From the following report starting on page 2:
http://www.harbingerag.com/Papers/MF%20Global%20Wher e's%20the%20Cash%20Feb%2014%202012.pdf
I. Introduction:
The Commercial Mortgage Backed Securities ("CMBS") market is bracing for record
levels of defaults on commercial loans in 2012. According to Trepp, LLC, in October,
2011, troubled commercial real-estate loans accounted for more than 65% of failed
banks' $617 million in problem loans.
o What if there was a way out of these commercial loans so that owners, lenders and
CMBS holders could recover 100% of their loan values rather than the 40% to 60% of
purchase price that these commercial properties are currently worth in the marketplace?
o What if the way to recover 100% of a commercial property's purchase price was
through the property's title insurance policy?
Harbinger Analytics Group has discovered a widespread problem of inaccurate (and
fraudulent) documents used in the land title underwriting for commercial real estate
financing. This fraud is accomplished through inaccurate and incomplete filings of
statutorily required records (commercial land title surveys detailing physical
boundaries, encumbrances, encroachments, etc.) on commercial properties in
California, many other western states and possibly throughout most of the United
States.
Because title insurers performing land surveys in-house and independent land surveyors (often hired by lenders, title insurers and/or national land survey brokerages claiming ownership of completed work product) have committed actual and/or constructive fraud by knowingly failing to conduct accurate boundary surveys and/or failing to file the statutorily required documentation in public records, owners, lenders or CMBS holders of these commercial properties may be able to recover 100% of their purchase price from their title insurers based on contract rescission claims.
Not a very good report about land surveying! The remaining article should be read by any land surveyor that does ALTA's. The other foot may about to be dropped.
As I read that they are saying, "The buyer walked out on the mortgage we gave him, even though we should have known he couldn't afford it, so we're going to get our money back from anybody who has any."
The appraisers may have been at fault, the loan officers may have been at fault, but I'll bet very few of these cases are in foreclosure because the seller didn't have clear title, or the fence is a foot over the line.
Strange article. It meantions several times that for ALTA surveys, surveyors are responsible for things like researching public records for past title problems, researching for encumberances, providing the title company with a complete chain of title ...
One example from the article:
> Despite these explicit requirements, surveyors are not performing the required ALTA land title surveys, pursuant to adopted written standards, are not conducting thorough due diligence (i.e. proper research, evidence collection/evaluation in relation to the insured deed), are not filing Records of Survey and are not providing accurate boundary and chain of title information to title insurance underwriters.
Huh? Since when are surveyors required to provide chain of title information to the Title company? Isn't that their job? The ALTA standards clearly state that the title policy will be provided to us, and will be relied upon for the completion of the survey.
From the ALTA standards:
> Records Research - It is recognized that for the performance of an ALTA/ACSM Land Title Survey, the surveyor will be provided with appropriate data which can be relied upon in the preparation of the survey. The request for an ALTA/ACSM Land Title Survey shall set forth the current record description of the property to be surveyed or, in the case of an original survey, the current record description of the parent parcel that contains the property to be surveyed. Complete copies of the most recent title commitment, the current record description of the property to be surveyed (or, in the case of an original survey, the parent parcel), the current record descriptions of adjoiners, any record easements benefiting the property, the record easements or servitudes and covenants burdening the property (all hereinafter referred to collectively as "Record Documents"), documents of record referred to in the Record Documents, documents necessary to ascertain, if possible, the junior/senior relationship pursuant to Section 6.B.vii. below, and any other documents containing desired appropriate information affecting the property being surveyed, and to which the ALTA/ACSM Land Title Survey shall make reference, shall be provided to the surveyor for use in conducting the survey. Reference is made to Section 3.B. above.
Seems like someone is trying to bit too hard to sell surveyors down the river.
Now, if surveyors are not filing surveys in states that require such, then they should have their marbles held to the fire ... but I don't think that alone could be a reason to void a land transfer and "put back" the mortgage to the original owner. Crazy talk.
Here in MA we are required to fully research the property. I'm never sure how other surveyors do ALTAs for as low as they do.
6.04:
Title Insurance Surveys
(1) Procedural Standards.
(a) Research and Investigation. The surveyor shall:
1. Obtain a legal description of the property to be surveyed as well as a legal description of abutting properties. A title report shall be obtained by the surveyor from the client if available.
2. Obtain copies of recorded documents affecting the survey.
3. Obtain from utility companies, public offices and Land Court, copies of available plans, documents and field notes affecting the survey.
4. Obtain from known private sources available copies of data affecting the survey.
5. Obtain copies of the applicable zoning by-laws that govern in the area in which the property is located.
We performed one where the previous title insurance policy specifically listed a defect from the 1800s. The current attorney provided us the research without any information from the 1800s. We alerted him of the defect. Not necessarily in our job description, but we left it to him to make the same legal determination that his predecessor made.
Reminds me of the If Dr. Seuss was a Surveyor:
Parcel One, Parcel Two
Tract Red, Tract Blue
Which one is Smith's, Which one is Sawyer's
Don't ask me, go ask a Lawyer.
Yes, ALTA requirements were intended to raise the bar to bring some of the states lacking in minimum requirements up to par with states at or near the high end of the spectrum. Given what you posted, I would say that MA has a higher minimum standard than many states. I don't know what California requires beyond ALTA, and recording the survey, but the case being made by the author is that the documents/title report provided to the surveyor is "preliminary", and ALTA requirements dictate that we have to conduct our own easement research, provide chain of title information, disclose past defects, etc ... that's not the case. Your state may require that, but not ALTA.
Prior to conducting an actual survey, the land surveyor receives a "preliminary title report" from the title insurer describing what that title insurance company is willing to insure. The land surveyor takes the preliminary title report's property description and compares it to the actual condition of the property on-site. The surveyor researches public records looking for previously discovered defects or discrepancies in title. The land title surveyor is tasked with identifying and documenting these material defects in title as a part of the surveyor's due diligence.
Really? We can certify titles? Those title reports were only preliminary? Are the California rules different?
The contracting parties realize larger profits by selecting lowest bidding surveyors (who then cut corners by failing to properly research properties and failing to complete statutory filings).
Yup, and NASA selects the low bid too.
From the information supplied by the surveyor, the title insurance company writes the actual title insurance policy including any defects found by the surveyor and specifically excludes those defects from title insurance coverage unless a specific endorsement is written.
Really? I thought they wrote it before we even got their title report.
These owners (and possibly adjacent owners), lenders and CMBS holders may also have claims of fraud, constructive fraud, negligent misrepresentation and negligence against the licensed land surveyor (who typically carries a large errors and omissions policy ranging from $1-5 million).
Follow the money... aren't all surveyors rich?
info@institutionalriskanalytics.com
The author is a PLS:
http://www.harbingerag.com/David%20E.%20Woolley.html
> From the information supplied by the surveyor, the title insurance company writes the actual title insurance policy including any defects found by the surveyor and specifically excludes those defects from title insurance coverage unless a specific endorsement is written.
> Really? I thought they wrote it before we even got their title report.
The way I always worked (and in the middle of the last decade I was doing at least two dozen ALTAs a year in the DC area) is that the survey was performed using the Commitment for Title Insurance; then the exceptions were modified based on the survey and the final title insurance policy was issued (usually referencing and incorporating the survey into the policy)
well...
what do you want for $299??...ugh..:-@
The way I understand Preliminary Reports (Preliminary Title Report is an inaccurate description since they are not a report of Title but a report of stated title issues) are the Title Company typically search records for 30 years prior to issuance of the Prelim Report. Any information prior to this would be on the surveyor to identify. Also, as I understand it, Preliminary Reports have no legal standing and cannot be relied upon to protect the property owner from damages only the issuance of Title Insurance does this.
The legal description provided MAY not be an accurate description, only "current record description" of the boundary and due diligence is put on the surveyor to confirm there are not boundary discrepancies, junior/senior rights. While ALTA Standards state "documents necessary to ascertain, if possible, the junior/senior relationship pursuant to Section 6.B.vii" are to be provided to the surveyor, I believe the article is insinuating that many surveyors are not verifying these potential boundary issues and only surveying what is described.
In California, Records of Survey do not provide constructive notice, Sterns v. Title Ins. & Trust Co., so any potential title discrepancies shown thereon would not be identified by a Preliminary Report, so must be properly identified by the Land Surveyor. This would be part of the surveyor's due diligence.
I do not see how failing to file a Record of Survey, per CA Business & Professions Code 8762 & 8766, would create any neglient damages on the owner since the Record of Survey does not carry with it constructive notice. It would be a violation of State law, but only if the survey discovered "material discrepency" in the boundary, not title.
Brad
Sounds Like Light Squared Logic
"Why wouldn't a title insurer be concerned about underwriting poor quality ALTA
land title surveys?"
"Prior to the financial crisis of 2008, title insurance companies realized an average of 5% in loss/loss adjustments (compared to 70-85% in most other casualty insurance coverage). Title insurers were able to outsource and reduce costs without realizing a loss/loss adjustment change. Presumably today, the title insurers have seen a spike in payable claims due to loss of priority (subordination), but they have not felt the effects of the flawed commercial loans to date."
5% sounds high, but it indicates title companies are doing a good job. The logic that title companies claims should increase just be cause banks loan failuers increased is not apples and oranges. The banks chose to lower their lending standards, the title companies chose to maintain their standards. This is Democrat tax the rich so the poor do not have to work logic.
Not one citation of one single case where a mortgage default was caused by a poor survey, much less a fraudulent survey.
There are however numerous cases winding through the courts where the foreclosing institution does not have clear title and all are the result of the financial institutions fraudulent transfers. In my opinion a fraudulent transfer removes the financial institution from the chain of ownership of the title policy.
Paul in PA
Mighty broad brush
The author is painting with a mighty broad brush in that article. I think maybe someone's tired of being underbid.
He does mention many of the problems of doing business in this sector. Survey brokers, lowbid process, ALTA standards that may conflict with State standards. It is up to the Surveyor to perform the service to all applicable standards regardless of fees charged.
In my view he is barely skirting a class action libel suit by surveyors unless he can come forth with evidence on a very large scale of what he asserts. We've all heard stories and brushed up against poor practices but I first assume these are isolated instances. He is a licensed fraud investigator (whatever that is) but I see a glaring ommission of statistics when it comes to the specific claims he is making.
I'm going to believe that most surveyors are performing ethically and reliably to all applicable standards unless proved otherwise.
I doubt the article will have much affect on title insurance or surveyor company policies, but one can only hope that it may influence whatever percentage of firms that may be skirting responsibility in favor of cash flow.
But most recently I've seen it going the other way from title companies. Had a call asking for an inspection of a commercial property. ILC's it seems have now gone commercial. Not saying there's anything illegal or unethical about that, but it seems like maybe a bad idea to me.
I don't do many ALTAs. I do perform research on the ones that I do. I guess it comes back to my distrust of attorneys and I have caught a few missing documents in their reports.
Really quite believable
Well, I find this quite a believable fate for the general survey population. The posters who are saying that it is not within the minimum requirements of an ALTA survey please turn to Section 3(D) of the 2011 Standards. It states
"The boundary lines and corners of any property being surveyed as part of an ALTA/ACSM Land Title Survey shall be established and/or retraced in accordance with appropriate boundary law principles governed by the set of facts and evidence found in the course of performing research and survey."
I don't see anywhere in that paragraph regarding boundary resolution that as a surveyor you only rely on the title commitment provided by the client. Which leads to my next point, direct your attention to Section 3(C) which states that
"Surveyors should recognize that there may be unwritten local, state, and/or regional standards of care defined by the practice of the 'prudent surveyor' in those locales."
Lastly, review Section 6(B)(vii) which talks about how as a minimum standard we as surveyors are to notify the client of any gaps or overlaps of the subject property with adjoining property. How is this performed to the standards without performing a chain of title?
And to think, this only deals with the minimum standards from ALTA, remember that your state laws supercede those of ALTA/ACSM if they are more stringent.
Really quite believable
> "The boundary lines and corners of any property being surveyed as part of an ALTA/ACSM Land Title Survey shall be established and/or retraced in accordance with appropriate boundary law principles governed by the set of facts and evidence found in the course of performing research and survey."
I wouldn't say that statement requires surveyor to complete research to the level this article indicates. Researching enough evidence to find and establish corners and applying boundary law principles is a pretty basic function of being a land surveyor. I don't think the ALTA standard intended to extrapolating that statement to conclude a surveyor must conduct his own research to determine past title defects, recorded easements beyond what is provided, etc.
> "Surveyors should recognize that there may be unwritten local, state, and/or regional standards of care defined by the practice of the 'prudent surveyor' in those locales."
Again, that's surveying 101. If your state requires complete independent research as MA apparently done, it's a no-brainer that a surveyor should comply. However, that doesn't mean that ALTA standards require this, it's saying the ALTA standard yield to state and local standard.
> Lastly, review Section 6(B)(vii) which talks about how as a minimum standard we as surveyors are to notify the client of any gaps or overlaps of the subject property with adjoining property. How is this performed to the standards without performing a chain of title?
The ALTA standard actually state that the title company is required to provide the adjoiner's deeds, as well, do they not? That's at least a good start in showing there are no gaps or overlaps. In about 98% of my surveys, the adjoiner's deeds fit nicely together. In the rare cases of deeded gaps and overlaps, they do call for additional research, perhaps JR/SR rights determination, etc. That's part of being a surveyor.
Don't confuse this with Chain of Title. "Title" isn't about the boundary and where you own, it's a question of who owns what. Chain of Title refers to analyzing the record to determine if there are "clouds" on the title or possible "breaks" in the ownership chain ... an example of a "break" or "cloud" be something like a forgery, a lien, a person declared mentally incompetent signing a deed, unpaid taxes, unpaid mortgages, a husband signing a deed but not his wife, etc ... things that I would not considered my myself to be expert in analyzing.
Really quite believable
If the faulty survey failed to expose a title/boundary problem that it should have, then yes they are accountable for the damages, but that didn't seem to be the point of the article.
It sounded like if the surveyor didn't do the paperwork quite right, he will be sued for the shortfall on the mortgage, even if the only problem was the buyer's ability to make payments. Where's the logic in that?
Really quite believable
>
> It sounded like if the surveyor didn't do the paperwork quite right, he will be sued for the shortfall on the mortgage, even if the only problem was the buyer's ability to make payments. Where's the logic in that?
I agree with Bill
This looks like ambulance chasing attorneys to me
Really quite believable
I think you need to focus on the fact that we are talking about a sector which is now performing "strategic defaults" but if I came to you as a business man and offered you not only a way out of a lackluster commercial proper which has depreciated by 40% plus but also a way for you to get your initial investment back would you do it? Even if it meant suing someone who didn't cross the "t" or dot the "i". I know I would strictly as a business decision, even if an attorney told me I only had a 50/50 shot at winning.
People are looking for someone to blame, are your pocket books deep enough do defend even one survey that you have performed which may not follow the proper procedures that everyone else does in your area? I know mine aren't based on a 20% profit margin (if I am lucky)
Really quite believable
If a surveyor is looking in the ALTA contract for a justification to perform surveys at less than the normal standard of care, then they most likely are going to be in trouble. I assume that's what you're suggesting. I can see it happening, just not on such a large scale as to condemn surveyors in general.
Really quite believable
Duane,
Believe it or not there are companies out there who broker surveys to third party surveyors throughout the United States. From the little research I have done there are thousands of these transactions done yearly (almost 10,000 per company). If lets say there are 9 major ALTA survey brokers each doing 9,000 ALTA surveys a year that is 81,000 ALTA surveys in the United States annually. Each of these brokers use a low bid process in which the lowest cost wins the project without any experience based examination of the third party surveyor. They do not care if you follow the state statutes as they feel that it is the duty of the surveyor to know the laws for the area they are working in, which I do agree with.
Now, if and when lenders, title companies, and property owners begin taking a closer look at these ALTA surveys and find a trend of these surveys not meeting the minimum standard of care for boundary establishment in the respective locality, who are they going to turn to for answers? The ALTA brokers. Since the ALTA brokers are the middle men in this transaction, the blame will then fall on the third party surveyor. They will ask you to explain how the boundary was derived and so on, and if they find you to have not met the minimum standards you simply cannot say "I didn't know." When has ignorance ever gotten you out of breaking the law?
Just as a talking point: At an average cost of $4 million per commercial property you are looking at approximately $324 billion worth of commercial real estate annually. As we have seen with other fraudulent real estate transactions (i.e. appraiser, lender, title, etc.)it will only take one person to win in court before the flood gates open I believe.
Really quite believable
The source that lead me to the subject article came from this blog:
Extend and Pretend Coming to an End
If this guy's research and conclusions are correct we are really in for trouble in commercial real estate. Lawsuits could result with everyone in sight being drawn in. Considering everything else that has gone down I wouldn't be surprised if bad surveys are not in the mix. I had one experience with a survey broker in 1999, never even considered it since, was obvious to me everything wasn't being done above board. Even had a hard time getting paid, was like pulling teeth to get the title report out of them, yet they were pushing all the time for completion without providing the title report.
