Bulletin: DC2008001

Date:
January 10, 2008
To:
All Offices Authorized to Issue Title Insurance in the District of Columbia
RE:
Home Equity Protection Act of 2007

Dear Associates:

Foreclosure rescue scams continue to be a problem in the DC Metropolitan area. Maryland previously enacted legislation addressing this issue (See Maryland Bulletin 00028) and on November 27, 2007, the District of Columbia passed its own legislation on the subject entitled the "Home Equity Protection Act of 2007" (D.C. Act A17-205, herein the "Act"). It is anticipated that this Act will become law on February 25, 2008.

The final version of the Act as passed is quite different from the initial proposals that were circulated. The original Bill was patterned after the Maryland legislation and would have provided specific regulation and oversight of the foreclosure industry. The final Act as passed takes a much more simplistic approach and absolutely prohibits all rescue scams that are initiated for the purpose of making a profit.

The Act makes it unlawful, for compensation or gain, to "engage in, arrange, offer, promote, promise, solicit participation in, or carry out a foreclosure rescue transaction in the District or concerning residential property in the District". Transactions among family members or arranged by a bona fide nonprofit community organization or nonprofit housing organization are specifically exempted.

The term "foreclosure rescue transaction" is broadly defined. The term includes any transaction in which title or an interest in real property is transferred during or incident to a mortgage default, foreclosure or tax sale where such transaction includes the subsequent conveyance, the promise of a subsequent conveyance, or a right to a subsequent conveyance of an interest back to the homeowner. This arrangement can be found in any number of documents including a contract for deed, purchase agreement, land installment sale, contract for sale, option to purchase, sale/leaseback, trust or other contractual arrangement.

From a title insurance perspective, the act does not attempt to void or modify the underlying transaction. What it does, however, is subject the participating parties to criminal and civil damages. For example, the Act provides that:

a. Any person who advertises, offers, promotes, or provides foreclosure rescue services owes a fiduciary duty to the homeowner.

b. A homeowner may bring a private action for damages. Such action may include an award for legal fees.

c. A violation of the Act shall also be a violation of the District of Columbia Consumer Protection Act. This Act includes provisions for punitive damages, treble damages and attorneys fees.

d. Criminal penalties are imposed for a knowing violation of the Act. The first violation is subject to a fine not to exceed $10,000 and/or imprisonment of not more than 1 year. Subsequent violations are subject to a fine not to exceed $50,000 and/or imprisonment of not more than 5 years.

The obvious question is whether merely acting as the closing agent for a transaction that is found to be subject to the Act will subject the agent to liability under the Act. Unfortunately, there is no clear answer to this question. Because of this, all agents must be extremely cautious in closing any transaction which may violate the Act. While it is not always easy to determine whether a foreclosure rescue transaction is being attempted, there are certain telltale signs which may indicate that an improper "rescue" is in the works. These include:

a. Beware of any sale transaction in which the seller is remaining in possession of the property after closing.

b. Watch for any sale transaction in which the existing debt is not being paid off and the seller is not being specifically released by the lender.

c. Look out for any "creative" transactions including those with leaseback arrangements or equity participation.

d. Be cautious in any transactions in which a foreclosure notice has been filed or you otherwise know that the loan is in default.

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THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER  AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.

References

Bulletins Replaced:
None
Related Bulletins:
None
Underwriting Manual:
None
Exceptions Manual:
None
Forms:
None