Bulletin: SLS2024016

Dear Associates:

Background:

In 2023, a federal court in Missouri held that a non-judicial foreclosure does not extinguish a junior lien in favor of the United States or its agencies. (See Show Me State Premium Homes v. United States, 74 F.4th 911 (8th Cir. 2023)). The “Show Me” decision applies to all junior lien interests held by the United States or its agencies except IRS tax liens (hereinafter “Non-IRS Junior Federal Lien”). 

Underwriting Guidance:

In light of the decision in “Show Me” the following underwriting requirements must be followed relative to Commitments, Policies, Trustee Sale Guarantees and Preliminary Title Reports.

1.  After a Non-Judicial Foreclosure 
COMMITMENTS and PRELIMINARY TITLE REPORTS:

Where the title search discloses that title is derived from a non-judicial foreclosure and at the time of sale, the property was encumbered by a Non-IRS Junior Federal Lien, the following REQUIREMENT and EXCEPTION must be included in the appropriate schedule of the Commitment and identified in the Preliminary Title Report:

Requirement

Obtain and record a release of the Non-IRS Junior Federal Lien executed by an authorized federal officer at the applicable agency of the federal government.

Exception

Any right, or claim of right, arising from the interest of the United States in [identify Junior Federal Lien] dated _________ and recorded on __________ as document no. _____, due to the failure to conduct a judicial sale with joinder of and service of process on the United States, as required by 28 U.S.C. §2410.

POLICIES:

Where the title search discloses that the title is derived from a non-judicial foreclosure and at the time of sale, the property was encumbered by a Non-IRS Junior Federal lien for which there is no associated recorded release executed by an authorized federal officer, the following EXCEPTION must be included in Schedule B1 of the Policy: 

Exception

Any right, or claim of right, arising from the interest of the United States in [identify Junior Federal Lien] dated _________ and recorded on __________ as document no. _____, due to the failure to conduct a judicial sale with joinder of and service of process on the United States, as required by 28 U.S.C. §2410.

If there is not a recorded release of the Non-IRS Junior Federal Lien or a judicial foreclosure of the senior lien, coverage is not to be provided without written Stewart Title Guaranty Company underwriter approval.

2 . After Judicial Foreclosure 
COMMITMENTS, POLICIES and PRELIMINARY TITLE SEARCH REPORTS

You may remove a Non-IRS Junior Federal Lien from a Title Search Report and/or as an exception to coverage in Schedule B following a judicial foreclosure of a senior lien if all the following conditions are met:

(a)  United States is named as a defendant;
(b)  The foreclosure and sale procedures are reviewed to confirm compliance with federal and state law; and
(c)  The one-year statutory right of redemption is either:

i.  expired; or
ii.  waived in writing by the U.S. Attorney for the district where the Land is located or by the federal officer in charge of administering the Non-IRS Junior Federal Lien.

If the conditions set forth above in (a) and (b) have met, but the statutory post-foreclosure right of redemption in favor of the United States has not expired and no waiver is received, the following EXCEPTION must be included in Schedule B:

Exception

Any right, or claim of right, arising from the interest of the United States in [identify federal lien] dated ____________ and recorded on __________ as document no. ________, due to the one-year right of redemption of the United States, provided under 28 U.S.C. § 2410(c).

3.  Prior to or in Contemplation of a Non-Judicial Foreclosure 
TRUSTEE SALE GUARANTEE (TSG)

When asked to issue a Trustee Sale Guarantee (TSG) in contemplation of a non-judicial foreclosure sale, and the title discloses that the property is encumbered by a Non-IRS Junior Federal lien the following EXCEPTION must be included in Schedule B:

Exception

To issue a future title insurance product without exception for the [describe the junior interest held by the United States, e.g., deed of trust,  mortgage, judgment, etc.] dated _____ and recorded on _______ as document no. ______, the Company will require a judicial foreclosure and sale with joinder and service on the United States and the expiration of the one-year right of redemption, if applicable, or receipt of a written waiver, satisfactory to the Company, of the United States’ right to require a judicial foreclosure and sale as provided by 28 U.S.C. 2410(c).

For additional information on the impact of Non-IRS Junior Federal Liens held by Fannie Mae or Freddie Mac, please review Bulletin SLS2016002. 

If you have questions about a transaction involving a closed bank or a bridge bank, or other issues not addressed by this bulletin, please contact a Stewart Title Guaranty Company underwriter.

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