VA Underwriting Summary

Search/Exam

• Minimum Search Requirements -- No statutory requirements imposed by Virginia. The traditional standard is 60 years back to a General Warranty Deed. The traditional standard is universally followed for commercial transactions (where longer search periods may be required). For residential transactions, many title companies accept 40 year exams (back to a General Warranty Deed).
• Plant or other search restrictions -- None
• Additional Requirements for REO Searches -- N/A
• Foreclosure Checklist -- N/A
• Special Searches Required (Code, HOA, Utilities)? -- N/A
• Survey Requirements -- Owners Policy – Yes; Loan Policy – No
• UPL Hot Button Issues -- Document Preparation is UPL as is giving legal advice; title agents may close real estate transactions only if they are licensed in Virginia as "Settlement Agents."

UPL

Licensed Virginia attorneys must prepare legal documents including Deeds. A Title Agent employee, even if a licensed Virginia attorney, many not prepare deeds or other legal instruments.

The ability of title agents to close real estate transactions is established by statutes. See Virginia Code Sections 55-525.8 through 55-525.32. This statutory framework requires compliance with Virginia’s unauthorized practice of law guidelines. Be familiar with the guidelines. Willful failure to comply may result in a loss of license as well as penalties of up to $5,000.00 for each failure. See Virginia Code Section 55-525.30.

Vesting

Deeds are effective notice of the conveyance to third parties when recorded. As between the Grantor and the Grantee, a deed is effective when executed and delivered. For vesting upon death of the named property owner, see “Estates” below. Vesting is determined by the instrument creating the estate (Look at the Deed), not generally by subsequent events. Exceptions to this general statement are death and divorce (for T by E property).

Common forms of ownership:

Tenants by the Entirety: limited to husband and wife; this form of ownership must be specifically identified. T by E ownership is severed by death or divorce. Upon death, the title passes automatically to the survivor as a matter of law and not to the heirs or devisees of the deceased. Neither husband or wife may convey without the joinder of the other.

Joint Tenants with Right of Survivorship: Note that survivorship must be explicitly stated in the Deed creating the interest. In the event of death by one owner, title automatically passes by operation of law to the survivor(s).

Tenants in Common: Two or more individuals who hold title together, with interests equally divided unless a designated percentage is explicitly stated. Upon death of one owner, the interest of the deceased passes to his or her heirs (intestate death) or devisees (testate death). Title is presumed to be held Tenants in Common unless the Deed explicitly states otherwise. A Tenant in Common may sell his or her interest without the permission of the other Tenant(s).

Witness Requirements

Acknowledgment only (required for recordation); witnesses are not required on any deed or security instrument. See "Acknowledgments" under "odd Stuff" below.

Mortgage/Transfer Tax

• Deeds generally: The tax rate is 25 cents on every $100 (or fraction of $100) of the consideration or the actual value of the property conveyed, whichever is greater. An additional tax may be imposed by the localities equal to one-third of the state tax. In addition to the tax on deeds, a grantor tax is imposed at the rate of 50 cents on every $500 (or fraction of $500) of the consideration or value of the interest exclusive of the value of any lien or encumbrance.
• Deeds of trust or mortgages: The tax rates on the bonds or other obligations secured by the deed of trust or mortgage are as follows:
  • on the first $10 million, 25 cents on every $100 or portion thereof;
  • on the next $10 million, 22 cents on every $100 or portion thereof;
  • on the next $10 million, 19 cents on every $100 or portion thereof;
  • on the next $10 million, 16 cents on every $100 or portion thereof; and,
  • on all over $40 million, 13 cents on every $100 or portion thereof.
• An additional tax may be imposed by the localities equal to one-third of the state tax.
• Tax Rate for Refinanced Deeds of Trust: Effective for deeds of trust or mortgages recorded beginning July 1, 2012, the recordation tax rates on the bonds or other obligations secured by the refinanced deed of trust or mortgage are as follows:
  • on the first $10 million, 18 cents on every $100 or portion thereof;
  • on the next $10 million, 16 cents on every $100 or portion thereof;
  • on the next $10 million, 14 cents on every $100 or portion thereof;
  • on the next $10 million, 12 cents on every $100 or portion thereof; and,
  • on all over $40 million, 10 cents on every $100 or portion thereof.
  • These rates apply regardless of whether the loan is refinanced with the same lender or with a different lender.
• Congestion Relief Fee: Effective July 1, 2013, a regional congestion relief fee is imposed on the recording of any deed or instrument conveying real property that is situated in a locality included in the Northern Virginia Region when the consideration or value of the interest in such property, whichever is greater, equals or exceeds $100. The fee, which is to be paid by the seller (grantor), is imposed on the consideration or value in addition to any other required recordation taxes and fees at the rate of $0.15 per $100 or fraction thereof. Affected localities are the Cities of Alexandria, Fairfax, Falls

Source: Virginia Tax Facts, January 2014

Spousal Joinder Requirements/Homestead

Spousal joinder not required for BFP transactions. Spouse signature is required for all other transactions. Example: Spouse signature is required for a Deed of Gift.

Virginia replaced dower and curtesy (unless it vested prior to January 01, 1991) with the concept of the “augmented estate” which is an elective share that entitles the surviving spouse to 1/3 of the decedent’s “augmented estate” if the decedent left surviving children or their descendants or ½ of the “augmented estate” if the decedent left no children or their descendants. Although the intricacies of the “augmented estate” need not be addressed here, the augmented estate calculations exclude conveyances to BFPs as well as any transfer with the written consent or joinder of the surviving spouse. See generally Virginia Code Sections 64.2-300 to 308. Exclusions also include property that was inherited or belonged to the transferor prior to marriage.

Virginia provides for a Homestead allowance upon death of the property owner under certain circumstances. With certain exceptions, the homestead allowance ($20K) has priority over all claims against the Estate.

Power Of Attorney

Virginia enacted the Uniform Power of Attorney Act which addresses any Power of Attorney (POA) executed on or after July 01, 2010. See Virginia Code Sections 64.2-1600 through 64.2-1642. A POA must include an acknowledgement signed by a notary. A person asked to rely upon an acknowledged POA may request any rely upon an Agent’s certification under oath. A statutory form Agent’s Certification as to Validity of Power of Attorney and Agent’s Authority can be found at Virginia Code Section 64.2-1639.

Authority over real property is set forth in Virginia Code Section 64.2-1625. This section may be incorporated into a POA merely by reference to the code section.

A POA should be recorded with any instrument where the POA was used.

Construction Liens

Unlike many other states, mechanics’ liens can gain priority over previously recorded deeds of trust. Title companies have incurred huge losses due to MLs and improper or inappropriate underwriting practices. Check with State Underwriting Counsel if you have any doubts or questions.

Ordinary Home Sales: To eliminate an exception for MLs, Sellers must provide an affidavit stating no work has been performed on the property for the last 120 days. Such an affidavit is routine on home sales. In cases where some repair was made during that time period, check with your State Underwriting Counsel. Often the issue can be addresses by a ML waiver from the contractor, or, if necessary, by an escrow.

Routine Refinance Transactions: To eliminate an exception for MLs on the refinance policy, Borrowers must provide an affidavit stating no work has been performed on the property for the last 120 days. Such an affidavit is routine on home sales. In cases where some repair was made during that time period, check with your State Underwriting Counsel. Often the issue can be addresses by a ML waiver from the contractor, or, if necessary, by an escrow.

New Residential Construction Outsales: Provided a building permit identifying a Mechanics’ Lien Agent (MLA) was posted at the beginning of the project, WFG is generally willing to insure new construction outsales based on the MLA’s affidavit identifying all parties who provided notice, a Seller’s affidavit and lien waivers. Check with your State Underwriting Counsel for details.

Residential Construction Loans: In the event that the lender desires affirmative ML coverage, a building permit naming a Mechanics’ Lien Agent (MLA) must be posted at the one or two family residential dwelling (the only structures that qualify for this type of coverage). Contact your State Underwriting Counsel for additional details regarding requirements and exceptions.

Commercial Construction Loans: Any loan policy involving commercial construction must have a ML exception. WFG does not provide affirmative ML coverage on commercial construction loans.

Foreclosure Review

Estates

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Selling real estate after the death of the owner depends on a host of considerations. Alternatives depend upon the circumstance of each estate.

Intestate Death

If the decedent died without a will, the death is characterized as “intestate” (without a will). Upon death without a will, title to the decedent’s real property passes automatically to the decedent’s heirs at law. Typically you will find a List of Heirs filed with the Clerk, purporting to identify the heirs of the deceased.

Do not rely blindly on such an affidavit. Although such affidavits may contain accurate information, usually the List of Heir affidavits are filed by self-interested parties and purport to assert legal conclusions (the identity of legal heirs which requires a thorough understanding of the state intestacy laws as well as facts involving family members of the deceased) beyond the competency of the individual signing the affidavit. Check with State Underwriting Counsel. Except when used to vest title in the purported heirs, affidavits unchallenged after one year may be considered more reliable.

Look for or require affidavits from disinterested parties who are familiar with the family of the deceased. A solid affidavit should clearly explain how the affiant knows the family members. Once the surviving family members are identified, look to the Virginia Intestacy Statutes to determine the legal heirs. Do not rely on family members to reach such conclusions. If you need help, seek assistance from State Underwriting Counsel.

The Administrator of an intestate estate does not have the power to sell real estate. The Administrator does have the power to sell and dispose of personal property. Under some circumstances, the Administrator may petition the Court for power to sell the real estate provided such an action is necessary. This may occur when real estate needs to be sold to satisfy all of the debts of the deceased.

Since the heirs own the real estate when the deceased dies intestate, all of the heirs must join in order to convey the property. In addition to the deed, joinder would include the real estate contract and other documentation customarily executed by sellers. Note that certain practical issues arise if the heirs are numerous, include minors or live in other states or countries.

Testate Death

If the deceased died with a will, the death is characterized as “testate” (with a will). In situations where the deceased died testate, once the will is probated, title vests in the devisees (or beneficiaries) under the will (assuming the will identifies devisees for the real property) subject to being divested by any power of sale given the Executor. Note that judgments against the devisees will attach to the property even if the Executor sells.

If the will “directs” the Executor to sell, title is vested in the Executor and the devisees need not join in any conveyance by the Executor. Note that judgments against devisees to not attach under these circumstances.

A will that gives a power of sale to the Executor without directing the Executor to sell creates other issues to be considered. Some Virginia case law suggests a mere power of sale given the Executor does not give the Executor the right to sell absent some necessity to take that action. An example of necessity would be a situation where the personal property is insufficient to pay all of the debts of the estate (and the costs of administration).

Where the will clearly devises the real property to named beneficiaries and contains a power of sale, you can sidestep potential difficulties by requiring both the Executor and the devisees/beneficiaries to execute any conveyance documents.

In Virginia, death raises a number of additional issues that must be addressed. These include but are not limited to creditors of the deceased, taxes, challenges to the will, locating a new will. ***

By statute, Virginia provides a safe harbor to bona fide purchaser who purchases more than one year after the death occurs (citation***)

For transactions within one year of death, several options are available. Sales proceeds can be escrowed until the year period passes. The seller or borrower can obtain a Decedent’s Debt Bond. Some title companies will waive these options and charge an extra hazard premium if they deem the risk appropriate. Although not done routinely, WFG has charged an extra hazard premium under some circumstances.

Instrument Requirements

See generally Virginia Code Sections 55-106 through 55-142.15.

Who May Serve As Trustee On Deed Of Trust

• Deeds of Trust are the prevailing security instrument in Virginia, although Mortgages are acceptable. • Trustees must be residents of the state. If a corporation, LLC or other entity is to serve as Trustee, the entity must be organized under the laws of Virginia. See Virginia Code Section 55-58.1. • The Deed of Trust must include full residence or business address of the Trustee(s) named including street address and zip code.

Time Limitations

• US Judgment Liens -- 20 years. See 28 U.S.C Section 3201.

• State Court Judgment Liens -- 20 years, can be renewed for another 20 years. See Virginia Code Section 8.01-251. See also Virginia Code Section 8.01-458.

• Federal Tax Liens -- 10 years (+ 30 days)

• State Tax Liens -- 20 years. See Virginia Code Section 58.1-1802.1 (which refers to judgment period).

• Estate Tax Lien -- 10 years

• State Inheritance Tax Liens --

• Mechanics Liens -- 6 months to file suit to enforce the ML; this can be extended under certain circumstances. See Virginia Code Section 43-17. See “Odd Stuff” below for more details.

• Financing Statements -- 5 years. Can be extended for five year periods. See Virginia Code Section 8.9A-501 & Virginia Code Section 8.9A-515.

• Mortgages/ Deeds of Trust – 10 years from maturity date (with additional one year in the event of death of any party in interest). See Virginia Code Section 8.01-241. If no maturity date is stated (or can be calculated from the information in the recorded instrument), 20 years from the date of the Deed of Trust (although this can be extended by Certificate). The limitation for a Credit Line Deed of Trust without a maturity date is 40 years from the date of the Credit Line Deed of Trust. See Virginia Code Section 8.01-242.

• HOA Liens -- 3 years (2 years prior to 2005). See Virginia Code Section 455-516. The three year period runs from the filing of the lien based on a statute requiring a suit to enforce the lien be filed within the three year period. A minority view is that the lien remains in place despite the failure to file suit within the statutory 36 month period.

• Condominium assessments – A suit to enforce the lien must be filed within 36 months from recordation of the memorandum of lien. See Virginia Code Section 55-79.84.

• Child Support Liens – Expire when support obligation is paid in full. See Virginia Code Section 8.01-460.

Odd Stuff

1. Acknowledgements: See generally, Virginia Code Sections 55-113 to 55-121. Virginia adopted the Uniform Recognition of Acknowledgements Act.

2. After Acquired Property: In certain circumstances, Virginia recognizes the “after-acquired” property doctrine. These situations arise when a property owner is subsequently obtains property that the owner previously conveyed. See Virginia Code Section 55-52. Contact your State Underwriting Counsel when facts may give rise to this issue.

3. Credit Line Deeds of Trust: Virginia recognizes a “Credit Line Deed of Trust” which gives certain priority to future advances provided the Credit Line Deed of Trust contains certain statutory language including “THIS IS A CREDIT LINE DEED OF TRUST” on the front page in capital letters or underscored. See Virginia Code Section 55-58.2.

4. Deed Warranties: General Warranty deeds on residential transactions are customary and expected. Large corporations frequently convey using special warranty deeds. Likewise Trustees conveying property as a result of a foreclosure sale convey by special warranty deeds. Quitclaim deeds are frowned upon and rarely used except to cure a possible outstanding title issue. Do not insure titles based on quitclaim deed without written authorization from State Underwriting Counsel.

5. “Gap” issues: Virginia does not permit the disbursement of funds prior to recordation on residential transactions. Very limited exceptions exist. Any lender providing transaction specific written instructions to a Settlement Agent to disburse prior to recordation assumes the risk of any “Gap” issues. See generally Virginia Code Section 55-525.11 stating both the Settlement Agent duty to record prior to disbursement and the few exceptions. See Virginia Code Section 55-525.15 for the penalty for failure to disburse as required by statute.

6. Judgments: The enforcement period is 20 years. (See Code Section 8.01-251) Names of buyers, borrowers and parties in the chain of title must be run for judgments.

7. ML issue: In the event of non-payment, contractors and suppliers of labor and materials have the right to file a mechanics’ lien (ML) against the property their work or materials improved. Any such ML must be filed no later than 90 days from the last day of the month in which the labor or materials were provided, and in no event more than 90 days from the completion of the structure. As a result, a ML claimant may have as much as 120 days to file a ML. (Notice how this could drastically affect any sale or refinance transaction, not to mention a title agent if this type of issue is not handled appropriately.)

The ML may include sums for labor or materials as much as 150 days prior to the last day in which labor or materials were provided.

The ML claimant has six months to file suit to enforce the ML. Upon the completion of a successful ML suit, the improved property is sold to satisfy the ML claims. Other lien holders, including previously recorded Deeds of Trust, receive any remaining sales proceeds.

As a result of the priority given ML claims in Virginia, both purchasers of newly constructed homes and their lenders as well a construction lenders, are at great risk in the event builders fail to pay all sub-contractors and suppliers.

Given this clear danger, all agents must approach transactions involving new construction with a great deal of caution. Seek assistance from State Underwriting Counsel. Also see “Construction Liens” above.

8. MLA: A subset of the ML issues mentioned above, a Mechanic’s Lien Agent (MLA) can be identified on a building permit posted on a residential construction project (one or two family dwellings only). If designated, any party desiring to retain ML rights must provide written notice to the MLA within 30 days of supplying labor or materials in order to preserve ML rights. In turn, the MLA can provide reports identifying the parties who provided notice to the MLA. In appropriate circumstances, use of a MLA can allow newly constructed residential dwellings to be easily sold based on a combination of reports from the MLA and lien waivers. See specific guidance from your State Underwriting Counsel for details. In addition, be familiar with the ML issues raised above as well as material under the Heading “Construction Liens.”

9. Notice of the Availability of Title Insurance: Before disbursement, the Settlement Agent must obtain from the purchaser a statement in writing that the purchaser has been notified by the Settlement Agent that the purchaser may wish to obtain owner’s title insurance coverage including affirmative mechanic’s lien coverage, if available, and of the general nature of such coverage, and that the purchaser does or does not desire such coverage. See Virginia Code Sections 38.2-4616 and 55-525.11 (Duty of Settlement Agent).

10. Refinance Subordination: Under certain circumstances a residential refinance deed of trust will have priority over previously recorded deeds of trust or mortgages without the need to obtain a subordination agreement. See Virginia Code Section 55-58.3. The original balance of the previously recorded deed of trust cannot exceed $150,000.00 nor encumber more than one dwelling unit. The principal amount of the new residential refinance deed of trust may not exceed the outstanding principal balance of the prior mortgage being refinanced nor exceed the previous interest rate. In addition the new refinance deed of trust must contain certain statutory language on the first page in bold or capitalized letters. See Virginia Code Section 55-58.3 for additional details.

11. Tax Sales: No agent may issue a title policy insuring the purchaser at a tax sale. Any title based on a tax sale in the chain of title must receive written permission from State Underwriting Counsel.

12. HOA liens – unlike Maryland or DC, Virginia does not give super priority to HOA liens.