They say that hindsight is 20/20. you have the benefit of looking back on a situation, a circumstance, or a case that you handled with the opportunity to reflect on maybe additional facts and information that you didn’t have at the time that the situation or circumstance occurred. Perhaps you had all the facts and information, but now you see that perhaps you could have or would have handled the matter differently.
This thought was once again brought back to my mind with the recent local newspaper headlines recounting the grim details of a murder/suicide in the parking lot of a local church that was the result of yet another case of domestic violence. I am reminded of this fact, that hindsight is 20/20, every time there is an incident of domestic violence that results in the death of an individual because I was the attorney representing a client who lost her life as the result of domestic violence. Paulette Litzan was 39 years old and the mother of a 9 year old son on June 9, 2004, when she was shot and killed by her ex-boyfriend/father of the child, who then fled to Northern Michigan, where he took his own life. I had just represented Paulette on a change of domicile matter and we had been able to reach a resolution between the parties and their counsel which resulted in the entry of an order permitting her and the minor child to move to the State of Florida and made provisions for expanded summer and holiday parenting time for the father. Paulette was excited and looking forward to the move and getting an opportunity for a fresh start and a break from the constant harassment. She was going to move in approximately 60 days. Unfortunately, that moving day never arrived.
This is not simply a statement about the impact on attorneys who represent victims of domestic violence. It applies to all of us. There is an impact whether we are plaintiff’s counsel, defense counsel, the prosecuting attorney, the guardian ad litem, the referee or the judge. We are making decisions everyday that can impact peoples’ lives. Whether it is a divorce case, a custody matter, a dependent/neglect, a termination of parental rights or a criminal matter, for the most part, we want to do the right thing. I also know that none of us involved in the judicial system ever wants to pick up the morning paper and see that someone connected with a case that we have handled, has done something “stupid and senseless” that takes someone’s life or seriously injures others. And it doesn’t matter what role we may play in the system, when you hear that “breaking news alert” introduction on the television or read the newspaper headline about some multiple victim crime, most of us probably start praying under our breath, “Please God, don’t let it be my client, don’t let it be my file! Please! Please! Please!”
What do you do however, when it is your file? That’s when you need that ability to use hindsight, to examine that situation, that circumstance and say, “What could I have done differently? Could I have referred him/her for counseling, for treatment? Could I have been more empathetic or understanding? Could I or should I have used the tough love approach? Can I be more pro-active and collaborative when dealing with my clients and opposing counsel in trying to fashion a solution for our clients’ problems, situations and circumstances? How can I become more alert and aware, to make certain that this situation doesn’t ever repeat itself on a case that I am handling? Unfortunately, one thing that I am afraid that we have learned all too often though is, that even if there is a personal protection order in place or a bond condition with a no contact provision, that is merely a piece of paper. We have to be alert to that situation or circumstance where you are dealing with an individual that could care less about some “stupid piece of paper”.
The one thing I can say for certain is if that situation ever does occur to you on a file you are handling, you will never be the same! When I got home that night when the most recent incident in the Shelby Township church parking lot was on the news, the first thing Phyllis asked me was, “Were either one of those people your client?” Fortunately, for me the answer was no. I did, however, go to the circuit court website to check and see who the judge and the attorneys of record were on the file and I will remember them in my prayers.
P.S. On a lighter note, Congratulations to Captain Pete Peacock and the members of the Irish Team, Bill Brady, Sean Taylor, Dana Warnez and Executive Sponsor Anne MacIntyre on their recent victory at the MCBA Family Feud II. Out of respect for their efforts, I stopped at the Irish Hunger Memorial in New York City on my recent trip there. Congratulations on your second straight victory…..but you better watch out for the Danish team next year! I am quite confident that we can put forth a greater challenge than the Italian and Polish teams did! The only question is do we have any other Danes besides myself and Assistant Prosecuting Attorney Jodi Debbrecht.
Circuit Court Corner
By Keith Beasley, 16th Circuit Court Administrator
Fare Thee Well to General Patty McKay
Many of you know that Patty McKay has been a key person at the Court and in the Research Division for over 19 years. Since 1997, she has been the Chief of the Research Department and for the last two and a half years, the General Counsel to the Court. She has done a terrific job, is always trustworthy, loyal, helpful, friendly, courteous, cheerful, etc. (like the Boy Scout Law). We are really going to miss her, but we are very happy for her that she has been appointed to a prestigious United States Administrative Law Judge position in the Social Security Administration, holding hearings in Oak Park, Michigan.
Juvenile Division Diversion Program
In December of 2007, I wrote about the revised Juvenile Diversion program that was implemented as a pilot to offer youth facing select types of nonviolent delinquency charges an opportunity to address their behavior without creating a public record. Cases are scheduled in groups at 8:30 a.m.; 9:30 a.m.; and, 10:30 a.m., three times a week. Attorneys are contracted to meet with all of the youth and families coming in on a given day for preliminary inquiry hearings in eligible cases to discuss the court process, offer advice and answer questions. The informed youth and families are then better prepared to discuss their options before the referee at the preliminary inquiry hearing. Chief Juvenile Referee Dane DeRush informs me it has been running very smoothly. Referee John Kennedy and the appointed Attorneys involved in the process have reported great success. Juveniles and their families all seem to be benefiting from this process. Since it is working well and we wish to make the program more permanent, we would now like to expand the list of attorneys assisting with the Diversion program. If you are interested in applying, please submit your application to:
Chief Referee Dane DeRush
40 N. Main, Room 229, Mt. Clemens, MI 48043
Attorneys need the following minimum qualifications to apply:
1. Member in good standing MCBA
2. 5 years Juvenile Court experience
3. Approval of the Juvenile Indigent Attorney Panel
4. Approval of the Chief Judge Pro Tem
5. 3 sessions observing current Diversion Attorneys
Under $25,000 Mediation Program
Since August of 2006, the Court has been ordering alternative dispute resolution in civil cases which have received case evaluation awards that are below the Court’s $25,000 jurisdictional threshold. If parties do not agree to their own mediator, object to mediation, resolve the case or agree to remove it to district court, they are sent to The Resolution Center for a low cost mediation. The program has been working very well, but some attorneys have not been cooperating with scheduling The Resolution Center mediations and/or are adjourning these mediations without leave of the Court, delaying further proceedings in the cases. As a result, the Circuit Court Bench has directed that the Order placing cases into the program be amended to prohibit adjournments without court order. Show Cause orders will be issued for noncompliance.
Tax Foreclosures in Macomb County By Ted Wahby, Macomb County Treasurer and Frank Krycia, Macomb County Assistant Corporation Counsel
The legislature made substantial changes t othe procedures for collecting delinquent real property taxes in 1999 PA 123. Pursuant to this legislation, Macomb County decided to “opt in” and the County Treasurer, Ted Wahby, is now responsible for the entire process for the collection of delinquent real property taxes.
In the current process, taxes are foreclosed on two years after they become delinquent. Unpaid property taxes still become delinquent on March 1st of the year after they are levied. Upon becoming delinquent, interest at the rate of twelve percent per annum and an administration fee of four percent of the base tax is added.
1999 PA 123 added a provision for forfeiture of property if the taxes remain unpaid on March 1st one year after they became delinquent. Last year, on March 1, 2007, approximately 4,200 parcels were forfeited in Macomb County. This tax forfeiture does not divest the owners of their right to possess property. It is a preliminary requirement to foreclosure that provides notice and increases the charges on the delinquent taxes. Upon forfeiture the interest rate retroactively increases to eighteen percent and a fee of $195 dollars is added to each parcel. A notice of forfeiture is also recorded with the Register of Deeds. As a result of this recording requirement, the notice of forfeiture will appear on title work and the County Treasurer has been named in a number of lawsuits involving property that has been forfeited.
Property may be excluded from forfeiture for various reasons. The two primary reasons are a tax tribunal appeal or a bankruptcy. However, the tax appeal or bankruptcy must be filed before the property is forfeited. If the tax appeal or bankruptcy has been filed after forfeiture, the property is removed from the foreclosure process while the tax appeal or bankruptcy is pending, but the property remains forfeited.
After property is forfeited, the County Treasurer is required to file a foreclosure lawsuit by June 15th in Macomb County Circuit Court. We usually file the case in May. Pursuant to the Act, the foreclosure hearing must be held in the following February. We are required to schedule the hearing at the time we file the complaint. Through an arrangement with the Court we schedule the foreclosure hearing for the first Friday in February.
After filing the foreclosure case, the County Treasurer is required to provide notice to parties who have an interest in the property. The Act requires us to obtain title search which we do through a contract with the Greco Title Company. Notices are sent by regular and certified mail, personal visits and postings to the property by staff of the Treasurer’s Office and publication in the Macomb Daily.
After notice is given, the County Treasurer holds a show cause hearing, usually in early January after the case is filed. While the legislature has called this a show cause hearing, it actually is an informal meeting in the Treasurer’s Office with individual property owners. A property owner is not required to attend the hearing and no rights to contest the foreclosure are lost by not attending the meeting. The purpose of the meeting is primarily to review hardship claims by property owners. The Macomb County Treasurer has adopted hardship policies. Parties claiming a hardship fill out an application form and then can meet with the County Treasurer at the show cause hearing. If the Treasurer determines that there is a hardship, the property can be removed from the current foreclosure. We require that some arrangements be made for payment of the taxes. The County Treasurer also works with property owners to avoid foreclosure by aiding them in seeking financial assistance. Through these efforts no occupied home was taken by tax foreclosure in Macomb County since the County Treasurer became responsible for this process through 1999 PA 123.
A property owner may file written objections to the foreclosure prior to the judicial hearing. A party filing objections should serve a copy on Macomb County Corporation Counsel, who represents the Treasurer in the foreclosure case. The legislature did not expand the jurisdiction of the Circuit Court to determine the validity of a tax assessment. If your client is contending that the taxes are too high you must still file a tax appeal with the Tax Tribunal. Objections in the foreclosure are limited to a few technical matters. The Court also has the jurisdiction to grant relief to parties for hardship, but can only extend the redemption period or defer foreclosure.
We ask the Court to enter the judgment on the last Friday in February to allow parties to redeem and to resolve other issues that may come up. The tax foreclosure judgment grants fee simple title to the County Treasurer and extinguishes most interests in the property including mortgages and construction liens. If you have a client that has such an interest you may arrange for your client to redeem the property by paying the taxes, interest and fees and then filing an affidavit with the Register of Deeds. By filing the affidavit, your client’s lien on the property is increased to cover the amount your client paid. MCL 211.78g(5). Under the Act, the delinquent taxes that were foreclosed on must be redeemed by March 31st unless an order is entered to extend the redemption date with regard to a specific parcel.
The ability to challenge the judgment is limited. An appeal is allowed, but if the taxes are not paid the appeal will be dismissed. MCL 211.78k(7). A motion may also be filed for relief from the judgment. The Treasurer may also agree to set aside the judgment against a specific parcel of property prior to the sale of the property.
If a parcel is foreclosed on without proper notice to an owner, the owner may pursue a claim for money damages if the property has already been sold. The suit must be brought in the Court of Claims within two years of entry of the foreclosure judgment. Damages are limited to the fair market value of the property minus the taxes interest and fees.
If property has been foreclosed on and has not been redeemed, the County Treasurer is required to hold at least two auctions between the third Tuesday in July and the first Tuesday in November. Prior to offering the property for auction, the State and then the local municipality have the right of first refusal. The auctions are open to the public. A minimum bid of the taxes and fees is required at the first auction. At the second auction there is no minimum bid. Purchasers at the auction obtain a quitclaim deed from the County Treasurer that grants fee simple title to the property.
The Macomb County Treasurer has worked with members of the bar to avoid problems with the foreclosure process. The primary goal of the County Treasurer is to collect the delinquent taxes not to take your client’s property. Members of the bar have also worked with us to provide assistance to taxpayer’s on a pro bono basis. As a result of the Treasurer’s policies and your cooperation we have been able to avoid foreclosing on occupied homes and operating businesses. We would like to be able to continue to say this so if you have a client with problems with the foreclosure please give us a call.
Navigating the Internet to Save Time & Trouble in Providing Real Estate Legal Service By Clark Andrews, O'Reilly Rancilio PC
Back when I began practicing law in 1974, the primary tools fo the trade in a typical law office were telephones, typwriters, photo copy machines, and law books. Most lawyers did not yet have access to or regularly use personal computers, facsimile machines, or electronic legal research services, much less laptops, scanners, personal digital assistants, email, time management/billing software, or the Internet. This article will survey some of the numerous resources available via the Internet that may assist lawyers in better and more efficiently representing their clients on real estate matters. Whenever you are directed to a particular source, you should be able to access it by copying the web address by selecting the text and copying it into the address bar of your browser before selecting “go” or “enter”, or double-clicking on the hyperlink of an electronic version of this article.
When considering the role of the Internet in the context of researching legal issues, we often first think of legal research subscription services such as Westlaw or Lexis. These services are certainly very good sources of legal information, especially with respect to general legal principles. Another very useful and trustworthy source of Michigan real estate law is the Institute for Continuing Legal Education (ICLE) located in Ann Arbor, Michigan, which produces and publishes much legal information through the ICLE Partnership program
http://www.icle.org/store/partnership.htm and the ICLE Online Library www.icle.org/store/onlinelibrary.htm. These allow subscribers to have online access to ICLE seminar materials, the ICLE Form Bank, and some ICLE books that are now available online. These resources are organized by subject matter, and offer a rather economical way to have access to a substantial volume of real estate law resources.
This article, however, will primarily focus on Internet resources that are not subscription based that relate to real estate issues that will make a real estate lawyer’s work quicker and more thorough. Many of these resources are available in the public domain, often free of charge. This article presupposes access to the Internet and a general familiarity with Internet use.
Recorded Documents
Some counties in the metropolitan Detroit area (Macomb, Oakland, and Wayne) now offer online information relating to recorded documents, usually utilizing a third party vendor’s program like “Land Access”. These sites typically contain all recorded documents after a particular date. The documents are sorted by name (grantor, grantee, mortgagor, mortgagee, etc.), document type (deed, mortgage, easement, etc.), recording information (liber, page, and document number). There is ordinarily a charge for obtaining such online information, and it is typically paid through either an annual subscription or on a per transaction credit card charge basis. Details are available from each Register of Deeds office.
Wayne County: http://www.waynecountylandrecords.com/.
Once the document sought is located, it can be saved or printed. If a law office does any significant amount of real estate work, using such online services can be a huge timesaver.
Local/State Document Recording Requirements
Some local Register of Deeds offices now list the requirements for a document to be properly recorded. http://www.macombcountymi.gov/clerksoffice/RecordingRequirements.htm; http://www.waynecounty.com/register/rec_req.htm;
Many list the document recording fees:
Many local units of government (cities, townships, villages, etc.) now maintain their tax and assessing information online that is accessible via the Internet. The easiest way to examine such information is by using the Google search engine to access the governmental unit’s website by inserting the name of the governmental unit (i.e. City of Sterling Heights Michigan), then clicking once at the website selecting “online services” or “government”, and then “Assessing” or “Tax”. This area typically discloses the property tax identification number, the property address, the property’s assessed and taxable value, the real and personal property taxes, and payment history, information relating to lot size/acreage and improvements, and sometimes the name of the property owner and/or the property’s zoning classification.
Commonly Used Basic Real Estate Forms
Some of the most commonly encountered basic real estate forms, such as quit claim and warranty deeds, offers to purchase, land contracts, memorandum of land contract, and lien documentation are available online in downloadable form through title insurance companies, such as First American Title Company: http://www.firstam.com/title-mi/html/cust/2100.html, Philip F. Greco Title Company: http://www.grecotitle.com/docsGO.htm, and other title companies.
Michigan Real Estate Disclosure Form
Michigan law requires that a seller complete a statutory seller’s disclosure statement which provides the prospective purchaser with specified information about the condition of the property. The current form is available at: http://www.legislature.mi.gov/documents/mcl/pdf/mcl-act-92-of-1993.pdf.
Federal Lead Paint Disclosure
With respect to the sale or lease of residential real estate that was constructed prior to 1978, federal law requires that the prospective purchaser or lessee be furnished a “Lead Paint Disclosure” brochure containing specified information. It is available at: http://www.hud.gov/offices/lead/library/enforcement/pyf_eng.pdf. A copy of the current disclosure statement form can be viewed and printed out from: http://www.hud.gov/offices/lead/library/enforcement/selr_eng.pdf.
Local Codes and Zoning Ordinances
Many real estate transactions require a lawyer to examine zoning and other local code issues. Many zoning ordinances and codes of Michigan municipalities are codified and available for online viewing either at the municipality’s website (often discoverable by a single Google search) or at the website of one of the most popular municipal code publishing companies, Municipal Code Corporation, which maintains a free online library of codes and ordinances from communities which use its codification service. The online library of Michigan municipalities’ codes and ordinances can be accessed at:
http://www.municode.com/Resources/code_list.asp?stateID=22. Care should be taken to make sure the online version of a code or zoning ordinance is up to date, as the codes are typically updated quarterly and sometimes the publication on the website lags several months behind the actual adoption date.
Title Insurance
One of the most important components of a properly handled real estate transaction is title insurance. There are two types of policies: owner’s policies (which protect property owners against title risks) and lender’s policies (which protect mortgage lenders against such risks). The American Land Title Association, a national trade association of abstract and title insurance companies, has adopted uniform standards so that title insurance will be more uniform across the United States. Some of the most common policies and endorsements are available at: http://www.alta.org/standards/index.cfm.
Plats
Copies of Michigan recorded plats (legal drawings of land divided into subdivision lots) are available to view online (as well as to print), which can come in handy and eliminate an untimely trip to the local register of deeds office or local assessor’s office. http://www.cis.state.mi.us/platmaps/sr_subs.asp. Once at the website, select the county in which the property is located and type in the name of the plat to view or print it. Utilize the horizontal arrow buttons at the top of the plat to access successive or prior pages of the subdivision plat.
Licensing Status of Real Estate Appraisers, Brokers, Builders, and Other Professionals
The Michigan Department of Labor and Economic Growth has an online service by which a person may verify the licensing status of licensed professions, including appraisers, brokers, builders, alteration contractors, and other licensed individuals involved with real property. https://www2.dleg.state.mi.us/colaLicVerify/lCityCounty.jsp.
Michigan Treasury Department Forms Relating to Real Estate
There is a variety of forms issued by the Michigan Department of Treasury relating to real estate that are available online. These forms/documents cover a wide range of matters, ranging from transfer of ownership guidelines to property tax affidavits to applications for special exemptions and deferral of taxes. The list of forms available relating to individuals is found at: http://www.michigan.gov/treasury/0,1607,7-121-1751_2164_45595_45616-163575--,00.htm.
Michigan Planning and Zoning Center at MSU
The Planning & Zoning Center at MSU website is a resource developed by a multi-disciplinary team of professionals devoted to research, education, and consultation on best practices for community planning and development control. It contains much useful information and timely articles about real property and land development issues, particularly planning and zoning issues affecting Michigan. http://www.pzcenter.msu.edu/land.php.
Michigan Tax Tribunal Decisions
Decisions of the Michigan Tax Tribunal since 1995 relating to exemption and taxation of real and personal property are compiled online. http://www.michigan.gov/taxtrib/0,1607,7-187-38250---,00.htm.
SCAO Forms
Many forms approved by the Michigan Supreme Court Administrator’s Office are available online. http://courts.michigan.gov/scao/courtforms/, Many of these relate to real estate matters, such as landlord tenant matters, summary proceedings, land contract forfeitures, and mortgage foreclosures.
FHA—RESPA
One of the important regulatory acts relating to certain real estate transactions is the Real Estate Settlement and Procedures Act (RESPA) which is administered by the Federal Housing Administration (FHA). The FHA maintains a separate webpage relating to this important statute, including the statute, rules and regulations, frequently asked questions, permitted and prohibited practices, and other valuable information relating to the closing and settlement procedure. http://www.hud.gov/offices/hsg/sfh/res/respa_hm.cfm.
Federal Emergency Management Agency
The Federal Emergency Management Agency (FEMA) is the federal agency that, among other responsibilities, administers the National Flood Insurance Program (NFIP) that insures property against flood risk and pays claims to insured flood damage victims. There is a wealth of information about the NFIP and other programs administered by FEMA at http://www.fema.gov/index.shtm.
Listservs
Listservs are discussion groups among practitioners via email on particular topics. They are often used by attorneys to participate in a discussion or get assistance on a hypothetical issue from potentially knowledgeable participants. There are many listservs relating to real estate law around the net, often associated with professional associations and organizations. Often a person must be a member of the professional organization to review or participate in listserv discussions. Review the following websites of professional organizations for listservs with other attorneys. http://dirt.umkc.edu/ (American Bar Association Real Property, Probate and Trust Law Section); http://www.michbar.org/realproperty/listserv.cfm (Michigan Bar Association, Real Property Section).
Summary
The Internet offers many sites that make an attorney’s work quicker and potentially more thorough. However, the Internet researcher seeking to secure legal information to be used in a real estate transaction must be careful to verify that the source of the information is reliable and that the information is current and up to date. All of the information contained in this article is believed by the author to be from reputable sources and up to date. However, the writer makes no representations or warranties with respect to it.
Strategies for Homeowners in a Declining Real Estate Market By Ralph Colasuonno, O'Reilly Rancilio PC
The following is a summary of three areas in which Michigan howeowners may have opportunities or encounter pitfalls in the current real estate market:
A. Michigan Property Taxes: The Seesaw Effect
For 2008, many Michigan property owners may feel like they are back on the school playground and that they are stuck on the high end of the seesaw with no chance of coming down. With property tax assessment notices being issued at the end of February 2008, many Michigan property owners are left scratching their heads wondering why their taxes seem to be going up, while the value of their property is going down.
Under current Michigan tax law, as long as the assessed value/state equalized value (SEV) remains greater than the taxable value, the SEV may continue to decline from year to year, but the taxable value could continue to rise equal to the rate of inflation. For 2008, the rate of inflation was 2.3% and, therefore, taxable value increases are limited to that amount.
When the real estate market in Michigan was healthier, this law was a benefit to most Michigan taxpayers. While the value of properties continued to increase, taxable values were capped at the yearly inflationary rate. This operated to save Michigan taxpayers a significant amount of money. The law, enacted in 1994, however, did not take into account the possible effect of a declining real estate market where property values continued to drop. In such a scenario, which we are currently experiencing now, taxable values may increase by 2.3% for 2008 despite a decline in real estate value.
To appeal property taxes, the taxpayer must comply with certain deadlines which, if not met, result in a waiver of the taxpayer’s ability to contest the taxes. For residential properties, homeowners must either appear or send a letter to their local Board of Review which will take place in March 2008. Most jurisdictions require that the homeowner make an appointment. If this action results in no relief, the homeowner must file an appeal with the Michigan Tax Tribunal no later than July 31, 2008. Failure to appear and/or send a letter to the March Board of Review will prohibit the homeowner’s ability to file an appeal with the Tax Tribunal.
For owners of industrial, developmental or commercial-type properties, no March Board of Review appearance is necessary, however, the filing deadline for an appeal in the State Tax Tribunal is May 31, 2008. Failure to file a timely appeal will bar the taxpayer’s right to contest these taxes.
In either case, failure to take these steps will most definitely leave taxpayers on the high end of the seesaw.
B. State Transfer Tax Exemptions
Many homeowners (and attorneys) may not be aware of a provision added to the State Transfer Tax statute (MCL §207.526(t)) in 1993 which exempts the sale of a homestead property from the State portion of the transfer tax if the state equalized value of the homestead property on the date of sale is equal to or lesser than the state equalized value on the date on which it was purchased by the seller. The existence of this exemption is not well known due to its inapplicability during prior periods of rising real estate values. However, the exemption is obviously something to be reviewed in any current residential sale. The statute does not exempt the homestead property from the county portion of the transfer tax. A penalty of 20% is assessed in the event the sale price is under-reported in claiming the exemption.
C. Avoiding the Taxable Income Trap Relating to Foreclosures and Short Sales
In current market conditions, many homeowners have lost homes to foreclosure or may be considering negotiating a “short sale” with their lender. Faced with the need to sell or the possibility of pending foreclosure, homeowners may seek to negotiate with their banks to reduce the amount owed in order to complete a sale. This process is known as a “short sale.”
Homeowners in this situation should be aware that the discharge or reduction of indebtedness of their mortgage generally constitutes taxable income under the Internal Revenue Code. There is an exception which applies if the taxpayer is insolvent as of the time of the sale. The IRS defines “insolvent” as having total liabilities that exceed total assets after the debt is discharged.
The Alta 2006 Title Insurance Policies: Because Rules of Grammar are Sometimes Rules of Convenience By John D. Bartley, O'Reilly Rancilio PC
?Title insurance companies are now issuing new forms of owner’s and loan policies known as the 2006 ALTA Owner’s Policy and 2006 ALTA Loan Policy. The new 2006 policies were adopted by the American Land Title Association (ALTA) Board of Governors on June 17, 2006. The forms have been approved in Michigan, and the title companies are in receipt of their title policy jackets. The old form of policies, known as the 1992 ALTA policies remain available, as do the 1987 and 1970 versions. The older versions of policy forms are considered “archived” ("http://www.alta.org/forms" www.alta.org/forms) policy forms to be issued by a title insurer at their option if requested by the party to be insured.
Other than an increase in the arbitration requirement, more particularly discussed later herein, I find no advantage to the insured in obtaining an archived form of policy. For the insurer, however, an archived form of policy might remain their form of choice if they weren't compelled to issue the new 2006 version as there are many substantive improvements for an insured under the new policy forms.
A summary of the benefits to the insured under the new policy forms are provided herein, but first is an explanation of the title chosen for this article because in some ways it underscores the reasons why the revisions were deemed necessary. Some of the coverage described as being “new” is actually the same coverage intended in the prior policy forms, but due to arguments introduced in litigation, there became too much uncertainty and risk in what we were actually receiving when purchasing a policy. This uncertainty arises from what I would describe as an exceptions-to-the exclusions fallacy.
Bishop Robert Lowth wrote A Short Introduction to English Grammar with Critical Notes in 1762 wherein the double-negatives-make-a-positive rule was first introduced to English language. This rule has endured the ages with few challenges, but its logical application is now challenged by title insurers when facing liability under a claim. For example, under the 1992 ALTA policy, an item found in the “Exclusions from Coverage” section provides that an insured is not covered against violations of zoning, ordinances or permits UNLESS notice of such violation appears in the public records and the title company fails to include such notice on Schedule B of the title commitment. Therefore, you are NOT covered unless they did NOT show the recorded notice, which therein lies the two negatives. By applying the Lowth rule of grammar to this statement, the reasonable insured party believes that the insured IS covered if there was a recorded notice and the insurer failed to include the item on Schedule B. Well, therein lies the fallacy because title insurers facing claims under this section of a 1992 policy have argued against coverage by claiming that the scope of coverage under the policy is to be found only under the insuring clauses or “covered risks” of the policy. In other words, you can’t look in the exclusions from coverage section of a title policy to find elements of coverage even if standard rules of grammar would allow a reasonable, if not obvious interpretation that such coverage was intended.
By applying this illogic to a “marked-up” title commitment issued at a closing, what is the extent of coverage provided under a 1992 form of policy and under a 2006 form of policy when the insured receives such mark-up? For example, is the insured lender protected over construction liens recorded after the loan closing but in compliance with the Construction Lien Act? The answer is yes, since the 1992 loan policy jacket already included Section 7 of the Insuring Clauses, and issuance of the policy without the general exceptions would indicate that the title company had determined that all requirements for issuance of such loan policy “without exceptions” were satisfied by or on behalf of the insured. The answer for a lender is also yes under the 2006 loan policy since such coverage is included under Section 11(a) of the Covered Risks. However, what about the insured purchaser under an owner’s policy? Is such owner covered over any statutory lien for services, labor or materials arising from an improvement or work related to the land which is contracted for or commenced prior to the closing date? Under the 1992 form of policy, the insured expects coverage to be provided by receiving a marked-up commitment at closing wherein the title insurer crosses out General Exception #4 (“Any lien, or right to a lien, for services, labor or materials heretofore or hereafter furnished, imposed by law and not shown by the public records”). By the removal of such general exception from the title commitment, the insured therefore expects that coverage has or will been provided by the insurer. Alternatively, it may be argued that coverage for the insured under the owner’s policy derives from Section 2 of the Insuring Clauses (“Any defect in or lien or encumbrance on the title;”). However, coverage under the 1992 and 2006 policies are limited through the “Date of Policy shown on Schedule A”. Since, under Section 570.1111 of the Construction Lien Act, a lien may be filed within 90 days after the last date of improvement to the subject property, how then is coverage available if such lien is recorded after the “Date of Policy”. The answer may be that an owner is not covered for such construction liens under the 1992 policy unless the title insurer had been compelled to remove general exception #4, which would mean that the insured is relying on coverage through an application of the double-negatives-make-a-positive rule. Under the 2006 form of owner’s policy, which includes an expansion of the phrase “any defect in or lien or encumbrance on the title” under Covered Risk Section 2, and which such expansion does not include any reference to liens for improvements contracted for or commenced on or before Date of Policy, where then is coverage to be found? If General Exception #4 is crossed out by the title insurer at closing, is such removal an affirmation of coverage, or might its effect be discarded by an argument that no such affirmative coverage is found in the Covered Risks section of the 2006 form of owner’s policy since the lien was recorded after the Date of Policy. Also, to extend such application of the exception to exclusion fallacy even further, will there be a day when coverage over a construction lien is challenged by a title insurer whose closing agent crossed out General Exception #4 under a 1992 form of owner’s policy? Before the reader excuses my concerns as being merely an exercise of logic with no real risk, they should factor in the following as one more element for consideration. The 1992 owner’s policy includes General Exception #2 (“Encroachments, overlaps, boundary line disputes, and any other matters which would be disclosed by an accurate survey and inspection of the premises.”). At or prior to a closing where title insurance shall be provided under the 1992 owner’s policy, a title insurer would be provided a survey in sufficient form to compel such title insurer to cross out General Exception #2, thereby providing coverage over loss or damage to the insured if the building is later found to be constructed over an easement, or other such matters. Now, the 2006 form of owner’s policy has been written to include such affirmative coverage over matters that would be disclosed by an accurate survey under Covered Risk 2(c). However, the coverage provided to an owner under Covered Risk 2(c) of a 2006 owner’s policy is not effective if the title insurer adds such General Exception #2 to the title commitment. Therefore, after the insurer is provided sufficient documentation to remove General Exception #2, coverage over survey matters can be found under Covered Risk #2(c) rather than under an application of the double-negatives-make-a-positive rule. Why the drafters of the 2006 owner’s policy added survey matters as a Covered Risk and provided no similar affirmative coverage over construction liens may therefore be telling, especially when coupled with the expansion of the Covered Risk section of such policy in a well publicized attempt to eliminate their exceptions-to-exclusions image problem. To solve this issue, the title insurance industry should provide an endorsement to be available on an owner's policy adding such coverage over construction liens as one of the "Covered Risks". Until such endorsement is made available, I suggest that on future marked-up commitments for owner’s policies, the reader may be better protected if their title insurer is compelled to add the phrase “to be included within Covered Risk 2(c)” at General Exception #4 rather than to simply cross out such exception.
The ALTA Board of Governors has also provided many real improvements and expansions to coverage within the 2006 policies. A brief summary of highlights to such improvements are as follows:
Coverage for Electronic Transactions: Covered Risk 2(a)(iv) in the 2006 Owner’s and Loan policies insure against “failure to perform those acts necessary to create a document by electronic means authorized by law.”
Coverage for Improper Electronic Filing: Some counties in Michigan allow the title insurer to record documents via electronic filing through scanning of documents. The policies now insure against a failure to properly file (by any means), record, or index an instrument in the public records (Covered Risk 2(a)(vi)).
Gap Coverage: Covered Risk 10 of the 2006 Owner’s Policy and Covered Risk 14 of the 2006 Loan Policy add affirmative “gap” coverage. A gap endorsement is therefore no longer necessary. So, now when the title insurer provides a marked-up commitment and fails to revise the date of coverage, the insured purchaser is automatically provided coverage under the owner’s policy through the date and time of recordation of the deed or other instrument of transfer, and the insured lender is also automatically covered through the date and time of recordation of the mortgage under the loan policy.
Creditor’s Rights: Covered Risk 13 of the 2006 Loan Policy provides new creditor’s rights coverage for transactions occurring prior to the transaction creating the interest being insured. For coverage over the subject transaction, the reader will need to request from the insurer the Creditor’s Rights Endorsement ALTA Form 21-06.
Expansion of the term “Unmarketable Title”: This term has been expanded in Covered Risk 3 of the 2006 Owner’s and 2006 Loan Policies to include coverage when a lessee is released from an obligation to lease or a lender is released from an obligation to lend due to a contractual condition requiring the delivery of marketable title.
Expansion of the term “Insured”: The section of the 2006 Owner’s and Loan policies entitled “Conditions” (formerly “Conditions and Stipulations” under the 1992 form of policy) includes an expanded definition of the term “insured” at Conditions 1(d) of the 2006 Owner’s Policy and 1(e)(A) of the 2006 Loan Policy to include the following: (a) successors to the named insured by operation of law, dissolution, merger, consolidation, distribution or reorganization; (b) successors to the named insured by conversion to a different form of entity; (c) certain voluntary conveyances by the named insured under a deed delivered without payment of actual valuable consideration conveying the Title, including: (i) where the equity interests of the grantee are wholly owned by the named insured; (ii) where the grantee wholly owns the named insured; and (iii) where the grantee is wholly owned by an affiliate of the named insured provided the affiliate and the named insured are both wholly owned by the same person or entity. Also, under Conditions 1(d)(A)(i)(D)(4) of the 2006 Owner’s Policy the term “Insured” now includes a grantee of an insured under a deed delivered without payment of actual valuable consideration conveying title where the grantee is the trustee or beneficiary of a trust established by the named insured for estate planning purposes.
Expansion of the term “Indebtedness”: This term has been expanded in Conditions 1(d) of the 2006 Loan Policy to include the sum of: (a) the amount of principal disbursed as of the date of policy; (b) the amount of principal disbursed subsequent to the date of the policy; (c) the construction loan advances made subsequent to the date of the policy for the purpose of financing in whole or in part the construction of an improvement to the land or related to the land that the Insured was and continued to be obligated to advance at the date of the advance; (d) interest on the loan; (e) prepayment premiums and other fees and penalties; (f) the expenses of foreclosure and any other costs of enforcement; and (g) advances as defined in Conditions 1(vii), (viii) and (ix), which are generally referred to by lenders as protective advances.
Elimination of sworn proof of loss: Conditions 4 of both the 2006 Loan Policy and 2006 Owner’s Policy eliminates the requirement for a sworn proof of loss within 90 days after the Insured determines the facts giving rise to loss that is found in the Conditions and Stipulations 5 of each of the 1992 policies. Instead, the insurer must first attempt to determine the loss, and then may require the insured claimant to provide a signed proof of loss (not in the form of an affidavit) to describe the defect, lien, encumbrance or other matter insured against that constitutes the basis of the loss or damage, and to the extent possible, the basis of calculating the extent of such loss or damage.
Increases to extent of liability: Conditions 8 of the 2006 Loan Policy and 2006 Owner’s Policy provides that if the insurer takes the defense and is unsuccessful in establishing the title as insured, then: (a) the amount of insurance is increased by an additional 10%; and (b) the insured can have the loss determined as of the date the claim was made by the insured claimant or as of the date it is settled and paid.
Elimination of “co-insurance”: The co-insurance provision in Conditions and Stipulations 7(b) of the 1992 Owner’s Policy has been eliminated from the 2006 Owner’s Policy. Under the 1992 policy, when the owner purchased insurance in an amount less than 80% of the then value
