Bulletin: DC2014002

Dear Associates:

This Bulletin updates DC2010005 relating to foreclosure requirements and required mediation.

The amendments to the foreclosure mediation statute and the related regulations have become effective in the District of Columbia. With these changes, Stewart Title is able to update its residential foreclosure requirements.

The recent changes to the foreclosure mediation provisions were implemented by changes to both the statutes and regulations. On July 10, 2013, the District of Columbia Counsel passed the Saving D.C. Homes from Foreclosure Clarification Act of 2013 (“Act”). After the expiration of the Congressional review period, this Act became law in the District of Columbia on November 5, 2013. Subsequently, amendments to the foreclosure regulations for the purpose of implementing the Act were published and became effective on June 27, 2014.

Please note that information about the mediation requirement including links to the regulations and the required forms can be found at http://disb.dc.gov/page/foreclosure-mediation-program-fmp.

By way of background, the initial act requiring that mediation be offered in all residential foreclosures was passed on November 17, 2010. There were numerous problems with this act and STG ceased insuring residential foreclosures in the District of Columbia upon its passage. The purpose of the new Act was to address most of these deficiencies and to enable title underwriters to again insure foreclosure sales. With the concerted efforts of the District of Columbia Land Title Association, the Act was finally passed. Accordingly, STG is happy to say that we are again insuring title to residential property that conveys pursuant to a foreclosure so long as the sale is conducted pursuant to a Final Mediation Certificate that was issued and recorded after November 5, 2013. Sales that were conducted pursuant to a Mediation Certificate that was issued prior to the effective date of the Act will continue to need STG underwriter approval.

Among the changes included in the Act are the following:

1. Upon the conclusion of the mediation, a preliminary mediation certificate will be issued. The borrower now has 30 days to appeal this finding to the Superior Court of the District of Columbia. If an appeal is filed, all foreclosure activities are stayed. If no appeal is filed, a Final Mediation Certificate will be issued permitting the lender to commence the foreclosure.
2. As with the original act, a foreclosure sale is void if the lender files a notice of intention to foreclose prior to the issuance and recordation of a Final Mediation Certificate. The Act adds a provision stating that a final recorded Mediation Certificate shall serve as conclusive evidence that all provisions of the mediation act and implementing regulations have been complied with and can be relied upon by a bona fide purchaser and his/her lender.
3. The “owner occupied” requirement was deleted so that mediation is now required for all 1 to 4 family residential units. An attempt was made to exclude investment property from this requirement by including an exclusion for “debts incurred, and currently obligating solely, a business entity…” This would seem to exclude loans made to an entity such as a corporation or limited liability company. Unfortunately, many business loans are guaranteed by individuals and since there is no way to determine if the loan “solely” obligates a business entity, STG will require that the mediation requirements be complied with in connection with the foreclosure of all 1 to 4 family residential loans.

Based upon these changes, in order to insure title to 1 to 4 family residential properties that were conveyed pursuant to a foreclosure sale where a Final Mediation Certificate was issued after November 5, 2013, requirements substantially similar to the following should now be included in all Commitments.

a.  Confirmation that the foreclosure of the Deed of Trust recorded as Instrument No. __________ was conducted in full compliance with the terms of the Deed of Trust and all District of Columbia laws, rules and regulations including:

i. If the foreclosure action was filed by a Substitute Trustee, this Company must be furnished a copy of the Appointment of Substitute Trustee duly recorded in the land records of the Recorder of Deeds. The Appointment of Trustee must be executed and recorded prior to the substitute trustee taking any action to foreclose.

ii. If the loan secured by the deed of trust has been transferred and/or assigned since the original recording of the deed of trust, a duly executed and acknowledged assignment of deed of trust must be recorded in the land records of the Recorder of Deeds evidencing the assignment of the deed of trust to the current owner of the loan.

iii. Evidence of the issuance of the DISB promulgated Notice of Default on Residential Mortgage (Form FM-1) with all required attachments to the borrower, record title holder and the Department of Insurance, Securities and Banking by certified mail and first class mail. The Notice of Default on Residential Mortgage along with the Mediation Election Form (Form FM-2) must be recorded at the Recorder of Deeds within ten (10) business days of the date of mailing of the notice. These must be recorded prior to issuing any notices to foreclose.

iv. Evidence of compliance with the DC mediation requirements including the issuance by DISB of a Final Mediation Certificate and its recording in the land records of the Recorder of Deeds. This must be recorded prior to issuing any notices to foreclose.

v. Confirmation that there are no pending challenges to the issuance of the Final Mediation Certificate.

vi. Evidence of sending to the borrower and any record title holder by first-class certified mail, postage prepaid, return receipt requested, and by first class mail, a proper Notice of Intention to Foreclose a Residential Mortgage (Form FM-5). The Notice of Intention to Foreclose a Residential Mortgage must also be recorded with the Recorder of Deeds.

vii. Evidence of sending proper notice by certified mail, return receipt requested to all other parties with an interest in the property including, but not limited to, all subordinate lien holders.

viii. Certificate of advertisement from the newspaper where the advertisement of foreclosure sale was published showing that the foreclosure sale was advertised at least 5 times every other day prior to the sale (or such other advertisement as required by the Deed of Trust).

ix. Certificate of sale from auctioneer conducting the sale.

x. Receipt of satisfactory evidence that the borrower foreclosed upon has not filed bankruptcy.

xi. Confirmation that the property is vacant.

xii. Confirmation that all condominium liens (if any) were subordinate to the deed of trust and that the association received proper notice of the sale.

xiii. Confirmation that the debtor did not exercise its statutory right to reinstate the loan.

xiv. Receipt of satisfactory evidence that the borrower is not entitled to relief or protection under the Servicemembers Civil Relief Act, 50 USCS Appx § 501 et seq. If such evidence is not available, the following exception will appear in any Title Policy issued pursuant to this Commitment: “Any claim based upon the Servicemembers Civil Relief Act, 50 USCS Appx § 501 et seq., which restricts foreclosure, forfeiture and other legal proceedings based upon military service in the uniformed services of the United States.”

xv. In the event there is a federal tax lien filed which attaches to the property and was filed more than 30 days before the foreclosure sale, add the following requirement:

The record discloses a Federal Tax Lien against __________________ recorded __________________. This tax lien was filed more than thirty (30) days prior to the Trustee’s sale. The Company must be furnished for its review with a satisfactory: (a) release; or (b) affidavit by the sender or written statement of the Special Procedure Chief, that sufficient notice of the Trustee’s Sale was given to the Internal Revenue Service. If the Company is not satisfied with the documents furnished, the Policy will except to the lien. If the Company is satisfied with the notice given and less than 120 days have passed since the sale without redemption of the United States, the Company will except to the right of redemption in favor of the United States.

xvi. Appropriate affidavits from lender and/or the substitute trustees confirming the foregoing.

Please remember that the mediation requirement only applies to foreclosure of 1 to 4 family residential properties. Foreclosure of all other property in the District of Columbia, including all commercial property, is not subject to statutorily required mediation.

THIS BULLETIN IS FURNISHED TO INFORM YOU OF DEVELOPMENTS RELATING TO APPLICABLE LAW. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS.

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