Follow-up to Loan Modification

I've had some questions come up as to whether the lender's policy prevents a loan modification. The short answer is no, it does not prevent it. However, the title insurance problem with loan modifications is that the lender's title insurance policy specifically excludes matters that occur subsequent to the date of the policy; such as a subsequent loan modification. The reason is the lender may be breaking its lien priority and may excuse it's title insurer from honoring the title policy on the basis that an uninsured modification has impaired the insurer's right of subrogation, which is an insurer's legal right, when a claim is paid, to step into the lender's shoes and assume the lender's position in title litigation or to pursue the party responsible for the loss.

Loan Modifications

Recently, I have had a lot of questions regarding loan modifications from lenders. They are hoping to save the borrower money while retaining their lien position. Here are some things to consider. When a loan is modified, whether to change terms, loan amount or add additional properties, unless an endorsement to the title policy is issued, the coverage under the origianl title policy could be jeopardized. Your title company must do a update since the effective date of the policy to ensure no other liens have been filed or will attach. If their are liens they must be dealt with so priority is not lost.
If a lender chooses to modify the original Note and Deed of Trust anyway, they need to realize that the changes may not have the same lien priority as the orinal loan did. The lender is some cases may lose complete priority of their loan depending on the types of changes made. Before the modification takes place the lender should consult their attorney and title company.

What's In an Affidavit

There has been a trend developing in the industry that Recorder's offices do not want to accept affidavits to correct correct misspellings misstatements in conveyance documents. While this has been a widely accepted practice in the past, it is not so in the present. The arguments from the Recorders say that it open's them up to too much liability due to the potential for fraud. For instance, an error in a legal description which conveyed more property being corrected by an affidavit which states that less property was to be conveyed or a spelling in a name being changed which could substantially change the grantor or grantee's name.
On the other side of the coin, attorney's and title companies argue that a reliable third party which does not benefit from the transaction, but has specific knowledge of the transaction should be able to file an Affidavit to correct such minor scrivener's errors. But what is minor and what is not, and what is a reliable third party that does not benefit. The Recorder's say 'minor error' is in the eyes of the beholder, and attorney's and title companies are benefiting monetarily from the very transactions they are try to make corrections for.
Therefore, the cautious title company should spell check and proofread multiple times throughout the transaction process to avoid costly recording errors which could range from the simple re-recording of the document to quiet title actions to expensive policy claims.