Escrow Licensing Declaration

Question: Does LandAmerica require an attorney who is transacting a closing to fill out an engagement package with his/her E&O declaration page, etc. before a closing protection letter is issued, or is it only necessary for the attorney to be a member in good standing of his/her Bar association? Thank you.

Answer: Your question is mostly procedural, which I referred to Mr. Thomas M. Horton, Esq., President of Land America American Title Company. Mr. Horton believes the inquiry would require more elaboration than a stated written response and invites you to contact him at 972.789.8400 or thorton@landam.com.

Affidavit of Heirship

Question: What are the strict requirements for affidavit of heirship and how long should it be on file before the title company should use it without question and should the title company accept an affidavit of heirship provided by the seller, because it could be a fraud?

Answer: Your question is actually three inquiries which must be addressed separately.

An affidavit of heirship is a sworn, written statement by an affiant (first hand witness) of certain specific facts regarding a decedent's life history within the affiant's personal (not speculative, or second hand) knowledge and experience. The affiant must have no personal or financial interest in the facts recited in the affidavit or the outcome of their particular application. In other words, the affiant must not be a "party in interest" to the facts stated in the affidavit.

An affidavit of heirship to establish a real estate title must state positively, from personal knowledge, an affiant's known facts of a decedent's life that enable a legal determination of the decedent's heirship in accordance with Section 38 of the Texas Probate Code. The facts include, but are not limited to, the decedent's dates of birth and death, whether the decedent died testate or without leaving a will, how many times,if any, the decedent was married, when and to whom, and how the marriage ended; if any children were born or adopted, to and by whom, and if they are adults or minors; whether all debts and expenses of the estate are paid, and if death taxes are due; and preferably, a reference to the property, the circumstances of its acquisition and its title the affidavit seeks to cure. These facts must be in sufficient detail to make certain the decedent's heirs are identified and title to the property is established beyond any doubt. Since the affidavit will be recorded, the instrument must be both sworn to (as evidenced by a jurat) and acknowledged (as evidenced by an acknowledgment).

The title company will require two (2) affiants who are not "parties in interest" who have personal knowledge to give the affidavit or corroborate the testimony of an affiant in interest, such as a surviving spouse or child whose title to the property depends upon acceptance of the affidavit. Problems arise, due in most part to a decedent's advanced age, when there are no affiants with personal knowledge of the facts outlined above.

The length of time the affidavit should be on file is best answered as the longer the better. A longer period of time allows the statute of limitations to bar certain possible unpaid claims, and renders less likely that the affidavit might be challenged as inaccurate or even fraudulent by an heir not mentioned in the affidavit. A favorable period is at least five years, which allows the recording statutes to give the instrument the status of prima facie veracity. That is why the instrument should be both sworn to and acknowledged.

Should the title company accept an affidavit from the seller because it might be fraudulent? If the seller is the sole affiant and a party in interest, the affidavit is self-serving and more should be required. Unfortunately, closing staff are frequently confronted with a recent intestate death where the seller hopes the company will rely on an affidavit not yet recorded. A contemporary affidavit submitted at time of closing presents greater risk to the company. At that juncture, the closing officer must decide whether the affidavit is credible from not only the document itself but the facts and circumstances of the title record and the parties. Due to the competitive nature of the industry, most properly prepared contemporary affidavits are accepted, recorded and relied upon. In the past, affidavits of heirship have posed moderate risk from a title insurance perspective, but in cases of doubt, suspicion or uncertainty, underwriting counsel should give approval.

Short Sales

In a "short sale," the lender holding a defaulted note agrees to take a lesser amount than the actual balance owed in full satisfaction of the debt. In so doing, the lender elects to accept an immediate, definite loss rather than pursue a foreclosure and resale that is potentially costlier than receiving a "shorted" amount. This by no means suggests that a lender cheerfully discounts a note just because it is nonperforming or in total default, unless it is firmly convinced that doing so is in its best interest. Here is a scenario that may help.

An owner owes $100,000 on a property clearly worth no more than $75,000, a "negative equity" of $25,00.00. If the lender forecloses, the property will bring no more than its value at sale, and usually far less. If the lender receives the property at sale (as in most cases), the lender must pay the costs of foreclosure, eviction, repairs, commissions, closing costs and ongoing expenses for maintenance, utilities, taxes and insurance known as "holding costs." The lender may well prefer to take a $25,000.00 loss instead and settle for the $75,000 balance owed on its debt.

To initiate a short sale prior to foreclosure, the buyer and owner prepare a written proposal for the lender's loss mitigation department to consider. Such proposals include, but are not limited to (1) an appraisal of the property, (2) an estimate of repair costs, (3) estimated title closing and expenses of sale, (4) a hardship letter to the lender explaining why the buyer would never be able to pay the loan, (5) possible tax advantages to the parties, if any, and (6) an explanation of why it would be in the lender's best interest to accept a short sale.

The "short sale" amount is most often expressed in monetary terms and usually begins with the negative equity or more, which offer the lender may accept, reject, negotiate or even ignore. In whatever case, the parties must demonstrate to the lender's satisfaction that the owner will receive absolutely nothing at closing (zero) except the benefit of disposing of the property and discharging the debt. For obvious reasons, short sales are most often engineered by investors who have considerable skill in structuring these transactions.