title insurers flag land trust property transactions
Article Courtesy of The Palm Beach
By Kimberly Miller
Published July 5, 2012
West Palm Beach -- Alerts issued by two of Florida’s largest title insurers are drawing scrutiny to a complex bank bypass tactic that dozens of Palm Beach County homeowners are attempting by signing their deeds over to the Fidelity Land Trust Co.
Old Republic National Title Insurance, which carries the largest share of Florida’s market at 30 percent, according to the Florida Land Title Association, first circulated its warning in November. It requires additional review for new policies on homes with a so-called “quiet-title” action in their history.
An April 19 alert from the Jacksonville-based Fidelity National Title Group, identifies the land trust by name, saying agents are not to close or process transactions from the company without written authorization from underwriters.
Title insurance protects homeowners and lenders against financial loss from defects in the title, liens, or if someone tries to challenge ownership. Most banks will not approve loans without title insurance.
Fidelity National Title Group, which carries 10 percent of Florida’s title insurance market, has no relation to the Fort Lauderdale-based Fidelity Land Trust Co.
The Palm Beach Post first wrote about the trust last month after it had quietly amassed more than 150 deeds in Palm Beach, Broward and Miami-Dade counties since it registered as a limited liability company in December.
The land trust is heavily soliciting South Florida’s underwater homeowners through several marketing firms including the North Palm Beach-based Lincoln Property Consultants, previously called Lincoln Financial Group.
Under the land trust’s plan, homeowners sign their deed into a trust, with themselves as beneficiary, while also signing a contract to pay the trust an up-front fee of thousands of dollars. The trust then sues the homeowner’s lender claiming flawed or fraudulent loan practices in an attempt to cancel the mortgage and get a quiet title judgment naming the trust as owner.
At this point, the homeowner still owes the mortgage debt, or note, but because it is no longer secured by the home, the idea is the lender will be more willing to sell the debt for pennies on the dollar to the trust.
Some attorneys say what the trust is doing is an unproven tactic that relies on the banks not responding to the lawsuit within a 20-day period, which can result in a default judgment in favor of the trust. Default judgments are routinely overturned if the defendant can show good cause as to why they didn’t respond.
“The machinations engaged in by Fidelity and the property owner, including the quiet title action do not meet the requirements of marketable title,” said Clearwater attorney and title insurance expert Gregory Clark.
Paul Gellenbeck, managing director of the Fidelity Land Trust Co., downplayed the title insurance alerts saying any home won in a lawsuit is subject to additional scrutiny by underwriters.
“Litigation will answer all questions that everyone is asking. We will leave everything up to the courts to decide,” Gellenbeck said.
Still, title insurance experts said the warnings from Old Republic and Fidelity National Title Group are red flags. Getting clear title on a property where the mortgage was canceled without a full trial may be difficult, they say. Neither title company returned phone calls for this story.
“I doubt very much that this kind of approach will be upheld when it is challenged,” said Alan Fields, executive director of the Florida Land Title Association. “There is a real risk the mortgage will be reinstated and the quiet title will be set aside.”
Marlyn Wiener, a real estate attorney with an office in Boca Raton, said title insurers fear they will have to pay off a reinstated mortgage if the cancellation is overturned.
“If a mortgage was extinguished through a full trial of the quiet title action and court order after a judge heard all of the arguments, I imagine that the underwriters would approve issuance of new policies,” she said. “What we have, ironically, is a quiet title action, which is supposed to clean up title issues, having the potential to cloud the title and create more issues.”
Gellenbeck said he has won two recent cases, including one where the bank unsuccessfully attempted to turn over a default judgment, but he would not reveal the names of the plaintiffs in the cases or the case numbers. He also said the cases were not filed in Fidelity’s name and were not in Palm Beach County.
“My clients do not want attention brought to them or their cases,” he said in an email. “The law is clear and on our side.”