has been closed. Also make sure the lien periods have not been tolled during the pendency of the bankruptcy. See Statutory Lien Periods Tolled in 10.5 above. Thus, for title insurance purposes unsecured debts (those not recorded in the real property records) are not a concern. Nor is it an issue as to whether liens shown as title exceptions have been discharged or even whether they are dischargeable because such liens are shown as exceptions until released of record. The rule is slightly different for a Chapter 11 or 13 bankruptcy, which involve plans. After the plan is approved, such liens are effectively discharged, as in a Chapter 7. However, the plan generally provides for the payment of creditors. Therefore, the title insurer might be able to ignore such liens in title evidences on property retained by the debtor, unless the plan does not provide for that creditor. COMMENT The plan must be carefully reviewed to confirm that each creditor has been provided for. Contact a state or regional underwriter if requested to delete such exceptions. Note that these guidelines requiring such liens to be shown do not apply to liens avoided by the bankruptcy court as discussed in Avoided Liens in 8.7 above. Liens that have been avoided can be ignored in later title evidences on property retained by the debtor after Bankruptcy. BANKRUPTCY AND TITLE INSURANCE FEBRUARY 2014 PAGE 33 OF 33

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41 EXHIBIT A BANKRUPTCY OPINION FOR TITLE EXAMINER: Copy of Commitment attached showing vesting and exceptions: 1. Title Order No. Date of Title Order: 2. Return Opinion to: Unit/Title Officer: 3. REUS Description: See attached commitment 4. REUS Address: 5. REUS Assessed Value: Current Transaction Amount: 6. Current Equity (Apparent value less encumbrances): 7. Name of Your Party: 8. Nature of Your Party s Interest: Incoming Fee Vendee Lessor Lessee Lien Holder Other = Describe: Other party, if lessor/lessee or vendor/vendee: 9. Date Your Party Acquired Interest in REUS: 10. Copy attached of Instrument, the validity of which depends on a court order 11. Remarks: See Reverse FOR COURT RECORDS EXAMINER: 1. Cause No.: Chapter: Date Filed: 2. DATES: Discharge: Case Closed: Case Dismissed: 3. Debtor(s) 4. Debtor s Attorney: Phone: 5. Name of Trustee: Date Appointed: 6. Name of Trustee s Attorney: Phone: 7. Real Estate Scheduled: REUS: Value claimed in petition: Other Property 8. REUS Exempt State Federal Date 1st Creditors meeting completed: 9. Order of Abandonment Or, Report of No Assets Date filed: 10. Orders: Authorizing sale of REUS Authorizing sale free and clear Lifting Stay , 12 or 13 Plan filed=date: Amended Plan = Date: ATTACH COPY OF EACH affecting REUS: Motion Order Plan 12. Order(s) Stipulated by debtor and all creditors: Yes No Identify Parties not stipulating: 13. Motion(s) for reconsideration of any order filed None filed 14. Notice given to all creditors in Schedule B of Commitment Not given (Explain Below) 15. List (1) all objections or appeals to any order or plan, (2) by whom, and (3) date filed: 16. If so, COPY ATTACHED. 17. Adversary action filed? Cause No.: Parties: 18. Other lawsuits affecting REUS or debtor? Parties: Court: Cause No.: 18. Remarks: See Reverse Opinion by: Date of Opinion:

42 EXHIBIT B BANKRUPTCY CHECKLIST NO. ACTIVITY YES NO GENERAL 1 Show paragraph in Schedule B 2 Bankruptcy abstract: ordered received 2a Date of bankruptcy abstract: 3 Property under search (REUS) listed 4 Trustee appointed 5 Adversary proceeding? 5a Parties to proceeding 6 All creditors from title search listed in bankruptcy 6a Objections? (List parties objecting) 7 Order lifting stay 7a Appeal: possible filed time to appeal past 7b If filed, appeal it is: pending dismissed upheld 8 REUS is: exempt abandoned 9 Has debtor been discharged? (NOTE: Does not affect liens) 10 Bankruptcy dismissed? 11 Bankruptcy closed? PLANS (CHAPTERS 11, 12, 13) 1 Court order confirming plan filed 2 Bankruptcy closed? (Plan may still be in effect!) 3 Plan completed? 3a If so, proof all creditors paid SALE 1 Sale authorized by: court order plan 2 Authorized transaction matches terms of transaction exactly 2a If not authorized, is there an amended: court order Plan 2b Appeal: possible filed time to appeal past 2c If appeal filed: dismissed upheld 3 If order/plan is for sale free and clear are ALL liens listed 3a If not listed, there is an amended: court order plan 3b Appeal from amended order/plan: possible filed time to appeal past 3c If appeal filed: dismissed upheld 4 Liens released of record (unless free and clear ) MORTGAGE 1 Mortgage authorized by: court order plan 2 Authorized transaction matches terms of transaction exactly 2a If not authorized, there is an amended court order plan 2b Appeal: possible filed time to appeal past 2c If appeal filed: dismissed upheld 3 Priority of other liens addressed in order/plan?

43 EXHIBIT C Life Cycle of Bankruptcy Chapters 7, 11, and 13 BANKRUPTCY PETITION FILED BY DEBTOR IN U.S. BANKRUPTCY COURT Debtor files Schedules of Assets & Liabilities, Income & Expenses. In Chapters 7 & 13, a Trustee is appointed by Court to marshal assets. AUTOMATIC STAY All legal proceedings against Debtor or Debtor s property are stayed or frozen automatically upon filing of bankruptcy petition. (e.g. all foreclosures, evictions & suits for collections stop until specifically authorized to proceed.) RELIEF FROM AUTOMATIC STAY A creditor whose collection efforts have been stayed may ask the Court for relief from automatic stay. Once relief has been granted or the time limit exceeded, it may proceed. CREDITORS MEETING Debtor may be examined under oath regarding assets and liabilities. Creditors are invited to attend and may ask limited questions. If the subject property is claimed exempt as homestead property in the original filing and there are no objections in the Meeting of Creditors, for title insurance purposes, we consider the property free from the jurisdiction of the Bankruptcy Court, and absent any bankruptcy court orders to the contrary, can be sold without order of the court. The property remains subject to all liens and judgments of record. PROOF OF CLAIM Creditors file Proof of Claim stating nature and amount of debt owed by debtor. (Failure to file before deadline may jeopardize creditor s claim). Deadlines differ in chapter 7, 11, 13. LIQUIDATION REORGANIZATION CHAPTER 7 Debtor gives up trying to pay debts. Turns over non-exempt assets to Trustee & Trustee sells assets to pay Creditors CHAPTER 11 For Corporations, Partnerships, & LLC s. Continue in operation in accordance with plan; Creditors vote on Plan. CHAPTER 13 For Individuals; referred to as Wage Earners Bankruptcy. PERSONAL DEBT IS DISCHARGED e.g.: Creditors owed $30K - Trustee sells assets and nets $3,000. Creditors paid 10%. Balance of debt is discharged unless creditors challenge discharge in legal proceedings. Judgments and Liens are not affected and remain attached to property until specifically released e.g. an order to sell free and clear. REORGANIZATION PLAN CHAPTERS 11 & 13 Debtor tries to fully or partially satisfy Creditors by making payments or restructuring finances. Plan must be approved by court and creditors may object. Court designates agent to salvage assets, restructure debt (e.g. modify terms of notes), make pro rata payments to creditors, offer stock in exchange for debt by following the Plan. DISCHARGE Court issues order of Discharge, if appropriate. PLAN COMPLETED Creditors paid some or all in accordance with Plan. Upon Plan completion, Case Closed. Case Closed FRESH START Fresh start in Chapter 7, 13: Individual debtors no longer saddled with debt; however, credit report shows bankruptcy for up to 10 years. In some cases, Chapter 11 debtors may also get a discharge. General Notes: 1. Creditors or Partners can file an involuntary petition asking the Court to place the Debtor in bankruptcy against his/her/its will. 2. Any sale or financing of real property is subject to the approval of the Bankruptcy Court. 3. Judgments and Liens remain attached to the property until specifically released by an order to sell the property free and clear of specific liens and judgments; or an order avoiding the specific lien or judgment, which could be limited to the amount of the homestead exemption and therefore still attach to the property for the amount, if any, in excess of the homestead exemption. 4. Warning! This chart is intended as a general overview of the process. For specific situations, contact your state underwriter.

44 EXHIBIT D PACER WHAT IS PACER? Public Access to Court Electronic Records (PACER) is an electronic public access service website (Pacer Website) that allows users to obtain case and docket information from Federal Appellate, District and Bankruptcy courts, and from the U.S. Party/Case Index. PACER is a service of United States Judiciary. The PACER Service Center is run by the Administrative Office of the United States Courts. Currently most courts are available on the Internet and links (Courts Links) to these courts are provided from this web site. Electronic access is available for most courts by registering (Pacer Registration) with the PACER Service Center, the judiciary s centralized registration, billing, and technical support center. Each court maintains its own databases with case information. Because PACER database systems are maintained within each court, each jurisdiction will have a different URL or modem number. Accessing and querying information from each service is comparable; however, the format and content of information provided may differ slightly. Phone links to courts (Court Links) are also provided. WHY USE PACER? The PACER System offers an inexpensive, fast, and comprehensive case information service to any individual with a personal computer (PC) and Internet access. The PACER system permits you to request information about a particular individual or case. The data is displayed directly on your PC screen within a few seconds. The system is simple enough that little user training or documentation is required. U.S. PARTY/CASE INDEX The U.S. Party/Case Index is a national index for U.S. district, bankruptcy, and appellate courts. A small subset of information from each case will be transferred to the U.S. Party/Case Index each night. The system serves as a locator index for PACER. You may conduct nationwide searches to determine whether or not a party is involved in federal litigation. For detailed information on cases found while searching the U.S. Party/Case Index, you will need to visit the PACER site for the particular jurisdiction where the case is located. AVAILABLE INFORMATION The PACER System offers electronic access to case dockets to retrieve information such as: A listing of all parties and participants including judges, attorneys, and trustees A compilation of case related information such as cause of action, nature of suit, and dollar demand A chronology of dates of case events entered in the case record A claims registry A listing of new cases each day Appellate court opinions Judgments or case status Types of documents filed for certain cases Many courts offer imaged copies of documents AVAILABILITY The PACER System is available days, nights, and weekends. You can verify all updates to active and recently closed cases without having to make repeated trips to the court to review paper records. If there have been no updates, this can be confirmed in seconds. COST The United States Congress has given the Judicial Conference of the United States, the judicial governing body of the U.S. Federal Courts, authority to impose user fees for electronic access to case information. Click on these links for a history of the electronic public access fee and a current electronic public access fee schedule. All registered agencies or individuals will be charged a user fee. Access to web based PACER systems will generate a $.10 per page charge as of February 2014 per page charge, capped at $3.00 per document. In addition The per page charge applies to the number of pages that results from any search, including a search that yields no matches (one page for no matches.) The charge applies whether or not pages are printed, viewed, or downloaded. Users will NOT incur both per minute and per page charges for a PACER session. You will be billed on a quarterly basis for your transactions. There is no cost for registering, and transactions totaling less than $15.00 in a quarter will result in the waiver of the fees for that quarter. You will be allowed to enter a client code of your choosing each time you login to PACER to help facilitate managing your costs.

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58 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 3/9/2014 Case Law Update OLTA Educational Seminar March 15, 2014 First American Title Insurance Company makes no express or implied warranty respecting the information presented and assumes no responsibility for errors or omissions. First American, the eagle logo, and First American Title are registered trademarks or trademarks of First American Financial Corporation and/or its affiliates. The following presentation is for informational purposes only and is not and may not be construed as legal advice. First American Title Insurance Company is not a law firm and does not offer legal services of any kind. No third party entity may rely upon anything contained herein when making legal and/or other determinations regarding title practices. You should consult with an attorney prior to embarking upon any specific course of action. Lessons from the Oregon Courts to Title Geeks Everywhere Why I gave up my Saturday to Commune with Freaks and Geeks First American Title Insurance Company makes no express or implied warranty respecting the information presented and assumes no responsibility for errors or omissions. First American, the eagle logo, and First American Title are registered trademarks or trademarks of First American Financial Corporation and/or its affiliates. The following presentation is for informational purposes only and is not and may not be construed as legal advice. First American Title Insurance Company is not a law firm and does not offer legal services of any kind. No third party entity may rely upon anything contained herein when making legal and/or other determinations regarding title practices. You should consult with an attorney prior to embarking upon any specific course of action. Howe v. Greenleaf Title to Vacated Streets Rules of Construction for Legal Descriptions 1

59 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 3/9/2014 Howe v. Greenleaf Rules for construing description of real property. The following are the rules for construing the descriptive part of a conveyance of real property, when the construction is doubtful, and there are no other sufficient circumstances to determine it: (1) Where there are certain definite and ascertained particulars in the description, the addition of others, which are indefinite, unknown or false, does not frustrate the conveyance, but it is to be construed by such particulars, if they constitute a sufficient description to ascertain its application. (2) When permanent and visible or ascertained boundaries or monuments are inconsistent with the measurement, either of lines, angles or surfaces, the boundaries or monuments are paramount. (3) Between different measurements which are inconsistent with each other, that of angles is paramount to that of surfaces, and that of lines paramount to both. (4) When a road or stream of water not navigable is the boundary, the rights of the grantor to the middle of the road, or the thread of the stream, are included in the conveyance, except where the road or bed of the stream is held under another title. (5) When tidewater is the boundary, the rights of the grantor to low watermark are included in the conveyance, and also the right of this state between high and low watermark. (6) When the description refers to a map, and that reference is inconsistent with other particulars, it controls them, if it appears that the parties acted with reference to the map; otherwise the map is subordinate to other definite and ascertained particulars. Howe v. Greenleaf Rules for construing description of real property. The following are the rules for construing the descriptive part of a conveyance of real property, when the construction is doubtful, and there are no other sufficient circumstances to determine it: (4) When a road or stream of water not navigable is the boundary, the rights of the grantor to the middle of the road, or the thread of the stream, are included in the conveyance, except where the road or bed of the stream is held under another title. Howe v. Greenleaf Ownership of vacated property. (1) When a county governing body vacates public property under ORS to , the vacated property shall vest as follows: (a) If the county holds title to the property in fee, the property shall vest in the county. (b) If the property vacated is a public square the property shall vest in the county. (c) Unless otherwise described in paragraph (a) or (b) of this subsection, the vacated property shall vest in the rightful owner holding title according to law. (d) Except as otherwise provided in this subsection, the vacated property shall vest in the owner of the land abutting the vacated property by extension of the person s abutting property boundaries to the center of the vacated property. (2) Notwithstanding subsection (1) of this section, a county governing body may determine the vesting of property vacated under ORS to in the order or resolution that vacates the property. [1981 c ] 2

60 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 3/9/2014 Howe v. Greenleaf Ownership of vacated property. (1) When a county governing body vacates public property under ORS to , the vacated property shall vest as follows: (c) Unless otherwise described in paragraph (a)or(b) of this subsection, the vacated property shall vest in the rightful owner holding title according to law. (d) Except as otherwise provided in this subsection, the vacated property shall vest in the owner of the land abutting the vacated property by extension of the person s abutting property boundaries to the center of the vacated property. Howe v. Greenleaf General Rule Title to property goes to middle of the street Upon vacation, abutting land owner gets title to the middle of the street Howe v. Greenleaf Exceptions to the Rule? Title to the street specifically conveyed to someone Deed to the property specifically treats property in street differently Specifically excepts portion in the street from the legal/conveyance Conveys property in the street to someone else Street wholly dedicated by the one property owner Eg Street is on the edge of the plat 3

61 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 3/9/2014 Howe v. Greenleaf Howe v. Greenleaf In summary, the general presumption that title to the centerline of a road transfers with the abutting property does not apply in only two circumstances: (1) When, at the time of conveyance of the abutting property, the road is held under another title from that of the grantor or (2) when the grantor clearly does not intend to convey title to the centerline of the road as that intention appears from an express provision in the conveyance or the circumstances surrounding the transaction. Howe v. Greenleaf The Facts When Plat dedicated, dedicator owned property within the plat AND abutting property Deeds to Defendant s Property always read Lot 1 Deeds to Plaintiff s property used metes and bounds descriptions with reference to the edge of Skyland Drive 4

62 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 3/9/2014 Howe v. Greenleaf Howe v. Greenleaf In summary, the general presumption that title to the centerline of a road transfers with the abutting property does not apply in only two circumstances: (1) When, at the time of conveyance of the abutting property, the road is held under another title from that of the grantor or (2) when the grantor clearly does not intend to convey title to the centerline of the road as that intention appears from an express provision in the conveyance or the circumstances surrounding the transaction. Vucanovich v. Kine Lis Pendens Black s Law Dictionary A pending suit Notice of Lis Pendens A notice filed for the purpose of warning all persons that the title to certain property is in litigation, and that, if they purchase the defendant s claim to the same, they are in danger of being bound by an adverse judgment 5

63 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 3/9/2014 Vucanovich v. Kine Prior to 1987 Filing of a lawsuit acted as automatic lis pendens for all real property in that county In 1987 Legislature enacted ORS Notice of lis pendens; contents; recordation; effect; discharge. (1) In all suits in which the title to or any interest in or lien upon real property is involved, affected or brought in question, any party thereto at the commencement of the suit, or at any time during the pendency thereof, may have recorded by the county clerk or other recorder of deeds of every county in which any part of the premises lies a notice of the pendency of the action containing the names of the parties, the object of the suit, and the description of the real property in the county involved, affected, or brought in question, signed by the party or the attorney of the party. From the time of recording the notice, and from that time only, the pendency of the suit is notice, to purchasers and incumbrancers, of the rights and equities in the premises of the party filing the notice. The notice shall be recorded in the same book and in the same manner in which mortgages are recorded, and may be discharged in like manner as mortgages are discharged, either by such party or the attorney signing the notice. Vucanovich v. Kine Notice of lis pendens; contents; recordation; effect; discharge. (1) In all suits in which the title to or any interest in or lien upon real property is involved, affected or brought in question, any party thereto at the commencement of the suit, or at any time during the pendency thereof, may have recorded by the county clerk or other recorder of deeds of every county in which any part of the premises lies a notice of the pendency of the action containing the names of the parties, the object of the suit, and the description of the real property in the county involved, affected, or brought in question, signed by the party or the attorney of the party. From the time of recording the notice, and from that time only, the pendency of the suit is notice, to purchasers and incumbrancers, of the rights and equities in the premises of the party filing the notice. The notice shall be recorded in the same book and in the same manner in which mortgages are recorded, and may be discharged in like manner as mortgages are discharged, either by such party or the attorney signing the notice. Vucanovich v. Kine The Facts: Plaintiff ( Mark ) and Kine entered into an agreement in September, 2009 Each to provide 50% of money Would form new LLC to purchase property In December, 2009 Mark and Kinemade offer to Umpqua to buy the property Offer Accepted Kinebacked out of the offer, allegedly saying he was no longer interested 6

64 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 3/9/2014 Vucanovich v. Kine The Facts: In March, 2010 Mark made new offer to purchase the property Told that Property had already been sold to a Stonecrest Kinewas a member of Stonecrest Property sold to Stonecrestshortly thereafter Mark not a happy camper Vucanovich v. Kine The Facts: Mark filed suit against Stonecrest, Kine and two other members of Stonecrest Alleged that Stonecrest and Kine had breached their agreement to purchase the property Remedy, either: $2.5 million in damages Specific Performance of the Agreement Mark recorded a LisPendens Vucanovich v. Kine Mark s Lis Pendens The object of the action is to compel defendants to convey a 50% interest in the real property to Plaintiff pursuant to the terms of their September 29, 2009 written agreement, for damages resulting from the defendants' breach of the September 29, 2009 agreement, or some combination of these remedies. 7

65 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 3/9/2014 Vucanovich v. Kine Kine moved to strike the lis pendens under ORS Order to show cause why invalid claim of encumbrance should not be stricken; petition; hearing; release of invalid claim; application. (1) A person whose property is subject to an invalid claim of encumbrance may petition the circuit court of the county in which the person resides or in which the property is located for an order, which may be granted ex parte, directing the encumbrance claimant to appear at a hearing before the court and show cause why the claim of encumbrance should not be stricken and other relief provided by this section should not be granted. Vucanovich v. Kine Appeals Court broke the case into 2 parts: (1) Is a Lis Pendens a claim of encumbrance which can be stricken under ORS ? (2) If so, was the lis pendens in this case a valid claim? Vucanovich v. Kine As to whether ORS applied; ORS (1) defines an encumbrance as a claim, lien, charge, or liability attached to and binding the property Since a lispendensinvolves the title to or any interest in or lien upon real property, Then ORS is appropriate if the lis pendens is improperly filed 8

66 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 3/9/2014 Vucanovich v. Kine Looking at this lispendens, the Court first said the function of a lis pendens is to give constructive notice to one dealing with the property that is the subject of the pending litigation that he does so subject to the outcome of that litigation By filing a lis pendens, the plaintiff can ensure that their interest will not be disturbed by subsequently recorded claims Vucanovich v. Kine Was the LisPendensProper? Sought to specifically enforce their agreement And agreement was to form an LLC and attempt to buy the property LLC had no interest in the property If succeeded in the case, would have just received Kine s 50% interest in the LLC not the real property So, NO. LisPendensimproper in this case Uhl v. Krusky Extinguishment of Easement by Adverse Possession 9

67 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 3/9/2014 Uhl v. Krusky Common Law Concept Title to property passes automatically (no deed or court order required) where there has been possession which has been: Actual Open Notorious Exclusive Hostile Continuous For a period of 10 years Uhl v. Krusky But in Addition, in 1989 ORS was amended to require: Acquiring title by adverse possession. (1) A person may acquire fee simple title to real property by adverse possession only if: (a) The person and the predecessors in interest of the person have maintained actual, open, notorious, exclusive, hostile and continuous possession of the property for a period of 10 years; (b) At the time the person claiming by adverse possession or the person s predecessors in interest, first entered into possession of the property, the person entering into possession had the honest belief that the person was the actual owner of the property and that belief: (A) By the person and the person s predecessor in interest, continued throughout the vesting period; (B) Had an objective basis; and (C) Was reasonable under the particular circumstances; Uhl v. Krusky Acquiring title by adverse possession. (1) A person may acquire fee simple title to real property by adverse possession only if: (b) At the time the person claiming by adverse possession or the person s predecessors in interest, first entered into possession of the property, the person entering into possession had the honest belief that the person was the actual owner of the property and that belief: (A) By the person and the person s predecessor in interest, continued throughout the vesting period; (B) Had an objective basis; and (C) Was reasonable under the particular circumstances; 10

68 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 3/9/2014 Uhl v. Krusky Def s Driveway Defendant s Property 60 Wide Easement Highway Plaintiff s Property Plaintiff purchased in 1995 Fenced Off Driveway Put in Gate Occupied Easement Area until 2009 Uhl v. Krusky Previous Cases Have Held that a Property Owner Can Extinguish an Easement by Adversely possessing the area covered by the Easement Stonier v. Kronenberg Slak v. Porter But in each of those cases the Adverse Possession had Culminated before 1989 Uhl v. Krusky Does the 1989 Statutory requirement for a Good Faith Belief that one owns the property apply to Easement Extinguishment situations? This Case one of Statutory Construction Court found that the pivotal part of the statute (ORS ) was the first sentence: A person may acquire fee simple title to real property by adverse possession only if. Conclusion Statutory Amendment requiring Good Faith Belief does not apply to Extinguishment of Easements 11

69 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 3/9/2014 Brown v. City of Medford Constitutional Takings and Easement requirements for filing a Plat Remember Dolan??? US Supreme Court Required a Nexus between Government Dedication Requirements on a Plat and Burdens Created by the Plat Or The Government would have to pay for that Requirement, much like a Condemnation Brown v. City of Medford The Facts Finley Lane Required Dedication of the Other Half of Brady Way Dedication of Brady Way West McAndrews Subdivision (Tentatively Approved) Brown v. City of Medford Brown Argued that since his lots accessed Finley Lane, no nexus to Brady Way dedication requirement City argued that creating more lots would create additional traffic, and that was a general traffic burden needing additional transportation infrastructure Round 3 to Mr. Brown $15,000 12

70 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 3/9/2014 Hope Presbyterian Church v. Presbyterian Church USA Title to Church Property US Constitution 1 st Amendment: Establishment of Religion Hope Presbyterian Church v. Presbyterian Church USA The Facts 1950 s Local Church Moved to its current location Title to the property acquired by the regional body in 1955 Trustees of the Presbytery of Southwest Oregon 1961 Property Conveyed to the local body Hope Community Presbyterian Church, Rogue River No mention in the deed that property being held in trust for the national body Nor any mention of limitations or restrictions in the deed Hope Presbyterian Church v. Presbyterian Church USA The Facts Recently, the local church and the national body got into a dispute and the local congregation left the national body Both claim that they have title to/ own the church building 13

71 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 3/9/2014 Hope Presbyterian Church v. Presbyterian Church USA Court s Analysis The Law: Issues Controlled by the IstAmendment of the US Constitution US Supreme Court has divided the analysis into 2 parts; Part 1) Is the Church solely a local/regional organization no ties to any other affiliated bodies Part 2) If it is hierarchical, then State Court could not intervene unless it applies Neutral Principles Hope Presbyterian Church v. Presbyterian Church USA Neutral Principles State Courts can resolve church property disputes by examining: the language of the deeds, the terms of the local church charters, state statutes governing the holding of church property, and the provisions in the constitution of the general church concerning the ownership and control of church property Hope Presbyterian Church v. Presbyterian Church USA Applying the Law to the Facts Deeds to the local Church contained no restrictions, no mention of trust National Body governed by two instruments Book of Confessions Book of Order All property held by a local church is held in trust for the use and benefit of the national body Local Church s Bylaws States that local body is part of the regional and national bodies and is governed by the Constitution of the National Body 14

72 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 3/9/2014 Hope Presbyterian Church v. Presbyterian Church USA Applying the Law to the Facts In Addition local Church s Articles of Incorporation were amended to state that it was a congregation of and holds all property in trust for the National Body Finally, Court noted that Oregon had adopted the Uniform Trust Code which lists a number of ways someone can hold in trust for another, in which case a trust can exist without a specific conveyance to the trust Hope Presbyterian Church v. Presbyterian Church USA Lessons If order comes in on church property, let someone else handle it Two Pronged Analysis Is the church exclusively local Look at local organizational docs Or is it part of a larger regional/ national body (Hierarchical) Look at both local docs & National Docs PRAY!!! Merrill Lynch Commercial Finance v. Hemstreet Judicial Foreclosure Sales The Facts: Defendants defaulted on a commercial debt Defsexecuted a confession of judgment in 2011 Personal money Judgment exceeding $5,000,000 Judgment foreclosing trust deeds securing debt Writs of Garnishment issued on Bank Accounts prior to the sheriff s sale of the real property Defendants objected; Claimed that Foreclosure sale should take place first, and only if sale did not generate enough to pay debt, then go after other property 15

73 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 3/9/2014 Merrill Lynch Commercial Finance v. Hemstreet Judicial Foreclosure Sales The Result: Must the Sheriff s Sale take place before a creditor can pursue other means of collection? Nope Nothing in the Statutes states that a creditor must pursue their remedies in any particular order Relling v. Khorenian Implied Easement by Necessity Implied Easement: An easement resting upon the principal that, where the owner of two or more adjacent lots sells a part thereof, he grants by implication to the grantee all those apparent and visible easements which are necessary for the reasonable use of the property granted which at the time of the grant are used by the owner of the entirely for the benefit of the part granted Blacks Law Dictionary Relling v. Khorenian Really an Easement by Necessity Case Although facts may raise question of an implied easement, prayer was for an easement by necessity General Rule: Courts reluctant to give an easement by necessity unless there is truly no access by any other means 16

74 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 3/9/2014 Relling v. Khorenian Relling v. Khorenian The Facts NCW sold Property on a Land Sale Contract in 1972 to Crowe Fulfillment Deed placed into escrow which granted an easement for road purposes to McKay Creek Road Fulfillment Deed recorded in 1978 Relling v. Khorenian The Facts In the Interim (Between 1972 and 1978) NCW conveyed TL 700 to Khorenian NCW sold parcels to Miller, Selby & Holtzapple After 1978, NCW sold parcels to Neill & Glass Crowe sold property to Relling(Plaintiff) Rellingfiled suit for a common law way of necessity across the logging road 17

75 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 2012 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF 3/9/2014 Relling v. Khorenian Relling v. Khorenian SNIFF SNIFF!!! Niday & Brandrup MERS Can MERS be a Beneficiary in Oregon? No Do the Transfers in the MERS system have to be recorded prior to a Non-Judicial Foreclosure? No IS MERS S.O.L? NO If MERS is the agent of the lender (beneficiary), then an agent can act on behalf of the principal 18

76 2012 First American Financial Corporation and/or its affiliates. All rights reserved. Financial and/or its affiliates. All rights reserved. NYSE: FAF NYSE: FAF 3/9/2014 THE END 19

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82 Oregon Land Title Association Educational Program March 15, 2014 New Legislation 2013 Bills of Interest to Title Companies Cleve Abbe, Lawyers Title of Oregon, LLC 1 Trust Deeds and Foreclosures 2 Postponements & Amended Notices of Sale HB 2568 (Or Laws 2013, Ch 76) Permits written notice of postponement to be mailed or served; permits postponement after amended notice of sale; revises content requirement for amended notice; revises certain time periods related to amended notice. 3 1

83 Trustees HB 2569 (Or Laws 2013, Ch 125) Permits law practice to be a trust deed trustee; permits lawyer who is a trustee to appoint as trustee another lawyer in same law practice. 4 Post-Foreclosure Neglect HB 2662 (Or Laws 2013, Ch 317) For certain residential property after a foreclosure, the owner is prohibited from neglecting the property, must provide contact information to a local government or neighborhood association if property is vacant, must post a notice for reporting neglect, and may be subject to a superpriority lien in favor of local government who remediates neglect. 5 Execution Notices HB 2822 (Or Laws 2013, Ch 464) Provides that a sheriff s notice of execution sale (such as a sale following a judicial foreclosure) must be published in a qualified newspaper and posted to a website established for legal notices; specifies content elements. 6 2

84 Rescission of Trustee s Sale HB 2929 (Or Laws 2013, Ch 465) Establishes procedure through which a trustee may rescind a sale and void a trustee s deed; applies if there is a bona fide error in the foreclosure, an agreed upon foreclosure avoidance measure, or acceptance of reinstatement funds; must occur within 10 days of sale; specifies notice and recording requirements. 7 Short Sales & Residential Trust Deeds HB 3389 (Or Laws 2013, Ch 625) Prohibits, with some exceptions, a lender from restricting structured short sale involving a non-profit entity and borrower s re-acquisition or occupancy of the home; revises the definition of residential trust deed. 8 Foreclosure Avoidance Resolution Conference Program SB 558 (Or Laws 2013, Ch 304) Recharacterizes and revises the foreclosure avoidance mediation program adopted in 2012; requires that non-exempt lender on owner-occupied home initiate process for borrower to elect a work-out conference; lender compliance is a condition nonjudicial or judicial foreclosure. 9 3

85 Flood Damage 10 Flood Damaged Property SB 465 (Or Laws 2013, Ch 303) Permits local government to record a notice of designation of residential improvements with substantial flood damage; creates failure-to-disclose liability for seller with exposure for treble damages. 11 Recording 12 4

86 Death Certificates HB 2093 (Or Laws 2013, Ch 366) Makes changes to laws related to vital statistics to conform with 2011 revisions to Model State Vital Statistics Act; section 34 bars recording of a death certificate if it includes medical information related to the cause of death. 13 Recording Charges HB 2417 (Or Laws 2013, Ch 646) Increases from $15 to $20 the recording fee designated for housing-related programs of the Oregon Housing and Community Services Dept; see ORS (1)(c)

87 Notaries HB 2834 (Or Laws 2013, Ch 219) Enacts Revised Uniform Law on Notarial Acts. 16 Mortgage Loan Originators 17 Mortgage Loan Originators HB 2856 (Or Laws 2013, Ch 281) Exempts from mortgage loan originator licensing requirements individual who, as seller during any 12-month period, offers or negotiates terms for not more than three residential mortgage loans as security for purchase money obligations, unless US Dept of HUD determines otherwise. 18 6

88 T I T L E I N S U R A N C E 19 Title Insurance SB 414 (Or Laws 2013, Ch 618) Permits Dept of Consumer and Business Services, through its Insurance Division, to seek restitution on behalf of consumer that suffered actual damages as result of insurer's violation of Insurance Code or breach of insurance contract or policy. 20 the end 21 7

89 NEW LEGISLATION 2013 Oregon Land Title Association Summary of Bills Affecting Real Property Foreclosures (A) HB 2568 (Chapter 76, Oregon Laws 2013) Effective January 1, 2014 Affects a non-judicial trust deed foreclosure when a stay of the foreclosure usually a stay imposed by a bankruptcy filing has been terminated. (1) Provides that in the amended notice of sale, given after a stay is lifted, the trustee must describe the defaults existing at termination of the stay, if the defaults in the original notice of sale were cured in part during the stay or if additional defaults occurred during the stay. (2) Reduces from 20 days to 15 days the number of days that must elapse between when amended notice is given and the amended date of sale. (3) Provides that after release from a stay, the trustee may postpone the sale for one or more periods that total not more than the greater of (a) 60 days or (b) the portion of the 180 day postponement period (permitted in the absence of a stay) that remained on the day before the stay began. (4) Provides that, when written notice of a postponement is required, the postponement notice may be given by personal service or by mailing by both first class mail and certified mail with return receipt requested to any person to whom notice of the sale was given. (B) HB 2569 (Chapter 125, Oregon Laws 2013) Effective January 1, 2014 Affects trust deed trustees. (1) Provides that a law practice may be a trust deed trustee, a law practice being a professional corporation, a partnership, a limited liability partnership, a limited liability company or a sole proprietorship engaged in the practice of law in Oregon. (2) Provides that when a law practice is a trustee, any active Oregon lawyer at the law practice may sign Trust Deed Act documents on behalf of the law practice, provided that the document (i) identifies the lawyer by name and Oregon State Bar number and (ii) states that the trustee has authorized the lawyer to sign on the trustee s behalf. (3) Provides that, when the trustee is an individual lawyer at a law practice, the trustee may appoint another lawyer at the law practice to sign on behalf of the individual lawyer trustee, provided that the appointment document (i) identifies the lawyer by name and Oregon State Bar number and (ii) states that the trustee has authorized the lawyer to sign on the trustee s behalf. Oregon Bills Enacted 2013 Regarding Real Property Foreclosures Page 1 of 6 Ver. 3/15/2014

90 (C) HB 2662 (Chapter 317, Oregon Laws 2013) Effective June 6, 2013 Affects foreclosed residential real property. (1) Applies to an owner who acquires through a foreclosure residential real property as defined in ORS Owner is a person, other than a local government, that forecloses a trust deed nonjudicially or judicially. Note: Residential real property is a broader category than the category of real property brought within the definition of a residential trust deed, as defined for the Trust Deed Act in ORS (2) Requires that the owner not neglect the property while it is vacant. (3) Requires that the owner provide its name or its agent s name, phone number and other contact information to the property s neighborhood association or a local government official designated to receive the contact information. Note: This requirement is not limited to vacant property. (4) Requires that the owner post a durable notice with a phone number in a conspicuous location on the property for reporting a condition of neglect to the owner or the local government and that the notice be replaced if removed during a period of vacancy. (5) Requires that the owner or owner s agent identify the owner to the local government and maintain contact information when the property is vacant. (6) Establishes a protocol through which the local government may find a violation of neglect and may demand remediation, but must provide an opportunity for contesting the finding, and, if the owner fails to remediate in accordance with the local government s findings and specifications, the local government may remediate and has a lien for the costs it incurs, which lien attaches upon recording a claim of lien and which lien has a priority equal to a tax lien. (D) HB 2822 (Chapter 464, Oregon Laws 2013) Effective June 24, 2013 Affects execution sales of real property. (1) Requires that, before conducting an execution sale of real property, the sheriff (a) post notice of the execution sale to a website established under ORS for at least 28 days and (b) publish notice of the sale in a qualified newspaper once a week for four weeks. (2) Requires that the notices include (a) the names of the parties subject to the writ of execution, (b) the street address of the property or, if there is no street address, the tax lot number of the property, and (c) the date, time and place of the execution sale. Oregon Bills Enacted 2013 Regarding Real Property Foreclosures Page 2 of 6 Ver. 3/15/2014

91 (3) Requires that the website notice also include the legal description of the property and a warning whose text is specified. (4) Requires that the newspaper notice include instructions for locating the information posted to the website. (5) Requires that the judgment creditor supply the sheriff with all of the information required for the notices. (6) Specifies that the revised requirements apply only to execution sales for which the sheriff receives instructions on or after August 1, (E) HB 2929 (Chapter 465, Oregon Laws 2013) Effective January 1, 2014 Affects non-judicial trust deed foreclosures. (1) Requires that a trust deed trustee who is an out-of-state business entity must register with the Oregon Secretary of State, unless the entity is a title insurer with a certificate of authority from the Department of Consumer and Business Services. (2) Permits the trustee to rescind a sale and void a trustee s deed in three circumstances, using a specified procedure. (3) Applies: (a) if the trustee asserts that a bona fide error occurred in setting or advertising the opening bid amount, in providing a correct legal description for the property being sold, or in complying with a requirement or procedure imposed by law; (b) if the trust deed grantor and beneficiary agreed to a foreclosure avoidance measure that would postpone or discontinue the foreclosure; or (c) if the beneficiary has accepted funds to reinstate the loan, even if the beneficiary has no legal duty to reinstate. (4) Establishes a rescission procedure under which the trustee: (a) must rescind within 10 calendar days after the date of sale, (b) must provide (by personal service or by mail) notice of the rescission within 10 calendar days after the date of sale to any person to whom notice of sale was given, (c) must display in the notice of rescission the date on which the trustee mailed, served or otherwise delivered the notice; (d) must state that, and explain why, the trustee rescinded the sale and voided any trustee s deed; (e) must refund to the purchaser the amount paid within three calendar days after the date the trustee gave notice of rescission; and, Oregon Bills Enacted 2013 Regarding Real Property Foreclosures Page 3 of 6 Ver. 3/15/2014

92 (f) within 21 days after the date of the sale, must record an affidavit of the rescission that identifies the trust deed that was subject to the rescinded sale and voided trustee s deed. (5) Specifies that a trustee may use the rescission procedure for a trustee s sale occurring on or after January 1, 2014, if the procedure is permitted. Note: The rescission procedures of HB 2929 may conflict with provisions in ORS for a form to correct the deed and mortgage records when a trustee s deed has been recorded erroneously. To the extent that the two statutes conflict, the later one, HB 2929 s revisions to ORS , formerly , will control. (F) HB 3389 (Chapter 625, Oregon Laws 2013) Effective July 19, 2013 Affects short sales and trust deed foreclosures. (1) Prohibits, with some exceptions, a beneficiary of a residential trust deed from imposing, in a short sale of the property to a non-profit entity, or in a sale of the note to a non-profit entity, any condition that limits or bars the grantor from owning or occupying the property after the short sale or the sale of the note. (2) Revises requirement for a certificate of compliance with provisions for a foreclosure avoidance resolution conference, so a non-judicial sale may proceed if the certificate of compliance is valid and unexpired at recording of the notice of default (rather than at date of sale). (3) Revises the definition of residential trust deed, leaving in place the requirement that the property must have four or fewer residential units, one of which is occupied as a principal residence by the grantor, the grantor s spouse, or the grantor s minor or dependent child, but changing the condition of occupancy so it is determined as of the trust deed s recording date, except for a purchase money trust deed, for which one unit must be intended as the principal residence after the trust deed is recorded. (4) Is silent on whether act applies to pending and future trust deed foreclosures, only to foreclosures commenced on or after the effective date, or only to trust deeds entered into on or after the effective date. (G) SB 558 (Chapter 304, Oregon Laws 2013) Effective June 4, 2013; Operative August 4, 2013 Recharacterizes the foreclosure mediation program established by Chapter 112 [S.B. 1552], Oregon Laws 2012, as a foreclosure resolution program and revises the 2012 act. (1) Requires that the beneficiary of a residential trust deed request, before a judicial or nonjudicial foreclosure, a resolution conference with the grantor for purposes of negotiating a foreclosure avoidance measure, unless the beneficiary is eligible to claim exemption from the requirement. Oregon Bills Enacted 2013 Regarding Real Property Foreclosures Page 4 of 6 Ver. 3/15/2014

93 (2) Changes exemption criteria and requires submission of affidavit of exemption to Attorney General. (3) Bars a non-exempt beneficiary from recording a notice of default or filing a foreclosure action until after requesting a resolution conference. Note: Ch. 444 [HB 3389], Or. Laws 2013, also requires, at time of recording a notice of default, a valid and unexpired certificate of compliance (see #8 below) and requires the recording of the certificate (see #10 below). (4) Revises provisions for a service provider s administration of a foreclosure avoidance resolution program that uses facilitators, instead of mediators. (5) Specifies manner in which the beneficiary must request a resolution conference. (6) Enables a grantor to request a resolution conference under certain circumstances. (7) Specifies documents that the beneficiary and the grantor must provide and specifies the timing and procedure for, and duties of, the beneficiary and the grantor with respect to a resolution conference. (8) Provides for the beneficiary to receive a certificate of compliance after meeting its obligations for a resolution conference, and specifies that a certificate of compliance expires one year after its date of issue. (9) Requires that the beneficiary mail a 4a notice to the grantor if the beneficiary determines that the grantor is not eligible for a foreclosure avoidance measure or has not complied with terms of a foreclosure avoidance measure. Requires that the beneficiary mail the 4a notice within 10 days of making the determination and mail a copy to the Dept. of Justice. Requires recording of an affidavit of compliance with the 4a notice requirement. Specifies that the exemption from requesting a resolution conference does not apply to the 4a notice requirement and that the 4a notice requirement applies to any residential trust deed. Note: 4a is a reference to Section 4a of Ch. 112 [SB 1552], Or. Laws (10) Requires, as additional conditions for a non-judicial foreclosure of a residential trust deed, (a) that, if the beneficiary and grantor have agreed to a foreclosure avoidance measure, the grantor has not complied with the agreement s terms; (b) that the trust deed beneficiary give the grantor a 4a notice if required and record, at least 5 days before the sale, an affidavit of compliance; and (c) that the beneficiary record either (i) a valid and unexpired certificate of compliance issued by the service provider or (ii) a copy of the affidavit with which the beneficiary claims an unexpired exemption. (11) Requires that a complaint filed to foreclose a residential trust deed of a non-exempt beneficiary include as an attachment one of the following: (a) a true copy of a valid and unexpired certificate of compliance issued by the service provider; (b) a true copy of the affidavit with which the beneficiary claims an unexpired exemption; or (c) a true copy of the service provider s notice and explanation that it will not issue a certificate of compliance. (12) Permits the court, on its motion or in response to a defendant s motion, to dismiss the action without prejudice or to stay the proceeding Oregon Bills Enacted 2013 Regarding Real Property Foreclosures Page 5 of 6 Ver. 3/15/2014

94 (a) if the beneficiary fails to file (i) the certificate or compliance or (ii) the affidavit of exemption, or (b) if the beneficiary files the service provider s notice and explanation of no certificate of compliance. (13) Permits the court to lift its stay if the beneficiary belatedly files the certificate of compliance or the affidavit of exemption. (14) Establishes that a person engages in an unlawful practice if, in the course of the person s business, vocation or occupation, the person is a beneficiary that violates the requirements for (a) requesting or participating in a resolution conference, (b) paying the applicable charge and submitting required identifying and contact information, (c) submitting the required documentation for a resolution conference (d) sending an appropriate representative to the conference, or (e) signing a written document setting forth the terms of a foreclosure avoidance measure. (15) Any such unlawful practice is subject to an enforcement action under ORS by the state attorney general or by the district attorney in the county where the unlawful practice is alleged to have occurred. (16) Becomes operative on August 4, 2013, thereby applying to (a) a request for a resolution conference that a beneficiary or grantor submits on or after that date, (b) a notice of sale that a trustee, a beneficiary or the agent of either sends on or after that date, and (c) a suit to foreclosure a residential trust deed that commences on or after that date. Prepared by Cleve Abbe Oregon Underwriting Counsel Fidelity National Title Group, Inc. Legislative Committee Oregon Land Title Association Last revised March 15, 2014 Oregon Bills Enacted 2013 Regarding Real Property Foreclosures Page 6 of 6 Ver. 3/15/2014

95 OLTA Legislative Committee 2013 Bills Enacted - Sorted by Category As of Asterisk (*) - See Addendum - Summary of Bills Affecting Real Property Foreclosures 01-Sep-13 Status: SG:Signed by Governor Bill categories: Adverse Possession; Affordable Housing; CCRs & HOAs; Civil Actions; Condemnation; Conservators; Corporations & Bus Entities; Decedents' Estates; Domestic Relations; Escrow Agents; Estates in Land; Exchange Facilitators; Judgments & Statutory Liens; Land Devel, Use & Regul; Licensing; Mortgages & Trust Deeds; Notaries; Powers of Attorney; Public Bodies; Privacy; RP Tax & Assessment; Recording; Taxation; Title Insurance; Trusts Bill Description Category Notes/Status SB 0046A HB 2089A Modifies statute of limitations for action against person registered to practice architecture, landscape architecture or engineering arising out of improvement of real property. Specifies that Or Health Authority or Dept of Human Services, as prescribed by rule, should receive small estate affidavit. Civil Actions SG; Ch 469; eff 1/1/2014 Decedents' Estates SG; Ch 14; Eff 3/21/13 HB 2571A SB 0406A Clarifies that spousal support payments terminate on death of either party. Expands options for name after marriage or after entering into registered domestic partnership. Domestic Relations Domestic Relations SG; Ch 126; eff 1/1/2014 SG; Ch 341; eff 6/6/2013 HB 3489A Limits escrow agent's exemption from licensing requirements in instances where escrow agent provides debt management services, money transmission services or services to debt management service providers that must be licensed. Escrow Agents SG; Ch 444; eff 6/18/2013 HB 3495A HB 2565 HB 2822B * Re-enacts exchange facilitator bill of 2009; cancels sunset previously set for 1/2/2014 Gives judgment lien awarded to custodian of law practice priority over certain other creditors and security interests. Requires publication of notice of execution sale of real property by Internet posting and by publication in newspaper of general circulation; applies to sheriff sales for which sheriff receives instructions on or after 8/1/2013. Exchange Facilitators Judgments & Statutory Liens Judgments & Statutory Liens SG; Ch 392; eff 1/1/2014 SG; Ch 3; eff 3/11/2013 SG; Ch 464; eff 6/24/2013 SB 0396A Allows Oregon resident filing for bankruptcy to claim either (a) exemptions established by federal law or (b) exemptions established by state law. Judgments & Statutory Liens SG; Ch 597; eff 7/1/2013 HB 2639B HB 3172A Directs Housing and Community Services Dept to develop Housing Choice Landlord Guarantee Program to mitigate damages to dwelling units caused by tenants receiving tenant-based assistance under federal Housing Choice Voucher Program; includes other provisions. Modifies residential disclosure law related to septic systems; expands sewage system section. Land Devel, Use & Regul Land Devel, Use & Regul SG; Ch 740; eff 1/1/2014 SG; Ch 435; eff 1/1/2014 HB 3301C Authorizes owner of lot in planned community or unit in condo to install & use electric vehicle charging station for personal use. Land Devel, Use & Regul SG; Ch 438; eff 1/1/ Legis Bills Enacted List House and Senate Bills by Category - Page 1 Printed: 2/25/2014

96 Bill Description Category Notes/Status SB 0204 Provides that certain limitations regarding real property sales by the state do not apply to certain real property acquired or sold by Housing & Community Services Dept. Land Devel, Use & Regul SG; Ch 167; eff 5/16/2013 SB 0465A Permits local government to record a notice of designation of residential improvements with substantial flood damage; creates failure-to-disclose liability for seller with exposure for treble damages. Land Devel, Use & Regul SG; Ch 303; eff 6/4/2013 HB 2239 Requires certain entities previously exempt from license requirement to obtain mortgage loan licenses from DCBS. Licensing SG; Ch 268; eff 1/1/2014 HB 2524B HB 2573A Limits exemption from construction contractor licensing requirement for surety companies and commercial lending institutions. Provides that engaging in business of, or acting in capacity of, immigration consultant is unlawful and subject to Unlawful Trade Practices Act, unless federal law authorizes person to act as immigration consultant or person is active member of Or St Bar. Licensing SG; Ch 378; eff 1/1/2014 Licensing SG; Ch 77, eff 1/1/2014 SB 0023 Modifies provisions related to regulation of real estate agents. Licensing SG; Ch 145; eff 5/16/2013 HB 2046 Addresses claims of Dept of Veterans' Affairs in probate proceedings. Mortgages & Trust Deeds SG; Ch 190; eff 1/1/2014 HB 2528 Removes cap on amount in real estate loan agrt that is subject to requirement to pay interest to borrower on funds lender collects for taxes and insurance. Mortgages & Trust Deeds SG; Ch 200; eff 1/1/2014 HB 2568 * HB 2569A * HB 2662A * HB 2856A HB 2929B * HB 3389A * Provides that, in amended notice of sale, trustee must describe only defaults that existed on date stay was terminated; amends procedure for postponements. Allows law practices to serve as trustees of trust deeds. Prohibits owner of foreclosed residential real property from neglecting property during vacancy; authorizes lien for remediation costs. Exempts from mortgage loan originator licensing requirements individual who, as seller during any 12- month period, offers or negotiates terms for not more than three residential mortgage loans as security for purchase money obligations, unless US Dept of HUD determines otherwise. Creates procedure for trust deed trustee to rescind a trustee's sale within a 10 day period, with certain requirements; requires certain trustees to maintain registered agent and registered office. Prohibits certain conditions on short sale with nonprofit purchaser; revises definition of "residential trust deed"; specifies that certificate of compliance must be valid and unexpired at commencement of non-judicial foreclosure. Mortgages & Trust Deeds Mortgages & Trust Deeds Mortgages & Trust Deeds Mortgages & Trust Deeds Mortgages & Trust Deeds Mortgages & Trust Deeds SG; Ch 76; eff 1/1/2014 SG; Ch 125; eff 1/1/2014 SG; Ch 317; eff 6/6/2013 SG; Ch 281; eff 6/4/2013; operative 9/3/2013 SG; Ch 465; eff 1/1/2014 SG; Ch 625; eff 7/19/ Legis Bills Enacted List House and Senate Bills by Category - Page 2 Printed: 2/25/2014

97 Bill Description Category Notes/Status SB 0034A Limits to four the number of loans eligible individual may receive or assume from Dept of Veterans' Affairs. Mortgages & Trust Deeds SG; Ch 227; eff 5/23/2013 SB 0035 Modifies limit on amount of home and farm loans made by Dept of Veterans' Affairs. Mortgages & Trust Deeds SG; Ch 228; eff 5/23/2013 SB 0558A * Replaces foreclosure mediation requirements with resolution conference requirements; makes significant revisions to SB 1552 of Mortgages & Trust Deeds SG; Ch 304; eff 6/4/2013; operative 8/4/2013 HB 2834 Enacts Revised Uniform Law on Notarial Acts. Notaries SG; Ch 219; eff 5/23/2013 HB 2031 Designates Dept of State Lands to act for state in transactions concerning mineral and geothermal resource rights in low-potential resource lands. Public Bodies SG; Ch 256; eff 6/4/2013 HB 3067A Establishes procedure for Multnomah County to transfer "Area 93" to Washington County. Public Bodies SG. Ch 326; eff 6/6/2013 HB 2227A Addresses certain property tax exemptions. HB 2489A Suspends indefinitely prohibition on senior & disabled citizen tax deferrals for certain homesteads pledged as security for reverse mortgages. RP Tax & Assessment RP Tax & Assessment SG; Ch 193; eff 10/6/2013 SG; Ch 31; eff 10/6/2013 HB 2510B HB 2093B HB 2417A SB 0414A Makes changes to senior and disabled citizens tax deferral program. Makes changes to laws related to vital statistics to conform with 2011 revisions to Model State Vital Statistics Act; section 34 bars recording of a death certificate if it includes medical information related to the cause of death Increases from $15 to $20 the recording fee designated for housing-related programs of the Oregon Housing and Community Services Dept; ORS (1)(c). Permits DCBS to seek restitution on behalf of consumer that suffered actual damages as result of insurer's violation of Insurance Code or breach of insurance contract or policy. RP Tax & Assessment Recording SG; Ch 494; eff 10/6/2013 SG; Ch 366; eff 6/13/2013; operative 1/1/2014 Recording SG; Ch 646; eff 1/1/2014 Title Insurance SG; Ch 618; eff 7/3/2013; operative 1/1/2014 SB 0592A Revises Oregon Uniform Trust Code. Trusts SG; Ch 529; eff 6/26/ Legis Bills Enacted List House and Senate Bills by Category - Page 3 Printed: 2/25/2014

98 OLTA Legislative Committee 2013 Bills Enacted - Sorted by Bill Number As of 01-Sep-13 Asterisk (*) - See Addendum - Summary of Bills Affecting Real Property Foreclosures Status: SG:Signed by Governor Bill categories: Adverse Possession; Affordable Housing; CCRs & HOAs; Civil Actions; Condemnation; Conservators; Corporations & Bus Entities; Decedents' Estates; Domestic Relations; Escrow Agents; Estates in Land; Exchange Facilitators; Judgments & Statutory Liens; Land Devel, Use & Regul; Licensing; Mortgages & Trust Deeds; Notaries; Powers of Attorney; Public Bodies; Privacy; RP Tax & Assessment; Recording; Taxation; Title Insurance; Trusts Bill Description Category Notes/Status HB 2031 Designates Dept of State Lands to act for state in transactions concerning mineral and geothermal resource rights in low-potential resource lands. Public Bodies SG; Ch 256; eff 6/4/2013 HB 2046 Addresses claims of Dept of Veterans' Affairs in probate proceedings. Mortgages & Trust Deeds SG; Ch 190; eff 1/1/2014 HB 2089A HB 2093B Specifies that Or Health Authority or Dept of Human Services, as prescribed by rule, should receive small estate affidavit. Makes changes to laws related to vital statistics to conform with 2011 revisions to Model State Vital Statistics Act; section 34 bars recording of a death certificate if it includes medical information related to the cause of death Decedents' Estates Recording SG; Ch 14; Eff 3/21/13 SG; Ch 366; eff 6/13/2013; operative 1/1/2014 HB 2227A Addresses certain property tax exemptions. HB 2239 HB 2417A Requires certain entities previously exempt from license requirement to obtain mortgage loan licenses from DCBS. Increases from $15 to $20 the recording fee designated for housing-related programs of the Oregon Housing and Community Services Dept; ORS (1)(c). RP Tax & Assessment SG; Ch 193; eff 10/6/2013 Licensing SG; Ch 268; eff 1/1/2014 Recording SG; Ch 646; eff 1/1/2014 HB 2489A HB 2510B Suspends indefinitely prohibition on senior & disabled citizen tax deferrals for certain homesteads pledged as security for reverse mortgages. Makes changes to senior and disabled citizens tax deferral program. RP Tax & Assessment RP Tax & Assessment SG; Ch 31; eff 10/6/2013 SG; Ch 494; eff 10/6/2013 HB 2524B Limits exemption from construction contractor licensing requirement for surety companies and commercial lending institutions. Licensing SG; Ch 378; eff 1/1/2014 HB 2528 Removes cap on amount in real estate loan agrt that is subject to requirement to pay interest to borrower on funds lender collects for taxes and insurance. Mortgages & Trust Deeds SG; Ch 200; eff 1/1/2014 HB 2565 Gives judgment lien awarded to custodian of law practice priority over certain other creditors and security interests. Judgments & Statutory Liens SG; Ch 3; eff 3/11/ Legis Bills Enacted List House and Senate Bills by Bill No. - Page 1 Printed: 2/25/2014

99 Bill Description Category Notes/Status HB 2568 * HB 2569A * HB 2571A Provides that, in amended notice of sale, trustee must describe only defaults that existed on date stay was terminated; amends procedure for postponements. Allows law practices to serve as trustees of trust deeds. Clarifies that spousal support payments terminate on death of either party. Mortgages & Trust Deeds Mortgages & Trust Deeds Domestic Relations SG; Ch 76; eff 1/1/2014 SG; Ch 125; eff 1/1/2014 SG; Ch 126; eff 1/1/2014 HB 2573A Provides that engaging in business of, or acting in capacity of, immigration consultant is unlawful and subject to Unlawful Trade Practices Act, unless federal law authorizes person to act as immigration consultant or person is active member of Or St Bar. Licensing SG; Ch 77, eff 1/1/2014 HB 2639B HB 2662A * Directs Housing and Community Services Dept to develop Housing Choice Landlord Guarantee Program to mitigate damages to dwelling units caused by tenants receiving tenant-based assistance under federal Housing Choice Voucher Program; includes other provisions. Prohibits owner of foreclosed residential real property from neglecting property during vacancy; authorizes lien for remediation costs. Land Devel, Use & Regul Mortgages & Trust Deeds SG; Ch 740; eff 1/1/2014 SG; Ch 317; eff 6/6/2013 HB 2822B * Requires publication of notice of execution sale of real property by Internet posting and by publication in newspaper of general circulation; applies to sheriff sales for which sheriff receives instructions on or after 8/1/2013. Judgments & Statutory Liens SG; Ch 464; eff 6/24/2013 HB 2834 Enacts Revised Uniform Law on Notarial Acts. Notaries SG; Ch 219; eff 5/23/2013 HB 2856A Exempts from mortgage loan originator licensing requirements individual who, as seller during any 12- month period, offers or negotiates terms for not more than three residential mortgage loans as security for purchase money obligations, unless US Dept of HUD determines otherwise. Mortgages & Trust Deeds SG; Ch 281; eff 6/4/2013; operative 9/3/2013 HB 2929B * Creates procedure for trust deed trustee to rescind a trustee's sale within a 10 day period, with certain requirements; requires certain trustees to maintain registered agent and registered office. Mortgages & Trust Deeds SG; Ch 465; eff 1/1/2014 HB 3067A Establishes procedure for Multnomah County to transfer "Area 93" to Washington County. Public Bodies SG. Ch 326; eff 6/6/2013 HB 3172A HB 3301C Modifies residential disclosure law related to septic systems; expands sewage system section. Authorizes owner of lot in planned community or unit in condo to install & use electric vehicle charging station for personal use. Land Devel, Use & Regul Land Devel, Use & Regul SG; Ch 435; eff 1/1/2014 SG; Ch 438; eff 1/1/ Legis Bills Enacted List House and Senate Bills by Bill No. - Page 2 Printed: 2/25/2014

100 Bill Description Category Notes/Status HB 3389A * HB 3489A Prohibits certain conditions on short sale with nonprofit purchaser; revises definition of "residential trust deed"; specifies that certificate of compliance must be valid and unexpired at commencement of non-judicial foreclosure. Limits escrow agent's exemption from licensing requirements in instances where escrow agent provides debt management services, money transmission services or services to debt management service providers that must be licensed. Mortgages & Trust Deeds Escrow Agents SG; Ch 625; eff 7/19/2013 SG; Ch 444; eff 6/18/2013 HB 3495A Re-enacts exchange facilitator bill of 2009; cancels sunset previously set for 1/2/2014 Exchange Facilitators SG; Ch 392; eff 1/1/2014 SB 0023 Modifies provisions related to regulation of real estate agents. Licensing SG; Ch 145; eff 5/16/2013 SB 0034A Limits to four the number of loans eligible individual may receive or assume from Dept of Veterans' Affairs. Mortgages & Trust Deeds SG; Ch 227; eff 5/23/2013 SB 0035 Modifies limit on amount of home and farm loans made by Dept of Veterans' Affairs. Mortgages & Trust Deeds SG; Ch 228; eff 5/23/2013 SB 0046A Modifies statute of limitations for action against person registered to practice architecture, landscape architecture or engineering arising out of improvement of real property. Civil Actions SG; Ch 469; eff 1/1/2014 SB 0204 Provides that certain limitations regarding real property sales by the state do not apply to certain real property acquired or sold by Housing & Community Services Dept. Land Devel, Use & Regul SG; Ch 167; eff 5/16/2013 SB 0396A Allows Oregon resident filing for bankruptcy to claim either (a) exemptions established by federal law or (b) exemptions established by state law. Judgments & Statutory Liens SG; Ch 597; eff 7/1/2013 SB 0406A SB 0414A SB 0465A Expands options for name after marriage or after entering into registered domestic partnership. Permits DCBS to seek restitution on behalf of consumer that suffered actual damages as result of insurer's violation of Insurance Code or breach of insurance contract or policy. Permits local government to record a notice of designation of residential improvements with substantial flood damage; creates failure-to-disclose liability for seller with exposure for treble damages. Domestic Relations Title Insurance Land Devel, Use & Regul SG; Ch 341; eff 6/6/2013 SG; Ch 618; eff 7/3/2013; operative 1/1/2014 SG; Ch 303; eff 6/4/2013 SB 0558A * Replaces foreclosure mediation requirements with resolution conference requirements; makes significant revisions to SB 1552 of Mortgages & Trust Deeds SG; Ch 304; eff 6/4/2013; operative 8/4/2013 SB 0592A Revises Oregon Uniform Trust Code. Trusts SG; Ch 529; eff 6/26/ Legis Bills Enacted List House and Senate Bills by Bill No. - Page 3 Printed: 2/25/2014

101 CFPB, Settlement Service Providers and Compliance: Our New Reality March 15, OLTA Educational Seminar Embassy Suites Hotel Washington Square ~ Donald A. O Neill Executive Vice President and Chief Compliance Officer WFG National Title Insurance Company

102 WHO WE CFPB, ARE Settlement Service Providers and Compliance: Our New Reality March 15, 2014 AGENDA! Dodd-Frank and the Consumer Financial Protection Bureau (CFPB) Summary of CFPB Rules! April 13, 2012 CFPB Bulletin # ! The Title Industry Responds - ALTA Seven Pillars of Best Practices! What we Learned in 2013! What to Expect in 2014! Application to Realtors - Loan Originators - Attorneys - Title & Escrow Settlement Agents 2

103 Dodd-Frank and the CFPB It has been said that the Dodd-Frank Wall Street Reform and Consumer Protection Act created the most far-reaching financial regulatory legislation since the Great Depression Technology is core to the CFPB accomplishing its mission... As the country s first 21st-century consumer protection agency, the CFPB is reaching out to the public using 21st-century tools. 3 Clearly the real estate industry is in the midst of significant regulatory changes was the year of interpretation and preparation will be a year of performance and accountability.

104 !!!!!!!!!!!!!!!!! Dodd Frank Wall Street Reform and Consumer Protection Act Enacted July 21, 2010 Federal Reserve. HUD. FDIC. FTC. NCUA. OCC. OTS.! Dodd-Frank and the CFPB! a whole new way of doing business with the goals of protecting the consumer and bringing supervision and accountability to the financial services industry CFPB oversight includes Consumer Education & Engagement. Card Markets. Credit Information, Collections & Deposits Markets. Installment & Liquidity Lending Markets. Mortgage Markets. Fair Lending & Equal Opportunity. Financial Education & Empowerment. Older Americans. Servicemember Affairs. Students. Office of Minority & Women Inclusion. 4

105 CFPB Final Rules Rule Summary Issued Date/ Effective Integrated Mortgage Date Simplifies RESPA & TILA disclosure forms by integrating November 20, 2013 Disclosures GFE/Preliminary Truth in Lending = Loan Estimate 3 pgs August 1, 2015 Ability to Repay/Qualified Mortgage (QM) Final Requires Truth lenders in Lending/HUD-1 to ensure borrowers = Closing have Disclosure ability to repay 5 their mortgage. Sets qualifications for QMs 2013 HOEPA Rule High-cost mortgage and homeownership counseling amendments to TILA (Reg Z) and RESPA (Reg X). Expands types of mortgage loans subject to HOEPA Loan Originator Compensation ECOA Valuations TILA Higher Price Mortgage Loan Appraisals Escrows under TILA (Reg Z) TILA and RESPA Servicing (Two rules) Prohibits steering incentives, dual compensation and levels playing field for qualification and screening standards Disclosure and delivery requirements for copies of appraisals and other written valuations under the Equal Credit Opportunity Act (Reg B) Increases requirements and disclosures of appraisal purpose; requires copy of appraisal to consumer Requires certain lenders to collect monthly escrows (impounds) for five years for some higher-priced mortgage loans Protects consumers from detrimental actions by mortgage servicers and provides consumers with better tools, information and protections for consumers facing foreclosure January 10, 2013 January 10, 2014 January 10, 2013 January 10, 2014 January 20, 2013 June 1, 2013 (some) January 10, 2014 January 18, 2013 January 18, 2014 January 18, 2013 January 18, 2014 January 10, 2013 June 1, 2013 January 17, 2013 January 10,

106 CFPB issues Bulletin April 13, 2012 APPLICATION TO TITLE and SETTLEMENT AGENTS Provides that lenders may be held legally responsible for the actions or inactions of their service providers where consumers are harmed as a result of the service provider failing to comply with consumer financial law. To limit the potential for such responsibility, lenders should take steps to ensure no unwarranted risks are posed to consumers by their service providers. Five Steps... 6

107 CFPB Bulletin April 13, 2012 THE FIVE STEPS 1. Conducting thorough due diligence to verify that the service provider understands and is capable of complying with federal consumer financial law;! 2. Requesting and reviewing the service provider s policies, procedures, internal controls, and training manuals to ensure that the service provider conducts appropriate training and oversight of employees or agents that have consumer contact or compliance responsibilities; 3. Including in the contract with the service provider clear expectations about compliance, as well as appropriate and enforceable consequences for violating compliance-related responsibilities, including engaging in unfair, deceptive, or abusive acts or practices;! 4. Establishing internal controls and ongoing monitoring to determine whether the service provider is complying with federal consumer financial law;! 5. Taking prompt action to address fully any problems identified through the monitoring process, including terminating the relationship where appropriate. 7

108 The Title Industry Responds ALTA Seven Pillars of Best Practices! 8

109 The Title Industry Responds ALTA SEVEN PILLARS OF BEST PRACTICES Version 2.0 includes Assessment Procedures and Certification Package 1. Maintain current license(s) 2. Written procedures and controls for Escrow Trust Accounts! 3. Written privacy and information security program to protect Non-public Personal Information And this is not new! GLB became effective in 1999! 4. Real estate settlement procedures and policies! 5. Written procedures related to title policy production, delivery, reporting and premium remittance! 6. Liability insurance and fidelity coverage! 7. Procedures for resolving consumer complaints 9

110 What we Learned in

111 WHO WE ARE What we Learned in 2013 TO DEVELOP AND UTILIZE A COMPLIANCE VOCABULARY... by using a common compliance vocabulary and the CMS components required of lenders WFG would be better positioned when asked about its compliance programs. 11

112 What we Learned in 2013 THAT SERVICE PROVIDERS WERE EXPECTED TO DEVELOP CORE COMPETENCIES Risk Assessment! Documented Policies and Procedures! Employee Development and Training! Operational Process Reviews and Audits! Comprehensive Compliance Management System (CMS) Powered by WFG Communications 12 16

113 WHO WE ARE What we Learned in 2013 NPPI IS THE #1 HOT ISSUE FOR LENDERS Privacy Limitations on the dissemination and use of information!!! Data Security Information regarding safeguarding and disposal requirements! 13

114 WHO WE ARE What we Learned in 2013 LENDER S DUE DILIGENCE COMPLIANCE QUESTIONNAIRES Tell me, show me, prove to me what s in your CMS?! Policies and Procedures! Training! Monitoring and corrective action! Effective response to and resolution of consumer complaints Regardless the size of the entity, regulators are requiring compliance. There is not a one size fits all component to what documentation service providers are being required to produce. 14

115 WHO WE ARE What we Learned in 2013 AUDIT PROGRAMS EXPANDED DEPTH AND BREADTH Internal and Process Audits! Agent Audits! Information Technology! Technology Applications! ALTA Best Practices Corporate Policies and Procedures State and Federal Rules and Regulations Consumer Financial Law Information Security Audits Technology Service Providers Audits Service Organization Control (SOC) Reports! 15 Federal Financial Institutions Examination Council (FFIEC) FFIEC IT Examination HandBook InfoBase

116 WHO WE ARE What we Learned in 2013 CONSUMER COMPLAINT TRACKING AND RESOLUTION... having in place robust compliance management processes and systems, the CFPB believes supervised entities will be better able to prevent violations of Federal consumer financial law... 16

117 What to Expect in 2014! 17

118 WHO WE ARE What to Expect in 2014 NEW LOOK AND FEEL TO THE REAL ESTATE TRANSACTION At the closing office Increased security at office entrances and at the receptionist s front desk consumers and visitors will be asked to produce photo ID, sign-in and out, and wear a visitor badge while in the office! Increased security in operational and production areas more video cameras, required paper shredding and computer monitors protected from unauthorized viewing! Protection of NPPI by creating paperless offices, enforcement of clean desk policies, document retention and destruction policies 18 encryption

119 WHO WE ARE What to Expect in 2014 NEW FORMS Consumers will be given! Increased disclosures and more detailed information about protecting their NPPI! More disclosures about the fees and expenses associated with the real estate transaction! More effective ways to express and get resolution to their complaints 19

120 WHO WE ARE What to Expect in 2014 NEW RULES Social Media! Privacy! Disclosures! Protection of NPPI 20

121 WHO WE ARE What to Expect in 2014 NEW CONTROLS More documentation and controls in the selection, management, training and retention of vendors selected to perform services for title and settlement companies. Those affected will include notaries, abstractors, couriers, paper shredding companies, others. Internal! 3 rd Parties! 4 th Parties 21

122 WHO WE ARE What to Expect in 2014 EXPANDED Audit Programs! Attestations! Verifications 22

123 What does all this mean to me and my customers?! 23

124 WHO WE ARE Specific Applications to REALTORS Be prepared! Know your compliance vocabulary! Become familiar with the new Loan Estimate and Closing Disclosure forms! Become familiar with the three-day rule requiring delivery of the five page Closing Disclosure form to the consumer at least three business days before closing! Discover how the new regulations affect loan originators! Ask your title company and closer about their compliance programs 24

125 WHO WE ARE Specific Applications to LOAN ORIGINATORS What s in your CMS?! Know your third party service providers! Know whether your third party service providers are using fourth parties! Ask your third party service providers to complete your compliance due diligence questionnaire and provide all supporting documentation! Confirm the accuracy of the responses from third party service providers 25

126 WHO WE ARE Specific Applications to ATTORNEYS Do you close residential real estate transactions?! Do you advise others?! Realtors Loan Originators Buyers Sellers Investors 26

127 WHO WE ARE Specific Applications to TITLE and SETTLEMENT AGENTS Develop, then follow, a comprehensive CMS! Written policies and procedures!! Training Audit and process reviews Consumer complaint tracking and resolution 27

128 Some Final Thoughts DEFINITELY NOT UNIFORM BUT 28

129 Thank you, OLTA. QUESTIONS and COMMENTS? 29 20

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203 Educational Seminar! March 15, 2014! Embassy Suites Washington Square Oregon Land Title Association

204 Access Issues! Individual Company Policy Direct access Indirect Access Endorsements Special Problems OLTA Access Presentation

205 Company Policy! This presentation is based on suggestion of best practice! Confirm with your own company underwriters OLTA Acess Presentation

206 Confirm that the property is adjacent to a dedicated public road! Map assessor s, subdivision, partition! Reference in legal description Direct Access

207 Easement 1. Include without request company policy issue Legal Description possible exception Any matters resulting from an inadequate legal description! Chain of Title underwriting risk if not carried forward on all deeds (confirm it is an exception on servient property) Indirect Access

208 Policy Coverage Legal access is available Covered Risk 4.! OTIRO 80 abuts a specifically identified street that is physically open OTIRO actual vehicle and pedestrian access to an adjacent identified street with open curb cuts OTIRO same as 217 except access to the street is by easement Endorsements

209 Merger Expiration of any specified time period Express Release Abandonment (non-use plus intention) No continuing purpose Adverse possession Foreclosure (lien prior to creation and named as party) does NOT include tax foreclosure Elimination of Easement

210 Selected Cases! Editorial Note easements are very emotional cases not recommended to rely on anything other than clearly defined access Case Law

211 Last Case Before Shift to Servient Owner Rights! Use of portion of land for access (13 neighbors) more than 10 years Held that the servient owner s memory regarding blocking easement was fuzzy Johnson v. Becker

212 Beginning of Shift! Use of roadway for more than 60 years Surrounded by government land except servient ranch next to County Road Held inadequate to establish prescriptive easement Subsequent case allowed Way of Necessity under ORS et seq Nice v. Priday

213 Friendly Arrangement! Subdivision surrounded by dedicated, but undeveloped streets Use of internal utility easement Developer improved utility easement Held that the claimants did not develop and insufficiently hostile Hayward v. Ellsworth

214 Inadequate Creation! Marked County Road Affects the Northern 15 feet of subject property Objection raised by property owner Held that county did not create it properly and finding of no public easement Petersen v. Crook County

215 Implied Easement by Necessity Implied Easement: An easement resting upon the principal that, where the owner of two or more adjacent lots sells a part thereof, he grants by implication to the grantee all those apparent and visible easements which are necessary for the reasonable use of the property granted which at the time of the grant are used by the owner of the entirely for the benefit of the part granted Blacks Law Dictionary Relling v. Khorenian

216 Really an Easement by Necessity Case Although facts may raise question of an implied easement, prayer was for an easement by necessity General Rule: Courts reluctant to give an easement by necessity unless there is truly no access by any other means Relling v. Khorenian

217 Relling v. Khorenian

218 The Facts NCW sold Property on a Land Sale Contract in 1972 to Crowe Fulfillment Deed placed into escrow which granted an easement for road purposes to McKay Creek Road Fulfillment Deed recorded in 1978 Relling v. Khorenian

219 The Facts In the Interim (Between 1972 and 1978) NCW conveyed TL 700 to Khorenian NCW sold parcels to Miller, Selby & Holtzapple After 1978, NCW sold parcels to Neill & Glass Crowe sold property to Relling (Plaintiff) Relling filed suit for a common law way of necessity across the logging road Relling v. Khorenian

220 Relling v. Khorenian