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How You Confirm a Successor in Interest's Identity and Interest

By Jon Tavares, JD, LLM, CRCM, NCCO 24 Jan 2018

The final stage of the Servicing Rule amendments is fast approaching. In less than 3 months (April 19, 2018) the successor in interest provisions of the Servicing Rule will become effective. When a borrower dies, a servicer must have policies and procedures in place to promptly identify and facilitate communication with the successor in interest of the deceased borrower in connection with the property. Beginning in April of this year, the new rule will require this upon any transfer of the property to a successor in interest. A servicer must also have policies and procedures in place to determine which documents it will require to confirm a potential successor in interest’s identity and ownership interest in the property, to provide to a potential successor in interest a description of those documents and how the person may submit a written request, to make a confirmation determination, and to notify the person of that the determination or determined that additional documents are required (and what those documents are).

 

If you’re a small servicer you’re probably thinking to yourself, “Lucky us, we’re not subject to the general servicing policies, procedures, and requirements section of the Servicing Rule.” Well, you’re not entirely off the hook. While you’re not expressly required by the rule to have such policies and procedures in place, you still need some in place, and here’s the reason. The Servicing Rule states that for purposes of the ARM rate change disclosures, escrow cancellation notices, servicing practice requirements, mortgage transfer disclosures, periodic statements, RESPA escrow rules and the RESPA servicing requirements, a confirmed successor in interest is to be treated as the consumer. So, even though you are exempt from the periodic statement requirement and much of the RESPA servicing requirements, there are plenty of requirements related to successors in interest that will still apply to you. Therefore, you will need to have some sort of policies and procedures in place to determine whether a person claiming to be a successor in interest actually has an ownership interest in the property.

 

Now that you know that you must have procedures to confirm a potential successor in ownership’s identity and ownership interest in the property, how do you do that? Well, you’re in luck! This article is here to provide you with a few examples of the types of things you can do. Of course, this is not be an all-inclusive list and these examples will not apply in all circumstances. But, I hope that it will help you understand the types of documents that you can use to make this determination in accordance with your policy and procedures.

 

Let’s discuss how to confirm a potential successor in interest’s identity and ownership in the property. The documents you require to confirm a potential successor in interest’s identity and ownership interest in the property must be reasonable in considering the laws of the relevant jurisdiction, the specific situation of the potential successor in interest, and the documents already in your possession. The required documents may  include, for example, a death certificate, an executed will or a court order. They may also include documents that you reasonably believe are necessary to prevent fraud or other criminal. Once you confirm the person claiming to be a successor in interest is who they say they are, you can then determine if this person actually has an ownership interest in the property. Keep in mind, the documents will vary based on the type of transfer. Let's look at a few examples.

 

Tenancy by the entirety or joint tenancy: Let say you are aware that the potential successor in interest and the borrower owned the property as tenants by the entirety or joint tenants. You will need some documentation that the borrower has deceased. Upon the death of the borrower, the applicable law does not require a probate proceeding to establish that the potential successor in interest has sole interest in the property, it only requires that there be a prior recorded deed listing both the potential successor in interest and the transferor borrower as tenants by the entirety (e.g., married grantees) or joint tenants. Under these circumstances, it would be reasonable to require the potential successor in interest provide documentation of the recorded instrument (unless you already have it) and the death certificate of the borrower.

 

Affidavits of heirship: A potential successor in interest indicates that an ownership interest in the property transferred to them upon the death of the borrower through intestate succession and offers an affidavit of heirship as confirmation. Upon the death of the borrower, the applicable law does not require a probate proceeding to establish that the potential successor in interest has an interest in the property, but requires only an appropriate affidavit of heirship. Under these circumstances, it would be reasonable to require the potential successor in interest to provide the affidavit of heirship and the death certificate of the borrower. A probate proceeding is not required under the applicable law to recognize the transfer of title, therefore, it generally would not be reasonable to require documentation of a probate proceeding.

 

Divorce or legal separation: A potential successor in interest indicates that an ownership interest in the property transferred to the potential successor in interest from a spouse who is a borrower as a result of a property agreement incident to a divorce proceeding. The applicable law does not require a deed conveying the interest in the property but accepts a final divorce decree and accompanying separation agreement executed by both spouses to evidence transfer of title. Under these circumstances, it would be reasonable to require the potential successor in interest to provide documentation of the final divorce decree and an executed separation agreement. Because the applicable law does not require a deed, it generally would not be reasonable to require a deed.

 

Living spouses or parents: A potential successor in interest indicates that an ownership interest in the property transferred to the potential successor in interest from a living spouse or parent who is a borrower by quitclaim deed or act of donation. Under these circumstances, it would be reasonable to require the potential successor in interest to provide the quitclaim deed or act of donation. It generally would not be reasonable, however, for the servicer to require additional documents.

 

Again, because the relevant law governing each situation may vary from state to state, the preceding examples are illustrative only. There will be situations, where based on the facts and circumstances, you will need more documents that what the examples described. But, with these examples you can see the types of documents that would generally be required, and you can build your policies and procedures from there!

 

One last thing before I go. It’s a shameless plug. Matt and I have put a lot of work into our webinar we will be hosting tomorrow on the April 19, 2018 changes to the Servicing Rule. You should really check it out; register here if you're interested!

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