Opening Titles and Closing Remarks

Intense is the only way to describe the debate in my office last Friday. Intense and full of conviction. And passion! Everyone is deeply passionate about their position on the matter. Intense, full of conviction and passion!

It started mid-afternoon. We're all feeling a little on edge. I've been through downturns and slumps before. Most of my employees are young. Wild and busy times are all they know. The great smooth or nubby debate released a waterfall of emotion, catching me off guard.

In the end, I was isolated; trying hopelessly to advocate my position. No one was buying. I looked to Tammy, our Sales VP for support. Using skills she's honed over years of selling - wanting to acknowledge and validate everyone's position - she completely ducked taking sides. Waving her hands and turning away she left me on my own . . . alone . . . isolated. Like the nubby one on the ledge by the copier.

Kara is a terrific Closer. She is assertive when the situation warrants. She did not back down. When I questioned her belief that - "everyone knows that smooth is better!" - immediately she turned to Stephanie and Jeanette for testimonials. I heard a litany of reasons why smooth is better ending with the most convincing argument so far - "Nubby is icky!"

For further confirmation of my cluelessness, they get Jamie and Barbie from our Eastside office on the speaker phone. Stunned, I listened to Jamie, as nice a person as you'll ever meet, immediately and without coaxing, deliver a fiery rant that completely undermines my position. "Of course smooth is better", she concludes, as if only a moron could believe otherwise.

Desperate now, I called to Jack and Elizabeth, two of our abstractors, for help. They sat quietly with a smirk. That abstractor smirk I've often seen across the room in the Recorder's office. That smirk that says "I know the answer; too bad that I am not a part of your conversation."  No help at all.

So, here is the question. Smooth or nubby? Paper clips that is. Which are better; smooth or nubby paper clips?

The emboldened majority insists that smooth paper clips are better. That's what we'll use in the office. They must be obeyed. I am an independent thinker, a maverick, and my own man. I will use nubby clips from the secret stash in my desk drawer.

How about you? Smooth or nubby? We all want to know.

You're going to hear this from me a number of times between now and year-end. If you purchased or are purchasing a new primary residence in Indiana this year, you need to go to the County Auditor's office (after closing) and file for or confirm your Homestead Tax exemption. You may also be eligible for other tax credits as well. You have until December 31^st to do this. Don't wait!

We get a few calls every year when (if?) tax bills come out, about tax bills that do not contain the Homestead credit. The difference in tax bills with and without is startling. Given Indiana's politicizing of the whole real estate tax process and the shoot from the hip approach to reform, next year the difference only stands to be greater.

You may have closed after July 1, 2008 and applied for the credit on the new sales disclosure form. This is only an application and does not guaranty that you will receive the credit. Follow up with the County Auditor and make certain that the credit is reflected in the Auditor's records. Only you can do this. Not the title company, not your Realtor®, and not your lender.

The County Auditor has no authority to retroactively apply a credit unless you can prove you applied and are entitled. Do it now, and save your receipt. You may need it. The burden of proof is on you in these situations.

Now back to our regularly scheduled programming.

I want to get back to posting about title issues.  The idea for this post occurred to me several weeks ago and I shelved it. Who could possibly be interested in such a topic? Well, it must be the curse of the dark side or something, because since then we've encountered more mineral rights and oil and gas lease questions than in the previous two or three years combined. So maybe if I post this, we can stop all this nonsense and get back to normal files with foreclosures, tax liens, dead people and such. That's the plan anyway.

Mineral Rights is an estate in land that can be separately owned from the fee title in the same manner as an easement (utility grant), right to use (lease), or right to live on the property (life estate) to name a few.

In Southern Indiana we often encounter recorded Oil and Gas Leases. O&G Leases usually give the O&G producer the right to enter upon the land and drill a well to produce whatever it is they're looking for. In return, the owner of the property receives a "lucrative" royalty payment of say $75 to $100 a year. With two of these and you can fill up your Expedition!  Although O&G leases almost always are for a specific term, the leases universally contain language that extends their term for so long as the well is producing. When we examine title, we don't know whether or not there is a well and if it's producing so we show the lease as a title exception. It's rare that anyone pays attention to it. The vast majority of O&G Leases we encounter are not producing and no royalty payments are being received. Indiana law provides that the owner can make an Affidavit of Non-Production stating those facts and after recording it, the Recorder must release the O&G Lease in the public records. At that point we can remove the Lease as an exception to title.

Less frequently (except recently) we encounter situations where ownership of mineral rights is severed from the fee title and owned by someone else. In these instances the mineral rights are actually excepted from the legal description of the property insured in the same manner as we except a portion of a lot (Lot 1, except the West 10 feet, and Lot 1, except the mineral rights in and to the land, for example). Indiana law also provides for a similar affidavit as with O&G Leases that the mineral rights lapse, but the specifics in the law are so vague and undeterminable that title insurers will not rely upon them and instead require a Quit-Claim deed from the owner of the mineral rights be recorded before they will included them in the insured legal description.

O&G Leases are fairly easy to deal with, severed mineral rights less so. The ALTA 2006 Loan Policy and the 1998 and 2008 Homeowner's policies contain coverage insuring against loss in the unlikely event that the owner of the mineral rights exercises their right to extract the minerals and in doing so damages the surface of the land.

Let's hope that this is enough information to ensure that we won't be dealing with these questions in the office again anytime soon. Now, about this foreclosure ....

My last post is about knowing what is being measured when reading or hearing media reports about surveys declaring utopia has arrived or Armageddon is upon us.

Case in point, the weekend edition of the Wall Street Journal contains a story that the foreclosure rate is increasing. I inferred from the secondary headline "Rates for Many Categories Jumped ...6.6% of Mortgages Were at Least 30 Days Past Due" that they were referring to all mortgages. I know that some areas are bad, but 6.6% just seems unbelievable to me. The survey is from the Applied Analytics unit of Lenders Processing Service, Inc. Continuing with the story, there are some quotes and breakdowns of the data in by loan categories. About half way through, to the WSJ's credit, they describe the survey in some detail. Most importantly it is a survey of about 22 million mortgages originated between January 2004 and August 2007. Not all mortgages, just mortgages made in a 3 ½ year period. I presume the mortgages are the ones serviced by Lenders Processing, but I could not find any reference to the survey on their website. Also, what is the geographic makeup of their portfolio? Is it representative of the country as a whole or is it weighted disproportionately to one geographic area? Who knows?

Until I got to the description of the methodology, I thought the 6.6% was of all or most mortgages because it didn't say otherwise. How many other readers thought that as well or just read the headline? The surveys done by the Mortgage Bankers Association of America, http://www.mbaa.org, cover many more mortgages and show similar trends, but significantly smaller percentages.

One thing that all the surveys that I've read show is that about 50% of all foreclosures are in California, Florida, Arizona and Nevada. So if you're there, it's bad. The rest of us though, are in a different neighborhood.

Each month we are offered a smorgasbord of measures of just how good or bad the "market" is. The S&P® Case Shiller Housing Index, the NAR® reports of changes in the median price of housing sales and of sales of existing homes, and the RealtyTrac® Foreclosure index are widely published. More recently I've discovered the Office of Federal Housing Enterprise Oversight Housing Price Index. Boy, that's a mouthful!

What do these surveys mean for you and your client? That's hard to know unless you first determine what is actually being measured, who is measuring it and what other agendas they're marching to that might influence the interpretation, presentation or distribution of the report.  What is held up as the measurement is often the conclusion based upon a specific data set that is rarely explained in the media report. By understanding the source of the data and who is compiling it, you can put the information in a context that will help you and your clients better understand your business and your market.

The NAR® reports come from data on homes sold in a given period. The data is compiled from local boards and MLS groups nationwide and by NAR® estimates includes 30% to 40% of the actual sales in a given period. The index is measured against the same data for prior periods. The data includes most residential single family and condominium property types. The data is reported by Metropolitan Statistical Area (MSA).

The Case-Shiller® 10 market and 20 market surveys are widely reported monthly. These surveys are based upon public data from local recording and assessing agencies in 10 or 20 large markets around the country. The Case-Shiller® National Survey is reported quarterly for nine Census areas comprising the entire country. The Case-Shiller® methodology is interesting. It seeks to compare the prices of two sales of the same property over a period of time, but not less than six months. New construction, condominium, and co-op sales are excluded. REO sales are included.

The OFHEO Housing Price Index is based upon both sale and refinance data collected by Fannie Mae and Freddie Mac in the course of their acquisition or securitization of mortgages. OFHEO also publishes a survey of only sale data. The data is reported for 29 MSA's.

The RealtyTrac® data is based upon the measure of various actions that take place during the course of a foreclosure. These include notice of defaults, the filing of lis pendens, notice of Trustee sales and foreclosure auctions and REO owned. The metric widely reported from this survey is number of foreclosures per housing units in a given territory.

All of these surveys to some greater or lesser extent use actual data from public and/or private sources and then through analysis or algorithmic equations project it to come up with a "national" conclusion. This national conclusion though does not necessarily reflect what's going on in your market. Things could be worse or they could be better. Our clients need to understand that by the time the Case-Shiller® 10 market index gets down to the local paper or the Eyewitness News teaser, the methodology and the precision of the survey are stripped out. All that's left is "Survey shows that housing prices are dropping like a rock. Stay tuned to see how this news will ruin your life." Being able to tell a client why the specific data from particular survey is irrelevant or germane to their situation is a powerful statement of your expertise.

The agenda of who is publicizing the survey is also important to forming an opinion about the survey. The NAR's perspective is obvious. S&P certainly wants the Case-Shiller Index to be widely reported and highly regarded. S&P's uses the index to create a futures market for housing prices. RealtyTrac® is in the business of selling information about foreclosures, where and how to buy them. I'm not questioning the integrity of the surveys. But I'm not naïve. The owners and publishers of the reports want them viewed and quoted in a certain context. They want them to become widely accepted standards of information. They work to promote them in that manner.

Each of these surveys has their proponents and critics. Discussion usually centers on the perceived validity or shortcomings of the data used to compile the survey, the manner in which the data is analyzed, or the conclusions drawn from the analysis. If the interest is here, I'll be back with more on this from time to time. Post a comment and let me know.

Here are the websites if you want to read about the reports.

NAR®  http://www.realtor.org/research/research/ehsmeth;

 Case-Shiller® http://macromarkets.com/csi_housing/sp_caseshiller.asp ;

OFHEO http://www.ofheo.gov/hpi.aspx?Nav=306

RealtyTrac® http://www.realtytrac.com/

As for the headline on this post, you ask? I looked at this blog and one other and reported my findings.

The Office of Federal Housing Enterprise Oversight recently released 2nd Quarter 2008 survey supports my own suspicions that the Indiana housing market is doing much better than other parts of the nation. Here are the changes in year over year housing prices for the separate Indiana Metropolitan Statistical Areas and their rank nationally among the 292 MSA's in the report.

           MSA                                +/- Year to Year       Rank

• Columbus                            +4.50%                 20^th
• Bloomington                         +3.81%                 32^nd
• Anderson                             +3.21%                 44^th
• Louisville-Jefferson               +3.19%                 45^th
• South Bend                          +1.77%                 92^nd
• Terra Haute                         +1.76%                 93^rd
• Indy-Carmel                        +1.72%                 97^th
• Gary                                   +1.59%                 101^st
• Lafayette                            +1.33%                 109^th
• Evansville                            +0.35%                 145^th
• Fort Wayne                          -0.67%                  178^th

The data for this survey is from sales and refinances involving conforming mortgage loans purchased or securitized by Fannie Mae and Freddie Mac. The Muncie MSA is not included because of too few transactions in the survey. The complete survey is here under the House Price Index tab:  http://www.ofheo.gov/

I have not seen or heard any reference to the OFHEO survey in the Indiana media. Our local newspaper here in Bloomington and also the Indy Star, I think, both ran the stories about the recently released Case-Shiller survey showing housing values declining over 15% nationally. The Case-Shiller survey is widely reported and highly regarded but contains zero data from Indiana.

The OFHEO survey once again confirms that real estate is local and that there's no substitute for local knowledge.

If you're in one of these markets, how does this survey compare to your own opinion about the market? Let us know.

Does the Fannie and Freddie bailout now mean that every loan they have or make is guaranteed by the U.S. Treasury? Does the bailout eliminate investor risk in mortgages? Dan Green thinks so. You can read about it here: http://www.themortgagereports.com/.

Being a glass is half full kind of guy, I like this take on the situation. Mortgage rates are driven by a number of complicated factors in the long term, but over a short period can be driven by the simplest investor expectations. Selfishly, I also like the idea that maybe I might get a few more title orders to help pay my share of the taxpayer bailout.

I hope that he is correct, don't you?

I am continually perplexed by the increasing number of Buyers and Sellers who find it "inconvenient" to make time to attend their real estate closing. Yes, you can appoint an Attorney-in-Fact or do a mail out but it's not the same as being there.  I just don't get it.

A sale or purchase of a home is an important event in our lives. Most of us are only going to do this a few times. Why would you not allow yourself the opportunity to clearly understand all of the details and commitments that take place?  In the current financing environment, deals are always changing at the last minute to satisfy the Buyer's loan underwriter, the "response to inspections", or increasingly the Seller's short sale lender. When trying to understand a change, there's no substitute for looking someone in the eye and both of you knowing that accurate communication is occurring.

Your full attention is required. Today! Now!  Not a year from now when you're doing your taxes only to realize that something on the closing statement is different from the way that you remembered it. Not next spring when you get your real estate tax bill and its gone up 50% because you didn't file your homestead exemption as we remind everyone to do several times at closing; after which your Attorney-in-Fact signed a couple of documents acknowledging that advice. Not when your water heater breaks and you realize that you never got that Home Warranty contract you'd talked about. Avoid these unpleasant aftershocks by being an active participant in your closing!

Certainly there can be personal circumstances that prevent your being at the closing. If that's you, brief your representative about your understanding of the transaction and the details of your financing. Try to be available by phone at the time the closing is scheduled to take place. Then as soon as possible after the closing, review all the documents that your representative signed on your behalf. Delegate, don't abdicate your authority.

Do any Realtors® or lenders feel the same way or differently? Please leave a comment.

We are often provided a copy of a Seller's existing title insurance policy and a disturbing trend for Buyers is appearing. As a cost cutting move, some title companies have stopped searching for all of the recorded rights that may affect the property being purchased.

If the title commitment and policy are based upon a complete search, Schedule B exceptions from coverage will only list specific matters that have been recorded in the public records and in some jurisdictions non-specific exceptions for unrecorded matters (i.e. survey issues). More and more we're seeing policies with exceptions taken for "any and all recorded covenants, conditions, restrictions (CC&R) and easements." This means that the title company did not search for these property rights. Lenders routinely receive special title coverage over these matters whether searched for on not. Buyers do not receive such coverage.

Most purchase agreements afford the Buyer the opportunity to review the CC&Rs and easements prior to closing and in some cases cancel the deal if they don't like them. If the title company is not providing that information, who is?

Secondly, if it turns out after closing that there are CC&Rs or Easements that restrict or prohibit the Buyer's intended use of the property who is the Buyer going to look to since the title company isn't insuring these matters? When the Buyers can't put their swimming pool in over an undisclosed easement, keep their horses, or put a manufactured home on the property, someone's going to get an unpleasant phone call and maybe more.

I find this a blatantly deceptive practice with serious implications for Buyers and their Realtors®. If a property right or restriction is recorded, the general expectation of our clients is that title policy will reflect that. Title agents engaging in title insurance "lite" do not disclose this practice. They are taking advantage of Buyers who often feel challenged to understand title insurance anyway. Realtors® and their clients do not need to accept this and are clearly within their rights to demand that the title coverage only except recorded property interests.

Select John Bethell Title Insurance Company, Inc., and you get the whole deal. We show all relevant recorded property rights. We do not provide "lite" title insurance.

Title Insurance "Lite" is prevalent throughout the Midwest. I am interested in hearing from Buyers, Realtors®, and title agents with an opinion about this.