Title Tale: 920,000 Reasons

Written by: Kevin Weaver, Underwriting Counsel

Ever get irritated with your title company (we know that hardly ever happens, but just in case…) because they need more and more documents to prove up something in the chain of title?  Sometimes it might feel like overkill.  Well, we have a real-life example from a major title insurance company that gives us 920,000 reasons why it is not overkill.

This major title insurance company (MTIC) recently filed a lawsuit against one of its attorney agents for negligence that resulted in a $920,000 loss.  The transaction was a $2.5 million refinance transaction, and there was a private beneficiary lender in the form of an LLC from which the attorney procured a release.  Unfortunately for the MTIC, the problem revealed itself when a year later the LLC challenged the release as being fraudulent.  The MTIC investigated and must have concluded there was merit to the claim and paid out $920,000 to the LLC,  and are now attempting to recoup its loss by suing the attorney agent basically for not doing proper due diligence.

What is due diligence?  Well, it’s making sure the person signing the document had the authority to do so, and that can only be done through a document trail.  Luckily, we don’t need to be so diligent with the everyday banks and mortgage companies, where a fraud of this type is highly unlikely, but our diligence is heightened when we are dealing with private beneficiaries in the form of individuals, LLCs, trusts, partnerships, etc.  Some of the paper trails are easy.  If the lender is an individual and is alive, there isn’t any paper trail at all.  If the individual is deceased, however, the paper trail might be more involved.  Was probate opened for the individual?   If not, is there documentation as to the heirs and/or devisees of the individual that we can rely on?  Obituaries?  Death Certificates?  And you probably already know what we need for the likes of trusts and LLCs.  For trustees, we will most likely need a trust certificate to establish the identity of the current trustee, and for LLCs it would be Articles of Organization or By-laws that set forth who is authorized to act on behalf of the LLC.

So, the next time it seems like a drag to collect more documents, just remember there may be 920,000 reasons to do so.