VLTA Examiner Magazine

Volume 22.2 • Summer 2016 The Magazine of the Virginia Land Title Association vlta examiner volume 22.2, summer 2016 www.vlta.org follow us upcoming events 5 from the President 6 from the Executive Director 7 from the Director/Editor 7 Recorded Treasure 25 ARTU 28 TUTE on TRID 30 Legislative Corner 32 Member Discount Programs 33 Crossword FACEBOOK The TITLE WEB vlta examiner volume 22.2, summer 2016 www.vlta.org 3 Google groups linked in Phone: 571.494.1782 Toll Free: 800.929.8730 Fax: 703.995.0649 TWITTER 8 A Red Carpet Event Virginia Land Title Association extends a warm thank-you to all of our guests for attending the 2016 Annual Convention. 11 Tales from the Table: Cybersecurity Often, the stories we remember and share with our friends and colleagues are the funny ones, or the ones that defy belief. Usually however, they are not things that can potentially alter our businesses or your careers. 12 Riparian Rights Riparian rights refers to a system for allocating water among those who possess land along its path. Also called Littoral Rights for Lakes- the principle is the same 14 Examining and Insuring Appurtenant Easements What is this interest called an appurtenant easement, and why do we care? 16 Feature Article: Oil and Gas Leases in Virginia Market forces have driven down the price of fossil fuels and minerals. When prices begin to rise to a point that it becomes profitable for industry to go back below ground, the need for title work will also recur. 21 Adverse Possession – Impact on Titles Having spent over half of my lifetime working to cure or resolve thousands of imperfect real estate title issues, I regularly address how allegations of adverse possession impact the title insurance underwriting process. 22 The Craft Ultimatum The purpose of this piece is to serve as a reminder that the underwriting and conveying of title is a pragmatic process and is always affected by case law as well as legislation. 26 The Uniform Real Property Electronic Recording Act? It has been ten years since the VA General Assembly passed the URPERA. Where are we now? Volume 22.2 • Summer 2016 contents columns September 22 Fairfax Regional Education Thursday,  September 22, 2016, 9:00 a.m. – 4:00 p.m.  Fair Lakes Hyatt, Fairfax, VA  October 20 Lynchburg Regional Education Thursday,  October 20, 2016, 9:00 a.m. – 4:00 p.m.  Craddock Terry Hotel & Event Center November 5 Fairfax VCTE Regional Education Saturday,  November 5, 2016, First VA Community Bank, Fairfax, VA November 11 Fredericksburg Regional Education Friday,  November 11, 2016, FAAR: 2050 Gordon W. Shelton Blvd., Fredericksburg, VA  Glenda S. Brooks, vcte, vctsa President Middlesex Title Company P.O. Box 559 Deltaville, VA 23043 Ph. 804.776.9202 Fax 804.776.9696 gbrooks@va.metrocast.net Katherine Crawford, Esq. President Elect First American Title Insurance Company 14368 Sommerville Court Midlothian, VA 23113 Ph. 804.419.2171 kcrawford@firstam.com Norbert Prigge, Esq. Vice President Chicago Title Insurance Company 5875 Trinity Parkway, Suite 210 Centreville, VA 20120 Ph. 703.219.3702 Fax 703.385.2821 Norbert.prigge@ctt.com Stewart “Skip” Sacks, Esq. Secretary Stewart Title Guaranty Company 808 Eden Way North Chesapeake, VA 23320 Ph. 757.424.4400 ssacks@stewart.com Sonia Kuppert, vcte, vctsa, ntp Treasurer STA Title & Escrow, Inc. 101 Westwood Office Park Fredericksburg, VA 22401 Ph. 540.368.5501 sonia@statitle.com Kevin T. Pogoda, Esq., vcte, vctsa Past President Old Republic National Title Insurance Co. 7960 Donegan Drive, Suite 247 Manassas, VA 20110 Ph. 703.365.2300 Fax 703.365.2400 kpogoda@oldrepublictitle.com DIRECTORS Colleen Taylor Director of Communications WFG National Title Insurance Company 8301 Kines Road Warrenton, VA 20187 Ph. 703.973.9224 ctaylor@WFGNationalTitle.com Aida Barnette Director of Education Fidelity National Title Insurance Co. Commonwealth Land Title Insurance Co. 4525 Main St., Ste. 810 Virginia Beach, VA 23462 Ph. 757.216.0487 Aida.Barnette@fnf.com Megan Meloon Director of Events Old Republic National Title Insurance Co. 7960 Donegan Drive, Suite 247 Manassas, VA 20110 Ph. 703.365.2300 Fax 703.365.2400 mmeloon@oldrepublictitle.com Emily Bardales Director of Membership ABSOLUTE TITLE & ESCROW LLC 320 King Street, Suite 5 Alexandria, VA 22314 Ph. 703.842.7525 emily@absolutetitle.biz Tony Brown Director of Legislative Affairs & Advocacy Carteret Title, LLC 1056 B Chicago Avenue Harrisonburg, VA 22802 Ph. 540.438.9531 tony@carterettitle.com Julie Ann Rutledge, vcte Director of the Examiner Magazine Land Title Research, Inc. P.O. Box 3271 Stafford, VA 22555 Ph. 540.659.0107 Fax 540.659.4952 jrutledge@ltrinc.com Kathleen E. Zaynullin Herndon, PhD Executive Director Virginia Land Title Association 14001-C Saint Germain Drive, Suite 822 Centreville, VA 20121 tel 571.494.1782 toll free 800.929.8730 fax 703.995.0649 KHerndon@vlta.org Mary Long At-Large Agent Stewart Title & Settlement Services, Inc. 808 Eden Way North Chesapeake, VA 23320 Ph. 757.424.4400 Fax 757.282.0949 malong@stewart.com Lisa Owen., vcte At-Large Examier Court Square Title Agency 432 Albemarle Avenue Staunton, VA 24401 Ph. 540.932.1788 lisa@cstallc.com Glenda S. Brooks , vcte, vctsa VLTA President 2016-2017 Middlesex Title Company  Deltaville, VA fromthePresident I first became involved in the VLTA in 2000. Previously, I had worked for several law firms starting in 1980 in residential and commercial real estate. I received my Paralegal degree from J. Sargeant Reynolds in 1982 and have been dealing in real estate ever since. This past year has been very trying for all of us. Many small settlement agencies have struggled through the transition to TRID, most have survived, but some have not. Like many of you, I run a small settlement agency based in Middlesex County, Virginia. Our closings are basically second homes at the ‘Rivah’. With the economy as it is, people are not buying second homes, they are trying to hang on to their first. When things got tough for us, we took on added services such as title examinations, recordings and document retrievals, expanding our operations. This helped to open new doors and allowed us to wade through the trying times. The new CFPB regulations and the implementation of TRID have created many new challenges for our industry. Due to ever changing markets and demands for updated innovations, we must find new ways of doing things and come up with double the ideas to complement our agency operations. In order to accomplish this, we must all participate. The best thing that we can do, is to stand together and persevere, until all the many issues have been resolved. Leadership today has shifted from one person telling everyone what to do, to everyone being invested and involved. What is the answer? Empowerment, it is a process by which you enhance the capability of people or groups to make choices and turn them into actions. It can be defined as leaders and members being given information, resources, opportunities and responsibility for the job outcome, with the idea that this will make all involved more productive and provide greater job satisfaction. Empowerment challenges our ideas and helps us succeed and achieve: Set realistic goals and fulfill your potential Find your strengths and capitalize on them Find the strength in others and nurture it. There are four major areas that appear to surface connected with empowerment. These are inclusion, access to information, participation and accountability. In this issue, I will cover inclusion. What is inclusion? It is the process of becoming aware of the environment and the people in your work place. It is the importance of building relationships that will foster inclusion. It is the ability to understand and look for the qualities that each person brings to their position. It is the talent of encouraging participation and listening to the ideas of others. It is the development of an action plan and putting it to work. It is the ability to enhance the contributions that each person makes as an individual and as a team member. It is about the creation and implementation of Team Work. Team work is very important. We should focus on what we might gain in these trying times. We should empower ourselves and each other to be the best that we can be. We should strengthen ourselves with new goals and ideas. We must stand together and empower. In upcoming issues of the Examiner, I will go into detail and cover each of the remaining areas of empowerment. Greetings and Happy Summer to all. Volume 22.2 • summer 2016 The Magazine of the Virginia Land Title Association vlta examiner volume 22.2, summer 2016 www.vlta.org 5 PUBLISHER Virginia Land Title Association Director/Editor Julie Ann Rutledge, vcte President, Land Title Research, Inc. P.O. Box 3271 Stafford, VA 22555 Ph. 540.659.0107 Fax 540.659.4952 jrutledge@ltrinc.com MANAGING EDITOR Kathleen E. Zaynullin Herndon, PhD Executive Director Virginia Land Title Association 14001-C Saint Germain Drive, Suite 822 Centreville, VA 20121 tel 571.494.1782 toll free 800.929.8730 fax 703.995.0649 Features Editor R. Michael Smith, Esq. Underwriting Counsel Conestoga Title Insurance Co. 137 E. King Street Lancaster, PA 17602 tel 800-861-9352 fax 800-889-0169 msmith@contitle.com Content Editor Colleen Taylor Agency Sales Consultant WFG National Title Insurance Company 8301 Kines Road, Warrenton, VA 20187 Ph. 703.973.9224 ctaylor@wfgnationaltitle.com Column Editor Anne Tourangeau Fidelity National Title Insurance Company 5875 Trinity Parkway, Suite 210 Centreville, VA 20120 Ph. 571.215.1374 Fax 703.815.4374 anne.tourangeau@fnf.com Puzzle Editor Glenda S. Brooks, vcte, vctsa Middlesex Title Company P.O. Box 559 Deltaville, VA 23043 Ph. 804.776.9202 Fax 804.776.9696 gbrooks@va.metrocast.net Editorial Board Members Maria Deligiorgis, Esq. President Mid-Atlantic World Wide Land Transfer 1875 Connecticut Avenue, NW 12th Floor Washington, D.C., 20009 tel 202.650.0349 ext 140 fax 888.WWLT.FAX maria@wwlandtransfer.com Palma J. Collins, Esq. First American Title Insurance Company 14150 Newbrook Drive, Suite 250 Chantilly, VA 20151 tel 703.480.9500 fax 703.480.9481 Greetings and Happy Summer to all. I hope everyone enjoyed the VLTA Annual Convention at the Richmond Omni Hotel. It is with great pleasure that I will be servings as the VLTA President for the upcoming year. Submissions to the VLTA Examiner should be made to the Director,  jrutledge@ltrinc.com. 4 vlta examiner volume 22.2, summer 2016 www.vlta.org The mission of the Virginia Land Title Association (VLTA) is to promote communication and to provide education throughout the real estate and title insurance industries. The mission includes promoting standards and regulations that increase the effectiveness of the industries. Legislative initiatives and educational programs are primary aspects of the VLTA’s work. Leadership in ethical practices and standards is an integral part of its members’ business, within and outside of the VLTA. The VLTA Examiner is the official publication of the Virginia Land Title Association. It is published for VLTA members. Requests for address changes must be received 30 days prior to the date of the issue with which it is to take effect. Although advertising is screened, acceptance of an advertisement does not imply VLTA endorsement of the product, the services, or the views expressed. The views and opinions expressed in this publication are not necessarily those of the association. Articles may not be reprinted without the consent of the VLTA. Digital subscriptions are available to interested individuals or groups at $75.00 per year. Address all VLTA and Examiner inquiries to: VLTA Examiner; 14001-C Saint Germain Drive, Suite 822, Centreville, VA 20121, 571.494.1782; toll free 800.929.8730; 703.995.0649 (fax); kherndon@vlta.org. Submit all articles for publication in the magazine to: Virginia Land Title Association, 14001-C Saint Germain Drive, Suite 822, Centreville, VA 20121; by email at ; or by fax to 703.995.0649. 2016-2017 VLTA Board of Directors This quote has been on my mind for several months. With 5,386 members on our rolls, Virginia Land Title Association is certainly growing. But in the context of the big, wide world, we are a small Association. It can seem bewildering at times to think that our group alone could accomplish very much on the legislative front, but we can. We do. Advocacy is a primary mission of the Association. Yes, we’re your best source for industry education, but that’s not all we do. In fact, advocacy is at the center of our values and purpose. Through a paid lobbyist, volunteers, and member empowerment, we seek to leverage our strength in numbers to effect change. We may be small, but together we can help people hear our voice united. What’s in store for the 2016-2017 Legislative Session? We are actively seeking members to help reach out to legislators to bring our goals to the attention of the entire Virginia General Assembly. Take a look at our Legislative Goals for the upcoming year, and think about what you might want to say to your legislator. Flat Recording Fees – Miscalculation of recording fees is a common reason for rejection of recordings, and a shared frustration of both Clerks and Settlement Agents. Flat recording fees stipulate a single price per document regardless of length of the document. With the help of the American Land Title Association, VLTA hopes Virginia will join the more than a dozen states that have adopted flat recording fees in the last few years. Clarifications to TRID – Since the TRID rollout in October 2015, it has become clear that there are many unclear aspects of TRID and CFPB guidelines. VLTA will work hand-in-hand with ALTA to solicit clarification of new regulations. E-Recording – It’s a Best Practice, and it’s fabulous. VLTA will work to encourage Clerks of Court across the Commonwealth to make e-recording available in every jurisdiction in Virginia. Settlement Agent Training – VLTA will work with the Virginia Bureau of Insurance to continue our dialogue on the appropriate training and support for Settlement Agents. In this era of increased regulation, we strongly believe that Settlement Agents need and deserve as much support as they can get! Defense – In any year, about 90% of what our Legislative Committee does is “defense.” We spot legislative proposals that may have a negative impact on our industry, and help to resolve issues with those proposals. We clarify language, modify bills, and more. How can you get involved? There are many resources for land title professionals to stay involved with industry advocacy. Join the Legislative Committee – We meet once or twice a month by teleconference to discuss pending legislative initiatives and divide up work based on talents, skills, and connections. Join the Title Action Network – Don’t have a lot of time? TAN is a FREE tool for land title professionals that sends action alerts to your phone, helps you draft emails to your legislator, and sends them for you! It’s easy, and you don’t have to be a VLTA or ALTA member to use it! Participate in Member Polls – We’re looking for input from our members on every pro-active advocacy initiative. When it’s time to move forward, we want to know what you think before we do anything! Be sure to stay tuned for emails about advocacy efforts, and fill out surveys to express your opinions. We want to hear from YOU! Empowerment is the name of the game. How else can we help you become involved? What else would you like to see VLTA do this year? Reach out to us at vlta@vlta.org and let us know what you think. Those of you who have had the experience of working in various record rooms have undoubtedly come across some very interesting recorded documents. If you have come across an unusual instrument in the land records, we would like to print it as part of a regular feature in the VLTA Examiner. Please send us your unusual finds. vlta examiner volume 22.2, summer 2016 www.vlta.org 7 fromtheDirector 6 vlta examiner volume 22.2, summer 2016 www.vlta.org Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it's the only thing that ever has. -Margaret Mead I hope this issue of the Examiner finds you all taking part in the many educational and networking opportunities available to you with the many VLTA Regional Events. The VLTA June Convention in Richmond was a wonderful experience with great educational and networking opportunities for all. If you were unable to attend, enjoy our Convention spread in this issue and mark your calendar to join us for the VLTA Convention next year! We hope that you will join-in-the-fun with other VLTA members and become a volunteer, build a bridge and share your talents with your fellow members and your association. In this issue of the Examiner we are proud to present the feature article, Oil and Gas Operations and the Real Estate Title Industry by Stephen Gregory and I would like to extend a sincere thank you to Steve for his valuable contribution. To name a few other articles of interest in this issue, be sure to check out the Claims Corner article by Dick Craig concerning current case law dealing with lien priority and tenancy. For added interest we are proud to highlight our newest addition of our Surveyor Column by George O’Quinn with an article on Riparian Rights. Also, be sure to check out Tales from the Table by Eric Nesheim concerning cyber security vulnerabilities. Then take a break and enjoy a good laugh, when you check-out the Recorded Treasure. I would like to extend a Big Thank You to all of our advertisers and contributors! We could not produce the VLTA Examiner magazine without your continued support! If you enjoy writing and you have a topic of interest to you that you would like to share, we want to hear from you, please send your articles to jrutledge@ltrinc.com. Download Complete PDF fromtheExecutiveDirector Kathleen E. Herndon, PhD Executive Director Virginia Land Title Association Recorded Treasure submitted by Ashley Hale from the public records of Fairfax County, VA Julie Ann Rutledge, vcte Director/Editor, VLTA Examiner  VLTA’s 2016 Annual Convention A Red Carpet Event Virginia Land Title Association extends a warm thank-you to all of our guests for attending the 2016 Annual Convention. With over 225 attendees across two jam-packed days, this event was a wonderful tribute to our industry. We are delighted that our education sessions were filled to the brim with agents, examiners, underwriters, and attorneys all looking to ensure they stay on the cutting edge of our industry. On Thursday evening, we hosted a special “Passing the Torch” mixer for our outgoing board, incoming board, and Past Presidents. It was an intimate and joyful gathering of our most dedicated volunteers. Our event staff was then busy preparing everything for the morning, working until the wee hours to make sure every detail was in perfect order. On Friday morning, we gobbled up a delicious breakfast sponsored by WFG National Title Insurance Company, and enjoyed education sessions from Robert Gill and Katherine Crawford, sponsored by Old Republic National Title Insurance Company. We broke bread together to the wisdom of HA&W’s Kim McConkey at lunchtime, and our special PAC luncheon featured VLTA Lobbyist James Pickral and VICEB Representative, Leslie Kostelecky. In the afternoon, we heard from Brett Woodburn, Susan Pesner, Michael Holden, Julie Rutledge, Mike Trowbridge, and Lisa Tully. We left our education sessions to gather at the famous and historic Tobacco Company, and toasted our industry courtesy of North American Title Insurance Company. In the evening, we enjoyed a fabulous cocktails and costumes party sponsored by First American Title Insurance Company, and watched Fred and Wilma win an iPad for their inspired couples costume. Our evening continued with a lavish Red Carpet Gala, sponsored by SoftPro, where we heard from Stewart Morris, Jr. We honored our special guests, Frank Butler, winner of the 2016 Volunteer of the Year Award; and Ron Critzer and Jim Windsor, winners of the 2016 Ron Critzer Distinguished Service Award. We rounded out the banquet with the installation of our new Board of Directors. Late at night, we gathered in the hospitality suite to dance and sing the night away with First Virginia Community Bank at our very first Young Professionals After Party. What fun! On Saturday morning, we returned for 2 more hours of education, where we heard from Chuck Myers and Mike Beavers of the Virginia Bureau of Insurance, and Stephanie Campbell. We also enjoyed a special Title Examiners’ Forms Workshop where we worked to craft a model Title Report Form. Stay tuned for more on the form! The day closed with the awarding of our last prize – there were so many this year! We gave away 2 pairs of Virtual Reality Goggles, sponsored by Fidelity National Title Insurance Company; 2 iPads, sponsored by TitlePac; and a 48” 1080p Smart TV sponsored by Westcor Land Title Insurance Company. Each of our 25 exhibitors also sponsored a prize drawing. What a show! We look forward to another amazing year with all of you in 2017, and hope to see you next year in Leesburg at the Lansdowne Resort for a fabulous Roaring 20’s Event. We’ll be hosting a golf tournament, 7+ hours of CE/CLE/CCE, and even a marshmallow roasting party! Stay tuned for more information. If you are interested in becoming more involved with your Association, please email us at vlta@vlta.org to inquire about committee volunteer positions and advocacy information. Our events committee hopes you will consider joining in the fun of producing such amazing events. Thank you again for your ongoing support of VLTA. 8 vlta examiner volume 21.1, spring 2015 www.vlta.org vlta examiner volume 22.2, summer 2016 www.vlta.org 9 I received an email the other day that made me realize yet again that what we do is serious. The money that we handle every day is real, even if we don’t really touch it. The email showed the following sender: Jonathan Fisher . The body of it was as follows: I am contacting you in accordance to the referral from Elizabeth Croft for title and closing services. I have attached a copy of the agreement for your review. The inspection is scheduled for early next week and I need to have the escrow up and running as soon as possible. If the property passes inspection, I will probably close within 30 days. Let me know what the total charge for escrow and we can commence with title after inspection. I will probably send a check for the total and would like instructions accordingly. Do confirm receipt of the agreement as I await your prompt response. Sincerely Jonathan Fisher There was a sales contract attached. The subject of the contract was an expensive house in Fairfax Station, with a sales price of $840,000.00. The contract also called for the purchaser to deposit with the escrow agent an earnest money deposit of $95,000.00. It is the kind of email that we all love to get. An unexpected contract from an unexpected source. Dollars signs! I said to myself: “Hold on a minute.” Who is this guy? Who is Elizabeth Croft? The hairs on the back of my neck stood up. I started to smell a rat. I asked my staff. No one knew an Elizabeth Croft. I sometimes receive contracts that were meant for our other office so I called there. No one there knew an Elizabeth Croft. I searched the property address. It is indeed a property that is for sale. So far, so good. I called a real estate agent that I know and he looked it up for me on the MRIS. No pending contracts showed. He gave me the name and telephone number of the listing agent, and I called her office. As of the next day after the effective date of the contract, she was not aware that a contract had been ratified. There were a couple of other red flags as well. The contract was not on one of the normal forms that we usually see. It looked more like something that might have been downloaded from the internet. Also, the person who sent the email asked for a price quote, but gave no contact information. Finally, the contract used the terms “Escrow Agent” and “Settlement Agent” as if they were defined terms, but did not name either agent. By this point, I was nearly certain that this email was from someone who was trying to steal from me. I sent a reply and asked the purchaser to call me because I had a few questions. I also forwarded the email to my underwriter and it did not take long for the reply to come that this was fraudulent. As I understand it, the fraud works something like this. The title agent agrees to receive the earnest money deposit. A few days later, something that purports to be a cashier’s check arrives (in this case for $95,000.00). The check looks good so the title agent deposits it into the escrow account and opens a file. The next day, the purchaser calls and says that the deal has fallen through. He has another property that he can buy, but he has to act quickly. He needs the title agent to wire the funds right away. The title agent has deposited the cashier’s check and it is the next business day, so the funds are available. The title agent wants to keep this customer happy and hopefully keep the new deal, so the funds go out. Then the hammer drops. The title agent gets a notification from his bank that the cashier’s check was no good. It was either fraudulently created or was from a batch of stolen checks. The title agent has just wired out $95,000.00 that he did not have. I have been rather long winded today, but this is important. We are in a business where we are often holding large sums of money in our escrow accounts. The criminals out there know it and are always trying to come up with ways to separate us from that money. In this particular instance, the criminal was not that skilled. I smelled the rat pretty quickly. There are other criminals out there who are much more skilled. If a deal seems a bit too good to be true, it probably is. My basic rule of thumb is to inquire if I am not sure. Call the parties and ask. If you explain why you are calling, no one is ever offended. I have actually had people thank me for asking because they realize that I am being careful and doing my best to safeguard their money. Please be careful. By the way, the person who sent me the email never called in response to my email reply. Download a PDF of this article Outstanding Professional Award Lisa Owen, Court Square Title Agency Sonia Kuppert of STA Title & Escrow is one of only 3 individuals in Virginia who has been designated as a VCTSA, VCTE, and NTP. Sonia’s commitment to professional excellence has always included a commitment to her Association. Sonia has served on the Membership Committee, the Events Committee, the Education Committee, and the Legislative Committee, and is always willing to lend a hand. Thank you so much, Sonia, for lending your time and expertise to our Association. We honor Sonia as our Volunteer of the Year, for all she has honored us! We are especially excited to welcome Sonia to our Board of Directors this year as our new Director of Membership. We know she will lead by example and energize our industry with her infectious personality. Tales from the Table vlta examiner volume 22.2, summer 2016 www.vlta.org 11 continued on page 33 Lisa Owen of Court Square Title Agency is a Virginia Certified Title Examiner, and dedicated VLTA volunteer. Her efforts on behalf of abstractor education have been exemplary and we are proud to call her one of our own. In April of 2015, Lisa single-handedly secured speakers for VLTA’s VCTE Continuing Education event in Staunton – and the event could not have been more successful. Not surprisingly, Lisa was nominated by more than one member. In the words of those who recommended her, “Lisa pays great attention to detail and is always willing to go above and beyond for us on our title searches. If we don’t understand something that is in the title search she will take the time to explain it to us. I never worry when I know that she has completed the search for us.” Lisa was ranked as outstanding across all of the following dimensions: 1) Attention to Detail; 2) Willingness to follow a problem or case to its logical conclusion; 3) Commitment to excellence; 4) Willingness to “think outside the box”; 5) and Seeks out Creative Solutions. Surely, with these recommendations, Lisa is worthy of this great honor. Lisa, we are proud to name you our First Outstanding Professional. Volunteer of the Year Sonia Kuppert,  STA Title & Escrow Eric A. Nesheim Managing Attorney of Title One Settlement  Group, LLC Chantilly, VA Often, the stories we remember and share with our friends and colleagues are the funny ones, or the ones that defy belief. Those can be fun and entertaining and we can often learn from them. Usually however, they are not things that can potentially alter our businesses or your careers. 10 vlta examiner volume 22.2, summer 2016 www.vlta.org vlta examiner volume 22.2, summer 2016 www.vlta.org 13 George O’Quinn President,  Dominion Surveyors, Inc. Riparian Rights refer to a system for allocating water among those who possess land along its path. Also called Littoral Rights for Lakes- the principle is the same. These rights may be used for irrigation, drinking water, & industrial purposes. Surveyors usually enter the world of Riparian Rights because of docking, bulkhead or shoreline stabilization concerns. In this article we will limit the discussion to the role of the Land Surveyor in making a determination of Riparian Rights. 12 vlta examiner volume 22.2, summer 2016 www.vlta.org About the Author George O’Quinn, oversees a 32 person land surveying and civil firm. His practice areas include residential and commercial land surveying and land development. He is a past president of the Mount Vernon Chapter of the Virginia Association of Land Surveyors. He is a frequent lecturer in continuing education classes for attorneys, title agents and real estate agents. He taught land surveying for nine years with the Virginia Department of Labor apprenticeship program in Fairfax County. He has served on numerous boards and committees over the last 20 years including the Southeast Fairfax Development Corporation, the Mount Vernon Lee Chamber of Commerce and the Sig Ep Va. Lambda Alumni Board. Riparian Rights Surveyor Column The Commonwealth tells us the practice of Land Surveying includes surveying of areas for determination or correction, a description, the establishment or reestablishment of internal and external boundaries, or the determination of topography, contours or location of physical improvements…by reason of the Surveyor’s knowledge of the several sciences and principles of land surveying. Determination of areas and boundaries involve analysis of evidence in the field and reconstruction of intent of the guiding legal document. Surveys or determinations should be recoverable, consistent and repeatable. There is an order of importance in evaluating evidence in the field. Natural monuments prevail over artificial monuments. We must remember that Riparian Rights are disputable. There are only three ways to resolve a dispute. You can back off, reach an agreement or go through some sort of judicial process. In order to establish Riparian Rights the Surveyor must consider the following: The seminal case for any Riparian Rights determination is Groner v. Foster 94 Va. 650, 27 S.E. 493 (1897). It says “Every riparian owner has the right to the water frontage belonging by nature to his land. This right includes, among others, the right of access from the front of his land to the navigable part of the water course, and also the right to the soil under the water between his land and the navigable line of the water course…” It also says that “A court of equity has jurisdiction, and is the proper tribunal, to make the apportionment, and to determine and establish the boundary lines of the coterminous owners.” “A just rule of division is to measure the length of the shore and ascertain the portion thereof to which each riparian proprietor is entitled; next measure the length of the line of navigability, and give to each proprietor the same proportion of it that he is entitled to of the shore line; and then draw straight lines from the points of division so marked for each proprietor on the line of navigability to the extremities of his lines on the shore.” The parameters established in the case are 1) Length of Shore, 2) Line of Navigability and 3) Point of Division (upland boundary) Carr v. Kidd 261 Va. 81, 90; 540 S.E. 2d 884, 890 (2001). This case concluded that Riparian Rights are natural rights that run with the land. The natural shoreline is most important-“unaffected by man”. We must seek the location of the natural shoreline. Sanders Yacht Club, Inc. v. Crockett’s Landing 65 Va. Cir. 514, 518 (Va. Cir. Ct. 2001). This case attempted to define Line of Navigability. There is no Supreme Court case in the Commonwealth that defines Line of Navigability. This Circuit court case defines it as follows: “... the line of contour at mean low water which provides a sufficient depth of water for riparian land owners to berth vessels of a type and size which ordinarily pass over adjacent navigable water taking into account the customary purposes for which such waters and riparian lands are used, subject to such regulations as may be imposed by the state.” In essence, waters are legally navigable when they are used or are capable of being used in their ordinary condition as highways for commerce. Navigable waters are public highways and are subject to reasonable use by all. The public right of navigation is superior to the rights of the upland owner but may not include the right of use of the uplands except in the case of an emergency. The public also has the right to use the water for commerce, navigation, and fishery, which also includes bathing, fishing, taking ice, and sometimes even the taking of soil from the bed of the navigable river or ocean. The Land Surveyor when making a determination of Riparian Rights must consider the shoreline, the line of navigability and the upland boundaries. In areas where there is a cove consideration must be given to the entirety of the cove or necessarily invade the rights of others. High points of the cove are natural monuments. Riparian rights are natural rights. In order to reconstruct riparian rights consideration must first be given to parameters of the area to be apportioned. These parameters are riparian properties to be apportioned, measurement of the shoreline and measurement of the Line of Navigability. It holds that in order for such rights to be reconstructed in the future that these parameters be recoverable, consistent, and repeatable and that the field evidence is of the highest order. Line of Navigability related to the Channel is a monument of significant importance. Its location is recoverable, consistent and repeatable over time. A Natural Shoreline is a natural monument of significant importance when historically documented and unaffected by man. Its location is recoverable, consistent and repeatable over time. Riparian rights within a cove must give consideration to the entirety of the cove or necessarily invade the rights of others within the cove. High points of the cove are natural monuments of significant importance. Their locations are recoverable, consistent and repeatable over time. These principles are superior to any other. Download a PDF of this article About the Author George O’Quinn, oversees a 32 person land surveying and civil firm. His practice areas include residential and commercial land surveying and land development. He is a past president of the Mount Vernon Chapter of the Virginia Association of Land Surveyors. He is a frequent lecturer in continuing education classes for attorneys, title agents and real estate agents. He taught land surveying for nine years with the Virginia Department of Labor apprenticeship program in Fairfax County. He has served on numerous boards and committees over the last 20 years including the Southeast Fairfax Development Corporation, the Mount Vernon Lee Chamber of Commerce and the Sig Ep Va. Lambda Alumni Board. 14 vlta examiner volume 22.2, summer 2016 www.vlta.org What is this interest called an appurtenant easement, and why do we care? Taking the questions in reverse order, we care, first, because our title insurance customers care (20 acres of pristine wilderness in the middle of nowhere is a lot more valuable if the owner can get to the road to somewhere), and, second, because our claims departments care when we get it wrong. An easement is defined as: A right of use over the property of another… The easement was normally for the benefit of adjoining lands, no matter who the owner was (an easement appurtenant), rather than for the benefit of a specific individual (easement in gross). An appurtenance is defined as: An accessory or adjunct that is attached and incidental to something that has greater importance or value. As applied to real property, an object attached to or a right to be used with land as an incidental benefit but which is necessary to the complete use and enjoyment of the property. Put these two concepts together and you have an appurtenant easement. Every examiner has seen these. Most commonly they are found in a property description preceded by the words “together with.” The benefited land is called the “dominant estate” and the burdened land is called the “servient estate.” Easements may be evidenced in various ways. For the purposes of title insurance, two are paramount. These two are by express written grant and by court order. A court order is necessary in some cases because it reduces a set of facts that proves an easement by implication, a prescriptive easement, an easement by estoppel or an easement of necessity into words, and once recorded in the land records, the order or decree expressly provides notice to the world of their existence. There are also multiple ways to terminate an easement. For the purposes of title insurance, two are paramount. These two are by express release and by court order. A court order is necessary in some cases for the same reasons required above. The order or decree reduces a set of facts that proves the easement has been extinguished by cessation of purpose, abandonment, change in condition, merger of the dominant and servient estates, acts of the servient owner adverse to the easement or lack of notice to an owner of the servient estate into words that, when added to the land records by the recordation of the order or decree, provides notice to the world of the proper conclusion to draw from the existence of those facts. A few caveats are useful here (directed as much to the underwriters as the examiners). Mere non-use will not amount to abandonment in the absences of acts or circumstances clearly manifesting an intention to abandon the right. Lindsey v. Clark, 193 Va. 522 (1952). Again, facts outside the land records are necessary to reach the conclusion, and examiners, underwriters and future purchasers will not have knowledge of those facts. A merger of title may be evident from the land records, but it must be remembered in cases involving multiple properties and multiple owners, a complete merger will not occur until every parcel is back in common ownership. Another Virginia case makes clear that the reference to a conveyance “subject to” an easement after it was extinguished was a nullity, rather than a new express conveyance. Davis v. Henning, 250 Va. 271 (1995) The conveyance language must be read carefully when an easement is conveyed after facts suggesting its termination. How is the examiner to find these easements during the examination? The most obvious clue will be the inclusion within the property description of a “together with” easement paragraph. If chained back to the creation of the easement, the examination will disclose the express grant. Running the owners in the chain of title in the grantee index, as well as the grantor index, will reveal an express easement not (or not yet) added to the property description. If the owner, or their predecessor in title is a party to a reciprocal easement agreement (however it may have been named at the time), the examiner should note the benefits, as well as the burdens. The appearance of an easement on a plat is a clue to the examiner to look for an express easement, but recent Supreme Court decisions have made it clear that depiction on a plat is not the equivalent of an express grant, even if the strip designated “easement” runs to the edge of the property being examined. Among the deeds discovered during the adversing process may be a statement that the conveyance is “subject to” an easement benefiting the property in question. These same decisions make clear that “subject to” is not granting language, but again, the examiner has a clue to go hunting for the express grant. What are the title insurance concerns with easements? They are similar to those that arise in every fee simple interest insured. Did the right owner grant the interest? Are there liens against the interest with priority? Are there other users, and is their use exclusive or non-exclusive? In the example of a long standing express easement, did those uses arise before, at, or after the creation of the interest to be insured? How does this affect the examiner? The most obvious answer is that if an appurtenant easement is discovered during the examination of a dominant parcel, another examination will be required regarding the servient parcel. If the examiner has a prior policy, and the easement does not appear on that prior policy, don’t assume it was searched. If a reciprocal easement agreement appears as an exception on that prior policy, don’t assume the easement area was searched. If the easement appears in Schedule A of the policy, the examiner might assume it was searched, as long as they remain aware of the risks of assuming. Don’t assume all exceptions for the easement area were reported on the prior policy. I have noted a variation in practices in the industry; some folks run the servient estate to the current date; others stop the examination of the servient parcel upon creation. Some customers may want to know if there are easements impacting their easement; others may inquire as to the status of the real estate taxes on the servient parcel; and others question everything. Not only should you be guided by your customer expectations BUT ALSO the insuring provisions of the policy which insures against loss from “any defect in or lien or encumbrance on the Title.” Download a PDF of this article Examining and Insuring Appurtenant Easements vlta examiner volume 22.2, summer 2016 www.vlta.org 15 About the Author Douglass W. Dewing is an underwriting counsel for the Richmond, Virginia National Commercial Services unit for the Fidelity family of title insurers. He is the author of A Virginia Title Examiner’s Manual (1998) and an occasional contributor to the Examiner and other professional publications, where he claims to be a “Jack of all trades, and master of none” in the tradition of Kipling’s Elephant Child. Douglass W. Dewing Commercial Underwriting Counsel, Fidelity National Title Insurance Company Oil and Gas Operations and the Real Estate Title Industry vlta examiner volume 22.2, summer 2016 www.vlta.org 17 The Marcellus extends through Maryland, Virginia, and West Virginia, but the depths at which it is found varies with the terrain. (Average depth of the Marcellus is approximately 8,000 feet.) A comprehensive history of the natural gas industry may be found at naturalgas.org. 16 vlta examiner volume 22.2, summer 2016 www.vlta.org Market forces have driven down the price of fossil fuels and minerals; nowhere is this more evident than the price at the gas pump. However, the depressed prices permeate throughout business and industry, from power plants to airplane fuels to anything that uses energy. Oil and gas companies have suffered the most because lost or decreased profits have “shuttered” exploration and extraction. The industry has seen its share of bankruptcies, mergers, and takeovers. Still, no one realistically expects the downturn to be indefinite. When prices begin to rise to a point that it becomes profitable for industry to go back below ground, the need for title work will also recur. Oil and gas titles resemble normal residential or commercial searches only to the extent that both examine the “surface” of the land; however, oil and gas titles go much farther back, and also include two other distinct chains—the ownership of the subsurface minerals and the mineral leasehold. Following is a brief discussion of the oil and gas title industry. I. Overview Oil and gas development in the United States dates back to the mid-19th century, although attempts to retrieve the minerals began much earlier. William Hart dug a well 27 feet deep in Fredonia, New York, to try to obtain a greater flow of gas from the stream in which he noticed gas bubbles rising to the surface. Then in 1859, Edwin Drake drilled the first commercially feasible well in Pennsylvania; “Drake’s well” is not only maintained as an historic site, but is generally considered to be the minimal starting point for title searches of oil and gas ownership. For over a century, oil and gas wells were drilled vertically from the pad site to extract whatever minerals could be reached by those methods using the equipment of the day. By the mid 1980s, technology had advanced to the point that horizontal drilling was not only possible, it became more efficient and less expensive than multiple vertical wells. Cement around steel casings allows deeper wells, providing access to natural gas trapped in shale formations. Well-known formations in the east include the Marcellus, Utica, and Huron; in addition, the Taylorsville formation in the Fredericksburg area holds some promise. II. Statutory provisions relevant to mineral lands State statutes generally regulate the industry of gas and oil production, but for the most part, do not legislate the relationship between the mineral owner and the producer. One notable exception is West Virginia Code §22-6-8, prohibiting “flat-rate” leases and mandating a minimum royalty of 1/8 for all oil and gas production. State statutes do address such topics as spacing of wells, pooling and/or unitization, permits and permitting, land use and remediation upon plugging and abandonment of wells. Virginia: The Virginia Oil and Gas Act is codified in the Code of Virginia, 1950, as amended, in Title 45.1, Chapter 22.1 (§45.1-361.1, et seq.) Maryland: The Maryland Gas and Oil statutes are in the Annotated Code of Maryland, Title 14, Gas and Oil (§14-101, et seq.) West Virginia: West Virginia statutes on minerals (including coal) are found in the West Virginia Code, Chapter 22, Article 1, et seq. (§22-1-1, et seq.) Chapters 22-A, 22-B, and 22-C also address certain aspects of mineral production. Native American Lands and Other Federal Lands The topic of minerals underlying Native American lands is too extensive for a comprehensive treatment here. Reservations and individual allotments are held by the federal government in trust for the Native Americans who live on the reservations, and for the Native American individual allottees and their descendants. Federal lands are either “acquired lands” (held in fee by the government, acquired by purchase, gift, exchange, or eminent domain), or “public lands” (held by the government in trust for the benefit of every citizen of the U.S.). III. Title Issues The ownership of subsurface minerals is a real property right separate and apart from the ownership of the surface. After the extraction of oil and gas began in the mid-19th century, property owners began to realize the value of the minerals, and would frequently sell the surface but keep the rights to whatever was below the surface. For this reason, an oil and gas search should carry the title back to at least 1859 (Drake’s Well), if not to the patent. Title opinions should strictly define the scope of the search, including a disclaimer if the records are insufficient to cover a long enough time frame. An oil and gas search starts like a residential or commercial search, but then it goes back much farther. The abstracter will begin with the current owner and create the chain back to the mid-19th century, and then bring the chain owners forward. If there is no reservation, sale, or lease of mineral rights, the title will have a familiar look; it’s the severance of minerals that makes an oil and gas title different. “The party of the first part hereby reserves a one-half interest in the oil, gas, coal, and other minerals within and underlying the property conveyed hereby.” [Note that fractional interests may be reserved.] This severance of the minerals from the surface begins a second chain of title that similarly must be brought forward to date. As has been stated, mineral ownership is an interest in real property, and may be sold or devised, or may pass by intestate succession. In Virginia and West Virginia, if the minerals are owned separately from the surface, each interest is subject to taxation, and therefore subject to delinquency and sale for non-payment. It’s not uncommon that the chain of title of the mineral owner will end not long after its creation by reservation. Maybe a neighbor’s land had sprouted a working oil well, and the owner of the subject tract had hopes of being next; when those hopes don’t materialize, the owner of the minerals forgets he has them. Generations later, the trail has gotten cold, and the heirs of the original owners are unknown by name and location. Solving this riddle will almost certainly require the intervention of the courts in a quiet title action. Older deeds may have contained language purporting to reserve the royalty in the oil and gas: “The party of the first part reserves unto itself one-half the royalty in the oil and gas underlying the property herein conveyed.” In the West Virginia of a century ago, money from royalty was considered as, and used interchangeably with, ownership of the oil and gas in place. Thus, up until about the late 1920s or so, a reservation of royalty was deemed to be a reservation of the ownership of the oil and gas. That said, though, the language of reservation was crucial, and there have been numerous cases and analyses; for example, a reservation of “one-half the royalty from the oil and gas when produced [emphasis added]” has been considered a reservation of money only. However, a reservation of a 1/16 royalty in the first quarter of the 20th century has been determined to be a reservation of the ownership of ½ the oil and gas, because the typical royalty was 1/8 (1/16 being ½ of the 1/8 royalty). Other aspects of reservations have been the subject of court cases in mineral states. In Pennsylvania, the “Dunham Rule” states that a reservation of “minerals” does not include oil and gas; oil and gas must be reserved specifically. Various states have decided their versions of a “Duhig Rule,” that a reservation of ½ the oil and gas, where the other ½ is owned by others, may actually reserve nothing to the grantor. The aspects of ownership may be further severed. For example, the owner of the oil and gas may grant the executive right to lease the minerals; this would, say, give the surface owner some control over the number and location of well sites on the land. (A holder of leasing rights may be liable to the mineral owner for waste if the leasing rights holder fails to enter into leases that would pay a royalty to the mineral owner.) Oil and gas typically are leased together for development and extraction, but they, too, can be severed, with the oil being sold or leased to one entity and the gas to another. Other minerals—coal, coalbed methane, etc.—are beyond the subject of this material. One issue that may cause complications to mineral owners is a mortgage of the surface that does not exclude the minerals from the lien. Even though “you can’t transfer what you don’t own,” if a lender thinks it has a lien on the entire property, it may sell the property after foreclosure without exception for the oil and gas. (Keep in mind that the usual residential title search — 60 years — may not reveal the separate ownership.) Federal lands: Title searches of federal lands must be done at the regional office of the Bureau of Land Management. The office for the Eastern States is located in Washington, D.C. www.glorecords.blm.gov/default.aspx Native American lands: Titles are searched at the local level, in the Land Titles and Records Office of the Division of Land Titles and Records of the BIA. In areas where severance of minerals is common, title insurance for a typical residential or commercial transaction will cover only the surface. The legal description of the property to be insured will begin “The surface of…” Even if a special exception isn’t added to Schedule B, the insured will not have rights in the subsurface minerals (although a special exception is probably still a good idea, especially if an ALTA 9 is to be issued). The ALTA 9 endorsement series contains a version that insures against loss or damage to an improvement located on the land resulting from the future exercise of the surface for the extraction of minerals. However, the endorsement does not cover damage from “contamination, explosion, fire, fracturing, vibration, earthquake or subsidence…” nor from the negligence of any person exercising the right of extraction. The ALTA 35 endorsement series insures against loss resulting from the forced removal of any structure in order to exercise a right of mineral development. IV. Mineral Leases Leases for the extraction of minerals are similar to leases of other real property; the essential elements remain the same. There must be a lessor, a lessee, specific property, consideration, and a term. (Older leases described the property by volume and the adjoining landowners; newer leases describe the property by tax parcel identification.) In addition to a royalty for all minerals extracted, oil and gas leases will usually be “paid up,” a fee per acre in advance for the lessee’s operations—even if the operations are unsuccessful. The actual royalty is, of course, negotiable, although the most common is 1/8. Higher royalties are common, whether based on negotiation or standard practice in the area. The primary term of an oil and gas lease can be anything from a matter of months to years, but it is the secondary term that is most important to oil and gas operators. “This lease shall be in effect for the primary term of 3 years, and as much longer thereafter as oil and gas is found in paying quantities or operations continue in the search for oil and gas.” Language such as this assures the operator that it may continue its profitable extraction as long as the minerals can be removed, and the lease is thus “held by production.” The secondary term may also provide that the lease will continue if the land is used for the subsurface storage of gas. In oil- and gas-rich areas, leases from the late 19th century may still be valid, held by continuous production. Other terms may be included in the lease as agreed, as with commercial leases of real property. The primary term may be preserved by the lessee by the payment of “delay rentals” to the lessor, until such time as a producing well can be drilled. If a well in production fails to produce sufficient quantities, the lessor may “shut in” the well and pay fees to the lessor to continue the lease. The depth to which the lessee may drill may be specified: “from the surface to a depth of 5,000 feet,” “from the surface to the top of the Onondaga formation,” etc. Thus, it is possible that there may be 2 valid leases on the same property, distinguished by the depth to which each lessee may operate. A lease may also include a “Pugh clause” which provides that at the end of the primary term, the lessee may only hold a fraction of the leased property by production—for example, 60 acres around any well drilled on the land. With the advent of horizontal drilling (hydraulic fracturing), the right to pool and/or unitize tracts becomes an important term. Because a single well pad can extend drilling legs for miles beneath the surface, the joinder of adjacent tracts becomes economically and environmentally efficient. A lessee operating under an older lease will obtain a modification to include a pooling clause. Most states allow mineral operations on property even if not all of the mineral owners execute a lease or leases. In such cases, the lessee is obligated to preserve and/or pay over the proportionate share of the royalties to all mineral owners. In West Virginia, however, all owners must have executed a lease before the lessee can begin operations. Lessees can, and often do, assign all or part of the lease to other operators. (“ Assignor hereby assigns to Assignee a 50% working interest in the lease of record in _____…”) Consideration for an assignment may be a single flat payment, a reservation of a fractional royalty (an “overriding royalty interest,” or “ORRI”), or both. A lessee with an unrestricted depth lease may assign all rights in a certain depth, retaining the rest. (“Assignor hereby assigns to Assignee all right, title, and interest in the lease recorded in ____ from the surface of the Subject Property to a depth of 5,000 feet…”) Although assignments should be recorded, state statutes do not require it. Title opinions for oil and gas operators may take the form of a due diligence report, a preliminary drilling opinion, or a full drilling opinion, depending on the need at the time. Because of the risk involved, drilling opinions must be comprehensive and address not only ownership of the oil and gas (and surface, if requested), but also present leases, prior leases, easements, rights of way, liens, and taxes. The opinion should include a complete chain of title of not only the ownership, but also the leasehold. The opinion should also include appropriate limitations and disclaimers, and itemize specific defects, identifying those that require action and those that are for information only. Most oil and gas operators will proscribe a form and format they require for these opinions, which may run to over 100 pages. Once submitted, the opinion letter will be reviewed by the operator’s landmen, which may result in requests for additional information. V. Insuring Minerals and Mineral Rights  (a wish list) Title insurance companies have long been reluctant to insure oil and gas leases. In non-rating bureau states, the reason for not offering title insurance on oil and gas leases has traditionally been the risk associated with such a policy; still, as long as the policy doesn’t insure production, it is the opinion of the author that the risk is no greater than insuring any other lease, and may, in fact, be less. (Consider that a typical search for a commercial lease is only 60 years while an oil and gas search takes the title back to the mid-19th century.) One ancillary problem may be the amount of coverage; unlike a commercial lease, the value of the lease is difficult to determine. However, one should never confuse the unlikely with the impossible, as Wodehouse’s Psmith was wont to say. The amount of coverage may be determined by the assessment of the property, or even just by the request of the insured. Because oil and gas searches don’t at present result in issuance of title insurance policies, the searches are usually delivered to attorneys to create opinion letters. The search itself is time-consuming and tedious, requiring some specialized training to complete. However, when the industry recovers, oil and gas title work can be lucrative. Download a PDF of this article by Stephen Gregory, Esq. Feature Article 18 vlta examiner volume 22.2, summer 2016 www.vlta.org vlta examiner volume 22.2, summer 2016 www.vlta.org 19 Jerry C. Booth, Jr. Underwriting Counsel for Virginia & West Virginia Fidelity National Title  Insurance Company 20 vlta examiner volume 22.2, summer 2016 www.vlta.org Most title underwriters are highly unlikely to insure a title based solely on facts that might establish adverse possession, no matter how strong the case may seem. Facts that may establish adverse possession really amount to nothing more than evidence that may be presented to the local Circuit Court with the hope of obtaining an order declaring the title to be vested in the claimant. As such, a court order is required to establish title by adverse possession. However, in some cases where the title is somewhat marginal or imperfect, facts that might establish adverse possession may be taken into account by the underwriters in making their decision to insure a particular property. In these cases, the insurer has some level of comfort in knowing that, if all else fails in the event a claim is made against the title, it may be able to establish the title through adverse possession as a last resort. Any discussion on the issue of insuring a title based in whole or in part on adverse possession necessarily must start with the premise that the goal of the title insurer and the parties to a real estate transaction is to reach the mutual conclusion that the title is marketable based on consideration of all of the relevant facts. Justice Carrico stated what most consider to be the standard for marketable title in Virginia in the case of Madbeth, Inc. v. Weade, 204 Va. 199, 129 S.E.2d 667 (1963). His opinion stated as follows: A marketable title is one which is free from liens or encumbrances; one which discloses no serious defects and is dependent for its validity upon no doubtful questions of law or fact; one which will not expose the purchaser to the hazard of litigation or embarrass him in the peaceable enjoyment of the land; one which a reasonably well-informed and prudent person, acting upon business principles and with full knowledge of the facts and their legal significance, would be willing to accept, with the assurance that he, in turn, could sell or mortgage the property at its fair value. Cogito v. Dart, 183 Va. 882, 887, 33 S.E.2d 759; McAllister v. Harman, 101 Va. 17, 25, 34 S.E. 474; Clark v. Hutzler, 96 Va. 73, 76, 77, 30 S.E. 469; Anno. 57 A.L.R. 1284. While there is no bright line test as to what constitutes a marketable title, it is clear that an allegation of title by adverse possession does not alone make a title unmarketable since it is necessarily dependent on litigation and a court order to be conclusively established. The more difficult issue is where the seller is clearly in the record chain of title, but perhaps the legal description is old and somewhat difficult to follow, or where there appear to be scriveners’ or other errors in old deeds which create clouds on the title to varying degrees. In some of those cases, despite their imperfections, strong evidence of facts which appear likely to establish title by adverse possession may convince the underwriter to insure with the added comfort that if the title otherwise fails, title by adverse possession could successfully be asserted in order to establish or defend the title in the insured. Since no two titles are exactly alike, all of the relevant facts will always need to be considered on a case by case basis. Download a PDF of this article About the Author JERRY C BOOTH JR. has practiced in real estate and title insurance law for 25 years, and is currently underwriting counsel in Virginia and West Virginia for Fidelity National Title Insurance Company. A graduate of Wake Forest University and the University of Richmond School of Law, he was previously a title attorney, agency counsel and claims counsel for Lawyers Title, LandAmerica and Fidelity. Prior to joining Fidelity as underwriting counsel, he was engaged in the private practice of law where his practice focused on commercial real estate transactions and real estate related litigation. Having spent over half of my lifetime working to cure or resolve thousands of imperfect real estate title issues, I regularly address how allegations of adverse possession impact the title insurance underwriting process. Adverse Possession – Impact on Title About the Author Stephen Gregory serves as underwriting counsel for WFG’s Agency Group in West Virginia and as a secondary underwriting resource in Virginia. Over the course of his 35-year career, he has served with one of the nation’s largest underwriters for 10 years in both a state manager and underwriting counsel role. He has also practiced law extensively in the private sector, including five years with Steptoe & Johnson in Charleston, W.Va. Gregory works with the West Virginia Department of Transportation as well as Legal Aid of West Virginia. He earned his J.D. from George Mason University, and his bachelor’s degree from the University of Virginia. vlta examiner volume 22.2, summer 2016 www.vlta.org 21 Richard E. (“Dick”) Craig Counsel, BrigliaHundley, PC 22 vlta examiner volume 22.2, summer 2016 www.vlta.org The purpose of this piece is to serve as a reminder that the underwriting and conveying of title is a pragmatic process and is always affected by case law as well as legislation. Currency is important. We are going to look once more at a case that received a huge amount of attention several years ago and has somewhat receded into the shadows. It is still here, however, and its effect continues. We will examine an example of its effect and look at the importance of pragmatism in the resolution of what at first glance appears to be an insurmountable obstacle to closing a sale and purchase. Claims Corner vlta examiner volume 22.2, summer 2016 www.vlta.org 23 Some of us may recall that day in April, 2002 when it seemed that the judicial underpinnings of our sacrosanct system of property ownership had shifted as if SCOTUS was the epicenter of a magnitude 9.0 earthquake. That was the day the decision in United States v. Craft was handed down and greeted by a universally appalled title industry. For days we read and reread Justice O’Connor’s opinion in disbelief. The internet and phone lines were seething with frenetic email and calls between battalions of underwriting and claims counsel around the country who were forgetting to take nourishment or tend to personal hygiene but instead were rending garments, tearing hair and gnashing teeth. No one had ever imagined such an audacious and unprecedented assault on the most sacred of legal fictions — the tenancy by the entirety. Upon realizing we were naked, bald, toothless and somewhat fragrant, we retreated to our natural shyness and over the next few months concentrated on restoring our dignity and composure. We had learned from 9-11 the previous year that we are a resilient and resourceful race - even those of us in the “industry.” So, clad in new dark suits and with heads high we constructed the rationalization that Craft is, after all, a very narrow ruling. We found solace and comfort in Justice O’Connor’s observation in her opinion that if the IRS could not enforce a tax lien against the entireties interest of a delinquent taxpayer, the rest of us would ultimately have to suck it up on each April fifteenth. In the Old Dominion, the District Office of the IRS, after Craft, indicated informally, as it always did, that it still had no particular designs on tenancies by the entirety. Of course that was before the effect of the 2001 reorganization of the IRS was really apparent. Needless to say, things have changed. Craft is an ordinary story and was spawned in Michigan in the ordinary way. Don Craft failed to file tax returns for several years and then failed to pay the tax liabilities assessed by the IRS as their sleuths caught up. Don and Sandra Craft, a married couple, owned a piece of property as tenants by the entirety, and upon notice of the filing of the tax lien by the government, both executed and recorded a quitclaim deed conveying the property to Sandra individually. Subsequently, Sandra sold the property with the agreement of the government, free of the tax lien, provided half of the sale proceeds be held in escrow pending a determination of the government’s interest. Sandra then bought action against the government to quiet title to the escrowed funds in the U.S. District Court. The government by motion for summary judgment contended that the lien attached to Don’s interest in the tenancy by the entirety. Sandra contended that it could not attach to because Don had no individual interest as a tenant by the entirety. The District Court granted the government’s motion, and Sandra appealed to the Sixth Circuit. The Sixth Circuit held that the tax lien did not attach because Don held no individual interest under Michigan Law and remanded the case for a determination of other unrelated issues. In affirming the District Court’s ruling on the other issues on remand, the Court noted that its ruling as to the tenancy by the entirety was the law of the case. The United States Supreme Court granted Certiorari and reversed the Sixth Circuit holding that Don Craft’s “interests in the entireties property constitute property or property rights to which a federal tax lien may attach.” The ruling squarely contradicts the Court’s long settled position reserving the determination of property rights to the states as enunciated in 1960 in Aquilino v. United States and reaffirmed in a number of cases thereafter. Prior to Craft in Virginia there was always trepidation in the title underwriting community in the face of a federal tax lien against one tenant by the entirety — notwithstanding the District Office’s unofficial hands-off policy. It is now a reality that the application of Craft is in full force as to federal tax liens. Our interest in this piece, however, is the extent that Craft has reached beyond tax liens to the enforcement of non-tax liens. To that end we will now look at a recent case and its disposition by agreement which illustrates that Craft has been extended to Department of Justice liens and that there are certain practical strategies workable in some cases to avoid or confront government enforcement. The case is a criminal matter in the Eastern District, Alexandria Division. Factually, the criminal activity arose out of a scheme perpetrated by a local financial planner/securities dealer involving embezzlement of client funds over a period of several years to fund investment in high risk, speculative ventures that ultimately foundered in the general financial collapse of the last decade. The dealer was a family man and owned and resided in a fashionable rural residence in Northern Virginia with his wife. They held title as tenants by the entirety. As the scheme unraveled, his prosecution was rapid and revealed that a number of his clients wound up in very unfortunate circumstances. He was ultimately sentenced to a number of years in a federal penitentiary with a hefty fine and a restitution order. His wife and family were also in unfortunate circumstances as a result, and acting for herself and as attorney-in-fact for her husband, she listed and sold their residence with his concurrence. Prior to the sale, the DOJ filed a lien against the dealer in the county wherein the residence is located. The sale and settlement proceeded notwithstanding the lien, and the government initiated its usual enforcement procedures which precipitated counsel representing the interests of the purchaser and purchase money lender. Research revealed that the government’s action was well within bounds pursuant to 26 USC § 3613. A close examination of the facts revealed (a) that there was no equity in the property at the time of sale, (b) that the purchase money financing was very close to 100 percent, and (c) that the greatest portion of the purchase money funds was used to pay off the existing mortgage loan which pre-dated the DOJ Lien. Title 18 U.S.C. § 3613 explicitly directs that fines/restitution liens be treated as federal tax liens. The statute provides that “[a] fine imposed … is a lien in favor of the United States on all property and rights to property of the person fined as if the liability of the person fined were a liability for a tax assessed under the Internal Revenue Code of 1986.” 18 U.S.C. § 3613(c) (emphasis added). Accordingly, fines, penalties, and restitution imposed by order, that arise pursuant to § 3613 should be treated in a similar fashion as federal tax liens. Thus the application of Craft is the next step. In accordance with the statute, courts have extended the Craft reasoning to restitution orders in holding that federal judgment liens attach to entireties property. In States v. Godwin, the government brought a fraudulent conveyance action against a husband and wife after the wife, who had been convicted of embezzlement, transferred her interest in entireties property to her husband. Interpreting the government’s ability to reach the entireties property through a restitution lien authorized under Section 3613(c), the court reasoned that a restitution order “creates the equivalent of a federal tax lien” and holding that a “restitution judgment was not subject to exemption under North Carolina law for property held by wife and husband as tenants by the entirety.” Quoting Craft, the court explained that, “[e]ven though state law may exempt land ‘held by husband and wife as tenants by the entirety [from] levy under execution on judgment rendered against either [spouse] alone,’ such exemptions ‘do not bind the federal collector.’ … these same principles apply to interpreting 18 U.S.C. § 3613(c).” Similarly, in United States v. Poulsen, the Sixth Circuit extended the same treatment to a restitution order that attached to one spouse’s interest in an investment fund held by tenants by the entirety. United States v. McArthur likewise held that a restitution order attaches to one spouse’s interest in a joint account pursuant to the Craft reasoning and the statutory language of 18 U.S.C. 3613 (c). So, it’s quite clear that Craft has been logically extended to the enforcement of DOJ liens and that federal law determines the property rights of the convicted offender. In this case, the lien attached to the entireties interest of the dealer, and the purchaser took title subject to the lien. The fact that there was very little, if any, equity in the property on either side of the sale and purchase would have been important had the government been brought into the picture prior to settlement, and it is likely that a release as to the property could have been accomplished. The government has no particular interest in impeding ordinary property transactions, particularly if there is no practical opportunity to satisfy to some extent, its lien interest. It’s a different story when the government discovers that its lien has been ignored. The enforcement of federal liens falls to the Office of the United States Attorney, Civil Division, and those folks can get a little grumpy when they are overlooked. In this case, the government emphatically made its displeasure known in its initial meeting with counsel. The government conceded that its lien interest was one-half of the entireties interest. The real controversy in this case after the usual posturing, boiled down to whether the DOJ lien, notwithstanding that it attached prior to the recordation of the purchase money deed of trust, was prior to the purchase money security interest. The purchaser’s interest was subject to the lien, but the purchaser’s equity was nominal. Obviously, however, no purchaser would want the normal increase in equity to be subject to the lien, so there was no daylight between the purchaser and the noteholder. The noteholder’s security interest appeared to present the best opportunity to wedge or counter the government’s demands and gain some traction in the negotiations. Counsel’s position in negotiations with the government was that the DOJ lien could not have priority over the purchase money deed of trust. The basis for the position is that the DOJ lien pursuant to 18 U.S.C. § 3613 is to be treated as if it were a tax lien. IRS Publication 785 (10-2005), Special Information relating to Purchase Money Mortgages, Purchase Money Security Interests, and Subordination of the Federal Tax Lien states that “The PMM or PMSI will have priority over the federal tax lien in the property you are purchasing in an amount equal to the proceeds of the loan that are directly used to purchase the property.” The Publication also refers to Revenue Ruling 68-57, which states that “the Internal Revenue Service will consider that a purchase money security interest or mortgage valid under local law is protected even though it may arise after a notice of Federal tax lien has been filed (emphasis added).” The government countered that it is not subject to any IRS publication of Revenue Ruling. Federal case law, however, backs up the IRS position. The lead case is Slodov v. United States in which the Court enunciates as follows “But the IRS is not given the power to levy on property in the hands of the taxpayer beyond the extent of the taxpayer’s interest in the property, and the Code specifically subordinates tax liens to the interests of certain others in the property, generally including those with a perfected security interest in the property. For example, the Code and established decisional principles subordinate the tax lien to perfected security interests arising before the filing of the tax lien, to certain perfected security interests in certain collateral, including inventory, arising after the tax lien filing when pursuant to a security agreement entered into before the filing, and to collateral which is the subject of a purchase-money mortgage regardless of whether the agreement was entered into before or after filing of the tax lien.” Slodov is followed by a line of cases the most recent decided in 2013. As to local law, the Virginia Code conveniently provides the following definition of purchase money. “The words “deferred purchase money,” “purchase money” or words of like purport, shall be construed as if the deed set forth: “This deed of trust is a contemporaneous purchase money deed of trust and secures the payment of deferred purchase money due by the grantor upon the property hereby conveyed.” Any deed of trust securing a loan, proceeds of which are used by the borrower to acquire the secured real property, shall be deemed to be a purchase money deed of trust.. The Virginia Supreme Court has likewise defined a purchase money mortgage as “a mortgage on land executed by the purchaser of the land contemporaneously with the acquirement of the legal title thereto, or afterward, but as part of the same transaction … and [it] is entitled to preference as such over all other claims or liens arising through the mortgagor though they are prior in time; and this is true without reference to whether the mortgage was executed to the vendor or to a third person.”. Counsel also researched and assessed the prospects of a successful push for equitable subrogation of the DOJ lien to the purchase money mortgage. The windfall argument seemed to be the best shot, but equitable subrogation is no longer the reliable remedy it once was, especially in the federal courts. It would have been an alternative argument had the matter been litigated. Fortunately, an accommodation was reached with the government, and the DOJ lien was released as to the subject property. Neither side wished to “swing the bat” in this case. The purchase money issue remains open in the Fourth Circuit. Neither side was particularly ecstatic with the deal which generally means it was a pretty fair outcome under the circumstances. Craft has gone in other directions as well. In Maryland, for example, a very determined U.S. Trustee sought on several occasions to use Craft to enhance the trustee’s strong-arm position in bankruptcy cases. His efforts didn’t impress the Fourth Circuit. There are other tales, but I hope this limited but close look at an actual case worked out under the shadow of Craft illustrates that (1) Craft is alive and well (2) that currency in the law is critical to underwriting title, and (3) that pragmatism and timeliness are the best tools in dealing with federal liens. As an afterthought, it may also be that as a group, we, in the industry, are most prescient when we are naked, bald, toothless and somewhat fragrant. Download a PDF of this article The Craft Ultimatum 24 vlta examiner volume 22.2, summer 2016 www.vlta.org “Underwriting and claims solutions from Artu, Esq.” ARTU (Anal Retentive Title Underwriter who is spending his time “down on the farm”), Esq. is the ideal title insurance counsel — a problem solver who understands not only the legal issues, but the reality of each particular risk determination and claim. Question: You are counsel for James Batts who has been offered $750,000 to sell Blackacre, a corner lot at Plymouth and Main, in Chesterfield County, Virginia, which has an assessed value of $200,000. The purchaser is a commercial developer who thinks that all the lots on Main will be rezoned for commercial use, and that an aggressive price for Blackacre is worth the risk. The problem is that the transaction must close within the next 5 business days, and the IRS has just recorded a $300,000 tax lien against Batts in Chesterfield County. Batts advises that the IRS failed to give him legitimate credits, no taxes are due, the lien is not valid, and he will contest the amount in Tax Court. You have reviewed Batts’ tax issue with his high powered accounting firm which is confident that the tax matter will ultimately be resolved in Batts favor. However, an additional pressing problem is that Blackacre is encumbered with a deed of trust to Big Bank, Batts is in default, and Big Bank is preparing to commence foreclosure proceedings. The balance due on the Big Bank note is $250,000. Counsel for Developer insists that his client will not close without title insurance and Batts is pleading with you to resolve his problem. What do you do? Answer: Ask the title company to insure, because there are ample funds to close this transaction with zero risk. The sales price is $750,000 and there will be $500,000 remaining after the Big Bank deed of trust is paid. Sufficient funds can be escrowed to satisfy the IRS lien in the event that it is valid. What would you do? vlta examiner volume 22.2, summer 2016 www.vlta.org 25 About the Author Richard ‘Dick’ Craig currently serves as Senior Counsel at BrigliaHundley, PC in Fairfax, Virginia. He primarily concentrates in the resolution of defects in the title to real property as they affect the policy obligations of title insurers, the rights of property owners and the security rights of mortgage lenders and holders. Dick joined Old Republic National Title Insurance Company in 1994 as Area Counsel with responsibility to underwriting and claims for Virginia, Maryland and the District of Columbia. In 1995 he assumed the position of Vice President, Area Manager and Counsel, and was responsible for company operations until 2006 when he joined Cochran & Owen, LLC. In addition to practicing law, Dick was for several years a builder/developer gaining experience in site acquisition, development, architectural design and residential constructions. Dick earned his Bachelor of Arts degree from the School of Government and Public Administration at American University. He remained at American University, receiving his Juris Doctor from The Washington College of Law in 1970. Dick also served in the United States Air Force for four years and the inactive reserve for two years. He is admitted to practice in the Commonwealth of Virginia, including the U.S. District Court for the Eastern District of Virginia.. 26 vlta examiner volume 22.2, summer 2016 www.vlta.org Clerks Corner It has been ten years since the Virginia General Assembly passed the Uniform Real Property Electronic Recording Act (URPERA). The uniform act can be found in Virginia Code Sections 55-142.10 to 55-142.15. It has also been ten years since I wrote the article “The Real Property Electronic Recording Act: Is Electronic Filing Really Here?” for The VLTA Examiner. In that article, I expressed concern for the high cost of compliance with the Virginia Information Technologies Agency (VITA) security standards, concluding that Virginia would not see rapid adoption by clerks around the Commonwealth. I stated: “only the larger and wealthier localities will implement electronic filing systems unless and until the cost issue can be effectively addressed.” I was right and I was wrong. The high cost of compliance with the VITA security standards has been mitigated by national electronic filing companies entering Virginia. Their ability to spread costs over multiple jurisdictions has enabled them to make electronic filing economical. In doing so, they have also enabled smaller clerks’ offices around the Commonwealth to participate in electronic filing. However, in ten years, only about 20% of clerks’ offices around the Commonwealth have adopted electronic filing. Taking stock of electronic filing of land records today, there is good news and bad news. THE BAD NEWS First, for the bad news. While I thought it would be the high cost of compliance with the VITA security standards that would keep electronic recording from being rapidly adopted, it turns out that the economic downturn of the last eight years has had a negative impact on the real estate market in many areas of Virginia. The economic downturn has resulted in a significant decrease in the number of recordings throughout the Commonwealth. As a result, there has been very little industry demand for clerks to adopt electronic recording. In addition, the technology trust funds, collected by clerks and used to finance technology improvements in their offices, such as electronic filing, have decreased in lockstep. The reduction in technology trust fund monies has come at the same time that decade old hardware, software applications, and even coding languages, are in need of modernization. Therefore, many clerks’ offices are only able to maintain the technology they currently have in place. THE GOOD NEWS Now, for the good news. While the Commonwealth of Virginia does not compile statewide statistics, it appears there are at least 23 clerks’ offices electronically recording land record documents, representing approximately 20% of the 120 clerks’ offices in Virginia. At least 4 more clerks’ offices will have electronic filing capabilities within the year. Importantly, most of the larger jurisdictions in Virginia (Virginia Beach, Chesterfield, Prince William, Loudoun, Hanover, and Fairfax) have electronic filing systems in place. Henrico is one of the localities which are scheduled to come on-line this year. I am aware of three national electronic recording companies in Virginia: Simplifile, Corporation Service Company (CSC), and eRecording Partners. These companies have been game changers. They have been able to lower the cost of electronic filing to such an extent that even small and medium size clerks’ offices can afford to record electronically. York, Smyth, Scott, King George, Dinwiddie, Washington, Arlington, Alexandria, and Rockingham, all have electronic filing systems in place. To give you a sense of the growth of electronic recording, Simplifile, which is in all 23 of the electronic filing jurisdictions in Virginia, provided me with some of their statistics. In 2009, the first year statistics are available, Simplifile customers recorded 432 documents electronically statewide. In 2012, that number had jumped to 24,872. In 2014, the number rose to 36,547. In 2015, the number of documents filed electronically by Simplifile customers almost tripled to 106,218. Already, in the first quarter of 2016, over 48,000 documents have been filed statewide through the Simplifile system. This puts us on pace to electronically record 192,000 land records documents in 2016, with this one company alone. In Fairfax, where we have our own electronic filing system with a portal that allows all three national electronic recording companies to access our system. With the addition of the three national e-filing companies, we are now recording over 50% of our documents electronically. WHAT WILL THE NEXT DECADE BRING? Since, I was not completely wrong in my predictions ten years ago; I will venture to make two more prognostications. First, let me say, the economic benefits of electronic recording for both the public and for clerks’ offices remain strong. For the public, the ability to record and disburse the same day is a huge benefit; being able to fix and re-record the same day, if a document is rejected for some reason, is truly amazing; the cost of having someone drive to the courthouse and stand in line to record is saved; and the time delay in recording, if a document is mailed to the clerks’ office, is eliminated. Finally, the public receives their recorded documents back the same day. Gone are the mail-back time delays of yesterday! From the clerk’s perspective, the cost savings and efficiency of not having to process, record and mail back documents received in the mail, and not having to spend the time converting paper documents into electronic format for digitized storage and viewing by the public are tremendous; and since payment is often made by electronic funds transfer or handled by a third party, the clerk does not have to deal with bad checks. For these reasons, my first prediction is that given the benefits, trends, and industry momentum, every clerks’ office in Virginia will be recording electronically within ten years. My second prediction is that by 2026, over 75% of documents recorded in Virginia, will be recorded electronically. If I am wrong, and it turns out closer to 95% of all land record documents are recorded electronically by 2026, we can all celebrate my mistake! Download a PDF of this article Hon. John Frey, Esq. Clerk of the Circuit Court,  Fairfax, VA The Uniform Real Property Electronic Recording Act: A Decade Later, Where Are We Now? Rights vlta examiner volume 22.2, summer 2016 www.vlta.org 27 About the Author John Frey grew up in Springfield, Virginia. He attended West Springfield High School, graduated from Furman University, in Greenville, South Carolina, with a B. A. Degree, and received his law degree from Hamline University School of Law, in St. Paul, Minnesota. John serves as the Clerk of the Fairfax Circuit Court, the largest circuit court in the Commonwealth of Virginia. He was elected in 1991 to serve an eight-year term and was re-elected in 1999 and 2007. John has a staff of 163 employees with a budget of over 11 million dollars. Dear Tute: What can you tell us about the impact of TRID on Title Examiners in Virginia? Does TRID require E&O insurance? A specific level of E&O insurance? Membership in VLTA or ALTA? Can the lender require specific turnaround times? The attorney? The consumer? Can they cap the fees charged for the examination? For the photocopies? For the recording charges? OMG, Is it Time to Retire? Dear OMG: Not to sound like the disclaimer of all disclaimers, but I don’t have a clue. I didn’t think I had to have a clue. Someone way over my little ol’ pay grade is responsible for knowing that sort of stuff. But I looked. And I have some continuing education coming up where I will listen (for once). But that won’t help you now (but gives me an idea for a future column, which is always welcome). Not having let ignorance get in the way of my prior missives, I don’t plan to start now. Let’s start with… what is TRID? TILA-RESPA Integrated Disclosure. Oh, my, that is ever so helpful. OK, let’s start with the mortgage meltdown, you do remember that? When “too big to fail” became the punch line of more jokes than you could shake a stick at. Like Edgar Allen Poe’s Raven, the government said “Nevermore.” (or maybe it was “never again”) They created a brand new agency to regulate this process, called the Consumer Financial Protection Bureau (CFPB). I think I heard this agency has no budget; it is financed by what it can eat (er, earn) in fines and penalties. It was charged with making sure consumers understood what they were getting into, and could afford to get into what they were getting into. (This includes a whole slew of consumer debt besides residential lending, like credit cards and payday loans) The Integrated Disclosure is the foundation from which loans will proceed. Enough background? Let’s move on. Does TRID require E&O? (WHO CARES? Do you have a house, a spouse, kids, pets, mothers in law living in your attic? You require E&O!!! It’s simple self-defense. But I digress. I apologize for yelling.) Maintaining appropriate professional liability insurance is ALTA Best Practice #6. If you are an employee, your employer should have this at the company level. If you are a free-lancer, you should have this. What is appropriate? Tute is a risk averse person, the most expensive piece of property you ever examined times two seems about right. Your insurance advisor can give you a more reasoned opinion. There is a 3-day rule in these regulations. Three days after the consumer’s loan application is complete, they are supposed to get a Loan Estimate Form. Another 3-day rule is associated with the Closing Disclosure Form; the consumer is supposed to get that 3 days before closing (called consummation in the regulations, which reminds me of the column I intended to write . . . never mind, I digress again) The next question has to do with “what kind of examiner are you?” A title search or examination falls into the category of services the consumer can shop for, as does title insurance itself. If the lender owns the title insurance agency, and you are an employee of the title insurance agency, then there is one set of rules. If the lender doesn’t own the agency, and you are an employee, there is a different set of rules. And if you are a free-lancer, then you are probably under whatever rules apply to the agency. That is important because in one category, the estimate has to be spot on, or the lender eats the difference, and gets fined by CFPB in order to feed its employees. In the other category, there is a teeny, tiny bit of wiggle room, but that wiggle room applies to a whole slew of unrelated expenses, and if there are too many folks coming in over their initial estimate, well, it’s dinner time in Washington… again. You might be thinking “not my problem” if the lender has to eat the mistake. You haven’t dealt with many lenders have you? Nothing, I repeat NO THING, is ever, ever, ever the lender’s fault. Just ask them. And sadly, the Golden Rule (no, not that Golden Rule, the other one, “he who has the gold, makes the rules”) means that if the lender gets saddled with inaccurate estimates, you aren’t likely to get hired again . . . ever. So you probably need to think about a minimum flat fee, one that adequately compensates you for your actual time on the vast majority of your files, and that adequately compensates you for the occasional dog that sneaks under the radar and ends up eating your lunch, for those moments when you won’t have the luxury of saying “I charge by the hour.” But back to the lender and their problems. CFPB, noting which Golden Rule lenders applied, and not wanting to go hungry itself, told the lenders: You are responsible for your compliance. (you have the gold) You are responsible for your vendors compliance. (you have the gold) You are responsible for your vendors’ vendors compliance. (you have the gold) You may begin to understand why Lenders just went from “I don’t know, the title exam just shows up” to caring intensely about the title examiner and the examiner’s qualifications and charges. Remember, they have to deliver an estimate 3 days after loan application is complete. Now you know and I know the lender (if they are in charge of ordering things) is not going to order the title exam until the loan app is complete. So you (or your agency employer) have (has) three days to do the title (have the title done) and send them (the lender and/or the settlement agent . . . I understand there is still some discussion on who is going to do what) an actual bill so they can fill in the estimate. I am going to say this once, and then pretend I never said it. Failure to plan on your part does not constitute an emergency on my part. Did you say something? I really need to clear the wax out of my ears. One thing the CFPB, and thus the lender, really cares about in this day and age of hackers and cyber thieves is data security. Never mind that the federal databases aren’t secure, what are you Mr. Lender, and your vendors, and your vendors’ vendors, going to do keep our customers’ data safe and secure? Sadly for me, this is an area where I tend to agree with the regulators. Even though everything I, the examiner, have comes from the public land records (with the exception of a prior title insurance policy, if lucky enough to receive one), it is information that can be used (on its own, or in conjunction with other information) to identify a specific person or persons. It has their name, their address, or multiple addresses, some of the folks they do business with, maybe account numbers, and sometimes whether or not they are current in their obligations. It may identify their workplace or occupation. Even the prior title policy provides that sort of information about an earlier transaction in which the consumer purchased an asset or gave an asset as collateral for a loan, including the title company’s file (account) number. One response might be to hire good ol’ Tute to do the exam. With handwriting so illegible, it might as well be encrypted, the consumer’s data is surely secure. With a DSL line so intermittent that a half hour of access is considered a good day, it seems likely no hacker could get to my notes if I did type them up. And the lack of a scanner at home and that same DSL line means you aren’t going to have the notes e-mailed to you either, unless we’re both really, really lucky. Which means Tute might have to add an encryption module if e-mail delivery turns out to be important. I might be able to get the fax machine going if you are really in a hurry, but I haven’t plugged it in a few years, and I’m not sure it still works. So, I’ll see you about 3 pm when I drive home from the courthouse. You are still right around the corner from Starbucks, aren’t you? The handwriting = encryption is not going to fly with the CFPB, and neither will a public space with WiFi, but last I heard there wasn’t a big business in intercepting faxes or hand deliveries. (Now don’t tell me to leave the notes on your front porch/door, there are a number of recorded incidents where documents went missing while waiting outside a door for a pickup and return to a secure space.) Protecting Non-public Personal Information is ALTA Best Practice #3. At this point in time, Tute is unaware of any mandatory licensing requirements for examiners. The VLTA has a voluntary certification program, and you should consider it. Earning that certification tells the world that you aren’t fresh off the turnip truck, you know a little something about the practice and process of examination. In lieu of maintaining licensing, which is ALTA Best Practice #1, certification is the best evidence you can offer. ALTA Best Practice #4 is directed at the settlement agent, but you may get dragged into this one, even if you free-lance. This best practice includes the obligation to ship/deliver documents for recording and ensuring timely responses to rejections. No more leaving the docs on the counter and not thinking about them again. Just as the examiner is the eyes and ears of the insurer when it comes to looking at the land records, the examiner is the eyes and hands of the settlement agent when it comes to recording. You might find it prudent to go behind your recordings and make sure they all were accepted for recording, and returned to the settlement office, even if the documents had return envelopes attached. It is amazing how envelopes can get lost while the document is being microfilmed/scanned. ALTA Best Practice #2 deals with trust accounts. Unless you also free-lance as a closer, you shouldn’t be allowed anywhere near the trust account. Trust me, it is for your own good. Best Practice #5 deals with policy production, delivery, and premium remittance and reporting. With any luck, you are far too valuable out in the field to get called into the office to fill out remittance reports. And one last closing thought as I finish displaying the full extent of my ignorance about this very complicated set of regulations, fraught with legal complexities. TRID ought to be applicable only to residential loan transactions. If you are good enough, there is the exasperating world of commercial title insurance ready and waiting for you to dive in (make sure you don’t dive in on the shallow end). The customers are almost always lawyers, who might, maybe, just be a tad more demanding than lenders and their regulators (you did hear the one about the sharks letting the lawyer through as a matter of professional courtesy). They will read the documents, so you had best have read them before saying they applied. They will read the documents, so if another interest is indicated by the documents, you had best have examined it during the first round. Oh, and they never remember to order the title in a timely manner. But, hey, what else is new? Let’s all be careful out there. Tute Questions & Answers For Title Examiners And Underwriters Title Tips by Tute  is a regular feature in the VLTA Examiner. Tute offers interesting and informative questions and answers pertinent to title examiners and underwriters. Tute may be reached at  www.tute.us. We encourage our readers to submit their questions or comments to Tute c/o the VLTA Examiner. vlta examiner volume 22.2, summer 2016 www.vlta.org 29 TUTE: The Unknown Title Examiner 28 vlta examiner volume 22.2, summer 2016 www.vlta.org 30 vlta examiner volume 22.2, summer 2016 www.vlta.org STAKEHOLDERS TITLE & SETTLEMENT AGENTS Virginia Land Title Association represents Agents, Underwriters, and Examiners in the land title industry across Virginia. VLTA strongly supports legislation to enact flat recording fees with an incentive for e-recording. CLERKS OF COURT The Virginia Court Clerks Association represents the elected Clerks of Court across Virginia. Clerks will benefit from the proposed legislation; the aggregate fee will increase revenues, and the e-recording incentive will reduce workload. ATTORNEYS The Virginia Bar Association represents attorneys in Virginia, including those working in the land title industry. The Bar Association is likely to support this initiative to improve and hasten the recording process. LENDERS The Virginia Bankers Association and Virginia Mortgage Lenders Association are likely to support/endorse this measure to improve and hasten the recording process so that funds can be disbursed on time and according to closing instructions, both for the benefit of the consumer and for the benefit of the lender. REAL ESTATE AGENTS & HOME BUILDERS The Virginia Association of Realtors is likely to support/endorse this measure to improve and hasten the recording process to ensure clients are happy throughout the home buying process, and to ensure that Realtors receive disbursements of commission checks according to schedule. Home Builders are also likely to support any efforts to streamline and expedite the home-buying process. CONSUMER The Consumer is the most important party to this proposal. Consumers face financial damages due to delayed closings. Sellers must pay additional interest on a loan, per day, due to delays. Rejected recordings due to miscalculated fees frustrate Consumers, and cost them both time and money. It is of the utmost importance to the Title and Settlement Industry that recording fees are not to blame for delayed closings. Flat Recording fees are essential to Consumer protection. Additionally, recording fees with a low “page break”, such as in Virginia, negatively affect low-income purchasers, whose document packages are traditionally longer than higher-income purchasers. Because low-income purchasers often avail themselves of Federal programs such as FHA, their document packages to be recorded are much longer. Recording fee structures placing a page break below 50 pages tax low-income purchasers at a higher rate. vlta examiner volume 22.2, summer 2016 www.vlta.org 31 Across 3. Survey measurement denotes boundary line of stream. 7. Mark on shore when nonmal high title rises. 8. Manmade waterway built or acquired to move things by water. 11. Natural decrease of land bordering body of water due to gradual motion water/removal of materials. 13. Natural increase of land along shoreland or stream from accumulation of sediment. Down 1. Land above the high water line, bordering a body of water that is subject to private ownership. 2. Land between low and high water marks covered/uncovered by ebb/flow of tidal waters. 4. Increase in land permanent withdrawal of river or sea. 5. All land currently or formerly underwater, including low lying land adjacent to water. 6. Natural deposit/build-up of sediment in river bansk/streams. 9. Legal rights to land abutting a body of water to high water mark. 10. Average of all high tides over period of 19 years. 12. Abbutting land owners own to center of the underlying bed of creeks and ponds Crossword Rolling on the River Miscalculation of recording fees is a common reason for rejection of recordings, and a shared frustration of both Clerks and Settlement Agents. Delayed recordings increase the workload of the agent and the Clerk, and can cost the Consumer and Realtor both time and money. Further, under federal guidelines (TRID: Truth in Lending Act and Real Estate Settlement Procedures Act Integrated Disclosures),Lenders are required to ensure that fees are calculated properly in advance of closing; miscalculation can result in TRID violations, which can be significantly consequential to both Lenders & Settlement Agents. Simplifying the recording fees statewide may help to reduce this headache. In other states across the country including: Arizona (flat), Minnesota (flat), New Mexico (flat), South Dakota (expanded uniform), Wisconsin (flat), Wyoming (flat), and the District of Columbia (flat) the trend has been to adopt a statewide flat or uniform recording fee policy. The State of Wisconsin has developed a white paper on the topic of Flat Recording Fees, which can be viewed here South Carolina is currently developing legislation to effect expanded/blended uniform recording fees, which increases the “page break” to 50 pages. Technology Fund Surplus funds collected under the new aggregated flat fee structure are assigned to each jurisdiction’s technology fund. Fees are not shared between jurisdictions. Many jurisdictions adopting this model have collected sufficient funds to modernize and improve their record rooms. Overall, fees collected are increased slightly. Necessity Under TRID As lenders are working toward streamlining the home buying process, they are motivated to ensure that recordings are not rejected for miscalculation of fees. The Mortgage Bankers Association supports flat recording fees as a measure to improve the overall home buying process, and to avoid TRID violations. E-Recording Incentive As part of the legislation, VLTA proposes that whatever fee is calculated, whether flat or uniform, and no matter the aggregated fee determined, that an incentive be built into the legislation to promote e-recording. E-recording saves time and money for both the agent and the Clerk. Through E-recording, Clerks receive documents through a system that checks for errors and ultimately reduces the workload on the Clerks’ office. E-recording is considered an industry best practice for title insurance agents. Proposal for Flat Recording Fees in Virginia Flat Recording Fees Flat recording fees are preferred over uniform recording fees due to the variable length of documents presented for recording. Increasing the “page break” can also remedy this issue. Flat Recording Fees Flat recording fees stipulate a single price per document regardless of length of the document. For example, all Deeds of Trust may incur a $65 recording fee; all Deeds may incur a $45 recording fee. This is the proposed model. Uniform Recording Fees Uniform recording fees stipulate a single price point per page, regardless of instrument type. For example, recordation of a document may incur a $5 fee for the first page, and $3 for each subsequent page. Blended Flat/Uniform Fees The blended model stipulates that documents incur a flat fee up to a certain page limit, and a uniform per page fee for subsequent pages. For example, a Deed of Trust may incur a fee of $42 up to 32 pages, $56 for 14-50 pages, and a $3 per page surcharge for additional pages. This is the current model in Virginia. Calculation Of Fees In jurisdictions that have adopted flat recording fees, Clerks are asked to send their fee schedule to a central office, often an actuary, who determines an appropriate average fee schedule. This fee schedule is then boosted slightly to ensure that all Clerks receive necessary funding for the Courthouse. Many jurisdictions opting to support flat/uniform fees have been successful in raising fees slightly, and using surplus funds as part of a technology fund. THIS INITIATIVE IS SUPPORTED BY This interactive digital crossword is available to play online. . We need the actual crossword layout. A PDF will be fine. The version in the word document sent is corrupt and unusable.  The clues were copied and pasted from the same word document so I recommend checking that the clues are correct. Miscalculation of Recording Fees TRID Violations Unfair Fees About the Author Eric A. Nesheim is Managing Attorney of Title One Settlement Group, LLC in Chantilly. He started his career searching titles in 1985 in Cook County, Illinois. He received his law degree from George Mason University School of Law in 1990 and is licensed to practice law in Virginia, Maryland, and The District of Columbia. vlta examiner volume 22.2, summer 2016 www.vlta.org 33 Across 2. What month is National Security month? 4. What is the attempt called to acquire sensitive information? 5. What do you do when receive wire instructions and then a change is made? 6. The best way to dispose of NPI date? 8. What is a natural or man made occurence called? 9. How long should settlement agents retain files? Down 1. Information 3. How often should a background check be given an employee? 7. What is Alta's best practice number for security and privacy? Tales from the Table, cont’d. Member Discount Programs VLTA is shopping and everyone likes a discount! We know that title industry professionals do business with vendors they trust. If you know of a vendor who excels when it comes to service and quality – let us know. We would like the opportunity to negotiate a discount for all our members statewide. A sampling of Member Discount participants are below. For more information, please email us directly. If you are a Member, simply click on the logo below to be redirected to the Member Discount offer. (Member login required.) Learn more about this month’s featured partner at   32 vlta examiner volume 22.2, summer 2016 www.vlta.org Crossword Is it Safe? Virginia Land Title Institute Title Insurance Pre-Licensing Course 34 vlta examiner volume 22.2, summer 2016 www.vlta.org The Virginia Certified Title Examiner (VCTE) Course by Julie Ann Rutledge, Instructor, is a basic introduction to title examination in Virginia. Covering a broad base of Virginia laws and statutes related to title examination, processes, and basic underwriting, the course prepares a new examiner for training in the field and ensures that existing examiners have a comprehensive understanding of basic title examination. This course is appropriate for new title examiners, paralegals, attorneys, and title settlement agents. The VCTE Course was established in August 2012, to create a basic foundation and to provide structured education on the basic title examination principles, practices and standards for title examination education in Virginia. The goal was also to create meaningful education of title search and examination fundamentals in order to provide a platform for continuing education to ensure that certified title examiners remain current on industry and regulatory changes in Virginia. Register online at the Virginia Land Title Institute. vlta examiner volume 22.2, summer 2016 www.vlta.org 35 The Title Insurance Pre-Licensing course is likely your first step in a new career. Whether you are a seasoned industry professional, or a fresh face, we welcome you to our class. VLTA provides concierge service to all students. We walk you through every step of the licensing process, and even help you locate resources to start your business, grow your business, and more. We are connected with every aspect of title insurance — no other provider can help you get started like VLTA. There’s more? Our instructor is an industry veteran, both an attorney and an underwriter, and works hard to prepare you for success on your exam. With Kevin Pogoda, you’ll enjoy a riotous 2 days of class — we keep it fun! You’ll also benefit from the broad and hands-on experience of a fabulous instructor. Kevin Pogoda is a nationally renowned speaker who has engaged audiences of all kinds with his humorous and thrilling style. More still? With VLTA, you’ll have access to ongoing continuing education resources, the support of a caring home office, and the boost of our statewide network of professionals. If you have questions, we have answers. And most importantly… our students succeed! With exam-focused preparation, our students boast the highest pass rate of any provider in Virginia. VLTA is your best choice for success. Course Details The 16-Hour Course is delivered in eight 2-hour sessions, each complete with a narrative PowerPoint explaining each concept covered in the outline as well as learning checks to ensure you are progressing with the knowledge you need to pass the exam. At the end of the course, you will have access to study questions to prepare for the exam. Once you have successfully completed all portions of the class, you will be able to print the required course completion paperwork so that you can sit for the exam. You are also welcome to contact our instructor at any time during the course to ask questions one on one — YES! That’s right! You’ll have live instructor interaction at your disposal throughout the course by phone or email. No other course in Virginia offers such a vast array of resources to students at such a great price! Register online at the Virginia Land Title Institute. Virginia Certified Title Examiner Course The Virginia Land Title Institute is a unique online training portal designed exclusively for Virginia title insurance professionals. The Virginia Land Title Institute is the proud host of over 80 hours of Continuing Education for Title Insurance Agents, Attorneys, Title Examiners and Title Settlement Agents. Be sure to inquire about all-inclusive VLTA membership to access our complete catalog for free! Visit the Virginia Land Title Institute today. VLTA membership comes with important benefits Education Virginia Land Title Association is the only provider of the full suite of Virginia-specific land title education programs. VLTA offers online pre-licensing education; the Virginia Certified Title Settlement Agent ™ course; the Virginia Certified Title Examiner ™ course; continuing education; continuing legal education; and certification continuing education both live and online. Earn your mandatory 4 hours of non-agency sponsored credits while engaging with national and local experts. VLTA members have access to 100% FREE online continuing education, 50% off licensure and certification courses; free regional education events; and up to 50% off our Annual Convention. Advocacy Virginia Land Title Association supports your business and the industry through advocacy and direct lobbying. Each year, we review and track dozens of proposed bills; develop relationships with key legislators; interact directly with entities such as the Housing Commission, the Virginia Insurance Continuing Education Board, the Virginia Court Clerks Association, and the Virginia State Bar; offer members engagement support through TAN; and propose and support VLTA-developed legislation. Our legislative committee is an active and thriving committee dedicated to bolstering the interests of our industry. News, Updates, and Trainings As a member of VLTA, you will be part of a community of professionals in the know. VLTA keeps you up to date on industry news; trains you for upcoming regulatory changes; and helps you stay in business with targeted workshops and webinars. A recent industry survey showed that as of May 14, 2015, roughly 50% of VLTA members were prepared to undergo Best Practices certification, compared to roughly 15% of the industry at large. VLTA members are prepared to compete in this ever-changing marketplace. Are you? Choose Your Level of Benefits This year, Virginia Land Title Association is offering a tiered member benefits program. Companies can choose their level of benefits based on their needs. We encourage all members to consider the all-inclusive membership model. For just a few dollars more each year, members will have access to our new, world-class online continuing education portal, deep discounts on Convention, and free attendance at regional events. Who could ask for more? RENEW YOUR MEMBERSHIP JOIN VLTA 36 vlta examiner volume 22.2, summer 2016 www.vlta.org