A Lender/Legal Quagmire... - Posted by JPiper

Posted by Bronchick on March 11, 1999 at 11:38:59:

The borrower has kept the IMPROVEMENTS insured. Whether he does it naming himself as the loss payee or you as the loss payee is irrelevant.

A Lender/Legal Quagmire… - Posted by JPiper

Posted by JPiper on March 10, 1999 at 19:33:30:

Here’s the situation.

About two years ago I bought a property which was encumbered by an existing FHA loan?.originated in 1987 thereby being a “non-qualifying assumable” FHA loan. The lender was a large nationwide lender. The seller was in title as joint-tenants?.one of the joint tenants had died?.and therefore the property was deeded by the surviving tenant. I obtained title insurance after the seller signed the deed and provided a copy of the death certificate.

I took title in a land trust of which my wife and I are beneficiaries. At the time we obtained a new insurance policy in our name as beneficiaries. We took the loan over “subject to”?.the loan remaining in the two joint-tenants names.

The original lender evidently had no problem with the above situation. However, several months ago the loan was sold to another nationwide lender. This lender has sent me a letter stating that the name on the loan is different than the name on the insurance policy?again, the insurance policy is in mine and my wife’s name. This lender is refusing to accept this insurance policy because of this.

In a telephone conversation they have stated that upon expiration of the current insurance policy (the end of this month), they will institute a “forced price insurance policy” to insure the bank. They are refusing to accept the insurance policy I had provided. They have given me the alternative of either 1) having an insurance policy in the name of the prior owners, who no longer own the property or 2) assuming the loan and then providing an insurance policy which matches the name on the loan. Assuming the loan may be somewhat problematical since the assumption package requires some signatures from the prior owners, one of whom is dead, and the other of whom is not locatable.

My stance thus far with the lender is that I have an insurable interest (the deed), that I have provided them with a policy naming them as the lien holder, and that this is an acceptable policy. The lenders stance is that no policy is acceptable unless it matches the name on the loan. I say that they are forcing me to assume?.they say they are not, that it is up to me, but that if I don’t they will not accept my insurance policy, and that they will put on their own insurance at a much higher price of course.

I’m interested in knowing if anyone has experienced this problem, and if so, what my rights might be under this scenario. In the interim a “supervisor” will be calling me in the next several days to further discuss the issue.

I’m not wanting to assume the loan particularly if it can be avoided, since there is a fee involved and it will put me in the chain of liability re the loan. By the way, the loan is current, and has never been paid late.

Any thoughts??

JPiper

Re: A Lender/Legal Quagmire… - Posted by Bill Gatten

Posted by Bill Gatten on March 11, 1999 at 11:59:08:

Jpiper,

This is one of the reasons we handle the land trust conveyance the way we do. I have done hundreds of land trust purchaes, but always leave the land trust and the insurance in the name of the seller (along with a partial Beneficiary Interest that will be forfeited to me at the termination of the trust). In such a scenario the insurance (hazard, title, earthquake, PMI, etc.) follows to the trust: and due to being a beneficiary, I am automatically insured in all instances. Our agreement will stipulate who is to receive moneys in the event of a loss and since the Power of Direction is mutual, I am protected against the seller ever doing anything against my best interests.

Jim, may I ask if the seller will cooperate in changing the documents so that the name of the trust is the seller’s, and merely having the insurance policy in his name, designating the land trust as additional or co-insured? By virtue of the nature of the agreement, you don’t even have to appear on the policy to be fully insured… and the bank is happy.

By following the process to its logical objective, the lender can not make you refinance! Period!

Hope this helps.

Bill

Re: A Lender/Legal Quagmire… - Posted by David(Ca)

Posted by David(Ca) on March 11, 1999 at 01:23:21:

JPiper,

I’m in a similar situation, here’s what I’m doing:

  1. Put the policy in everybodys name, send a copy to the lender, lender is now happy because they see a policy with the same name as the loan.

  2. Show your insurance agent a copy of the deed (and trust), he will remove the uninsurable interest, everything is now right.

  3. If you again need to show the lender a policy, go to step 1 above.

Dave

Re: A Lender/Legal Quagmire… - Posted by Jason-DTX

Posted by Jason-DTX on March 10, 1999 at 23:44:08:

The insurance needs to match the name on the deed not the name on the loan. You said the insurance is in you and your wife’s name. Are you also the trustee or just the benificiary. I get my policies in the name of the trust and the trustee not the beneficiary, it probably doesn’t matter to your agent but it keeps the names the same for everyone else to see.
You will probably have to keep going up the ladder of supervisors and probably talk to their staff attorney’s for them to realize that they want you to insure someone that has no ownership in the property. Tell them if you insure the previous owners and the place burns down then the policy will not pay out anything since the previous owners are not the current owners.
Did you get a power of attorney from the previous owners? If so you could use that to sign the assumption papers and have the trust assume the loan. Then it would match and make them happy and you still wouldn’t be personally liable.
Jason Windholz

Re: A Lender/Legal Quagmire… - Posted by Rob FL

Posted by Rob FL on March 10, 1999 at 23:11:33:

My father had a similar problem when his mortgage got assigned. He had his attorney send them a letter setting out all of the legal facts about the property and in the end threatened a lawsuit. The lender backed down after getting this letter.

If somehow you can find out if the other owner is deceased, you could make it really difficult for the lender. There is no way they could have insurance in the name of 2 dead people. That would be illegal on their part (insurance fraud on behalf of the lender). Try www.ancestry.com for the Social Security Death Index. Did you fax a copy of the death certificate and the deed to the mortgage company’s legal dept? That might help clear it up.

Sorry guys, Another Question… - Posted by David Alexander

Posted by David Alexander on March 10, 1999 at 22:59:22:

If your allowed to put a property in a Land Trust by way of the Garn/St. Germain Act then you should be able to Insure the Beneficial interest or the Trust itself, regardless of their policy, because wouldn’t the Garn St. Germain override. Am I showing my stupidity and looking at this wrong? Plus you have no due on sale clause to violate so it would seem to me that you have them over a barrell in the long run.

David Alexander

Re: A Lender/Legal Quagmire… - Posted by Irwin

Posted by Irwin on March 10, 1999 at 21:51:12:

Jim:
First and foremost,always keep in mind that when you deal with the loan servicing personnel of MEGA MAMMOTH MORTGAGE COMPANY you are dealing with idiots, and the higher up you go, the dumber they get. Unfortunately, idiots or not, they control the situation with your mortgage and can cause you untold grief. Also, they know that no one can criticise them for following company policy to the letter. For that reason, I don’t think you have much of a chance to convince the supervisor to agree with you. That’s the bad news. The good news is that you have absolutely nothing to lose by assuming the loan. You’re not going to default, and even if you did, FHA NEVER pursues personal liability on defaulted mortgage loans. There’s no difference in taking subject to, or assuming an FHA as far as liability is concerned. The mortgage company people ought to know that. They should also know that your policy which names them as mortgagee protects them regardless of whose name is on their account. It’s their business to know these things, but they don’t.
Actually, their demand probably works in your favor. They want to put the mortgage account in
your name so the insurance policy and the ownership matches up, which helps you. It avoids you having to pay for two policies, which in effect you are now doing. I think I’d continue to press the supervisor to accept my position, and maybe even talk to their staff attorney, but failing to convince them, I would have a conversation with the supervisor similar to the following:

"I understand your problem, because I’m a real estate professional. You want the insurance coverage to be on the name that’s on the mortgage account, and you think you can’t change the name on the account unless I assume the mortgage. Right?
Her: Right you are, sir. Our policy is that we don’t change the name on the account unless there is an approved assumption. (This policy happens to be legally meaningless. They have the power to change the account any way they see fit, but it won’t do any good to point this out to them.)
JP: I understand you can’t change company policy, and I don’t want to cause problems, so I’m perfectly willing to assume; however, I can’t get signatures of the former owners. One is dead and the other has gone to parts unknown. My lawyer has advised me that the death certificate and deed to me from the survivor transfers THE ENTIRE INTEREST IN THE PROPERTY, INCLUDING THE MORTGAGE ESCROW ACCOUNT. In fact, he says that the insurance has to be transferred into my name becaue I now have the only insurable interest, other than for your mortgage. My lawyer also tells me that carrying insurance in the name of the former owner does neither of us any good, because the former owners have no insurable interest and the policy is no good as to the equity portion. While it might pay off your mortgage, it would leave me high and dry without coverage, and I will have been paying exhorbitant premiums for it. That would then leave your company liable to me, ACCORDING TO MY LAWYER. You might want to run this by your legal department. I want to cooperate and get the account straigtened out so we’re both covered with standard insurance, but I can only do what’s possbile."
SHE: (Note: Now she likes you Jim, because you’ve shown her an easy way to solve a problem and get this file off of her desk) “Well that certainly makes a lot of sense, Mr. Piper. I’ll check with my legal staff etc… and get back to you.”

Jim, this has gone on far too long. If things don’t go your way after talking to the supervisor, contact me and we’ll try Plan B.

Re: A Lender/Legal Quagmire… - Posted by JoeKaiser

Posted by JoeKaiser on March 10, 1999 at 21:31:57:

Silly stuff.

Equally silly, have you considered renaming your trust to something that approximates the names on the loan and obtaining insurance, likewise, in the trust name?

Joe

Re: A Lender/Legal Quagmire… - Posted by Rick Vesole

Posted by Rick Vesole on March 10, 1999 at 20:37:40:

Jim, if you can’t get any satisfaction from the supervisor, I suggest that you demand to speak with their legal department. I don’t beleive that the lender can do anymore than require that there be insurance in the proper amount ot cover the loan and that they be listed theron as mortgagee. I also suggest that you ultimately threaten them with a lawsuit if they charge you anything for forced insurance. You might want to discuss exactly which provision it is in their mortgage which requires that the borrower be named on the policy. Incidentally, it would be my guess that their forced insurance only names the lenders interests, therefore, this would appear to violate their very own “policy”. Good luck.

Jim, keep us posted… - Posted by David Alexander

Posted by David Alexander on March 10, 1999 at 19:45:38:

If you would on how you resolve this. Have you offered to fax or send copies of the land trust papers to them.
Thanks for sharing with us.

David Alexander

Follow Up Question - Posted by karp

Posted by karp on March 11, 1999 at 13:12:43:

I have noticed only too often that things go quirky in the real world. So on that note:

Have you ever had a situation where the insurance company wanted to halt or cancel or alter the policy as they didn’t want it “follow to the trust”.

I know the obvious answer here which is that it is not their choice. The property went into a trust and so the insurance myst follow.

But have they ever disputed this as the trust went unrecorded and now the beneficial interest has changed?

I am not saying that their thought processes in doing this would be reasonable or even fathomable…

Thanks!

karp

Great answer… so simple. Now lets move on. (nt) - Posted by Kev.

Posted by Kev. on March 12, 1999 at 11:58:42:

Re: A Lender/Legal Quagmire… - Posted by JPiper

Posted by JPiper on March 11, 1999 at 09:59:33:

An interesting idea. I’ve got a call into my insurance agent to see how he would handle this.

JPiper

Re: A Lender/Legal Quagmire… - Posted by Irwin

Posted by Irwin on March 11, 1999 at 06:36:22:

Very creative and it might work; however, when the insurance agent deletes the uninsurable interest, a notice of same will be sent to the mortgagee and it might raise a red flag that the name on their account has been deleted from coverage. You never know.

Re: A Lender/Legal Quagmire… - Posted by Bronchick

Posted by Bronchick on March 11, 1999 at 10:06:47:

I agree with Jason. The policy needs to be in the name of the property owner. It cannot be in the name of the previous owner because you cannot insure a property in which you have no legal interest.

Below is an excerpt from a recent FNMA Mortgage regarding insurance, and there is no requirement that the borrower be the named insured. Legally, the lender has no leg to stand on. As a practical matter, you have better things to do and may as well have the trust assume the loan.


"5. Hazard or Property Insurance. Borrower shall keep the improvements now existing or hereafter erected on the Property insured against loss by fire, hazards included within the term “extended coverage” and any other hazards, including floods or flooding, for which Lender requires insurance. This insurance shall be maintained in the amounts and for the periods that Lender requires. The insurance carrier providing the insurance shall be chosen by Borrower subject to Lender’s approval which shall not be unreasonably withheld. If Borrower fails to maintain coverage described above, Lender may, at Lender’s option, obtain coverage to protect Lender’s rights in the Property in accordance with paragraph 7. All insurance policies and renewals shall be acceptable to Lender and shall include a standard mortgage clause. Lender shall have the right to hold the policies and renewals. If Lender requires, Borrower shall promptly give to Lender all receipts of paid premiums and renewal notices. In the event of loss, Borrower shall give prompt notice to the insurance carrier and Lender. Lender may make proof of loss if not made promptly by Borrower.

Unless Lender and Borrower otherwise agree in writing, insurance proceeds shall be applied to restoration or repair of the Property damaged, if the restoration or repair is economically feasible and Lender’s security is not lessened. If the restoration or repair is not economically feasible or Lender’s security would be lessened, the insurance proceeds shall be applied to the sums secured by this Security Instrument, whether or not then due, with any excess paid to Borrower. If Borrower abandons the Property, or does not answer within 30 days a notice from Lender that the insurance carrier has offered to settle a claim, then lender may collect the insurance proceeds. Lender may use the proceeds to repair or restore the Property or to pay sums secured by this Security Instrument, whether or not then due. The 30-day period will begin when the notice is given."

Re: A Lender/Legal Quagmire… - Posted by JPiper

Posted by JPiper on March 11, 1999 at 09:56:28:

I don’t have a full power of attorney. I do have a limited power of attorney to cash any checks issued by the lender, or subsequent lenders, from the escrow account. I also have a document assigning the escrow account over to me.

JPiper

Re: Sorry guys, Another Question… - Posted by JPiper

Posted by JPiper on March 11, 1999 at 09:52:20:

The lender is not arguing over how the property is titled…although they were quite surprised. Their argument is over the fact that the insurance and the name on the loan don’t match.

They can’t call the loan…that’s not the concern here. Rather the concern is that if they put a “forced insurance” type policy on the property it will result in much higher insurance costs…and probably insurance that doesn’t cover me.

JPiper

Re: A Lender/Legal Quagmire… - Posted by JPiper

Posted by JPiper on March 11, 1999 at 10:08:51:

Irwin:

Thanks for your detailed post. I always value your viewpoints, as I know others on this site do.

It may be that assuming the loan is the easiest way out of this situation…and I can do this in the name of my trust. The only problem is that there’s a couple of documents if memory serves that require the seller’s signature. I don’t recall what these documents are. If they pertain to the escrow account, I have a document stating that this was assigned to me. I also have a limited power of attorney allowing the cashing of any checks issued on this escrow account.

I’ll wait to hear from the supervisor and take it from there.

Thanks for your ideas.

JPiper

Re: A Lender/Legal Quagmire… - Posted by Alex Gurevich, TX

Posted by Alex Gurevich, TX on March 12, 1999 at 16:43:54:

That’s funny, you say that. Whenever I buy from Huff it becomes “Huff Family Trust”, if I buy from Wells, it’s “Wells Family Trust”. Never was questioned on changing insurance policy.