Neil O’Toole poses for a portrait at his home in Green Valley Ranch on March 5, 2018. O’Toole bought his Green Valley Ranch home in 2016, not realizing it was part of the city’s affordable housing program. He paid more than he should have and he wasn’t income qualified. Now he may be forced to move, while also taking a loss on the home.
Title companies who insured Denver homebuyers when they bought income-restricted housing they weren’t qualified to own are now telling those people they are on their own in dealing with the fallout.
As claim denial letters land in local mailboxes, Denver officials are doubling down on calls for the industry to change the way it addresses affordable housing programs. The city insists compliance with rules should be part of title policy requirements, not exceptions from coverage.
Judging by the response from the Land Title Association of Colorado this week, change isn’t going to happen soon, if it happens at all.
In a pair of letters provided to The Denver Post this week, Fidelity National Title Insurance Company and Chicago Title Insurance Company denied recent insurance claims from Denver homeowners caught up in the controversy that has swept over the city’s affordable housing program. The owners, who the letters indicated were not aware of the restrictions on their home, make too much money to own their homes under city rules and are now being pressed to sell to people who qualify. They contacted their insurers seeking payouts to cover the difference between the market price of their home and the lower maximum resale price put in place by city rules.
The denial letters identify declarations of affordability applied to Denver’s Green Valley Ranch neighborhood as specific coverage exceptions to the homeowners’ title policies. The letters also state that title companies “had no obligation to disclose the existence of the Affordability Restrictions” to buyers at the time of purchase, per Colorado case law.
The homeowners who filed the claims could not be identified because their personal information had been redacted prior the letters being obtained by the Post.
Fidelity National Title Insurance Company and Chicago Title Insurance Company both belong to the Fidelity National Title Group family of companies. Multiple calls to Fidelity seeking comment were not returned this week.
The letters lay out in micro a broader industry position city officials have been complaining about since they discovered earlier this year that 194 of the city’s roughly 1,300 income-restricted homes had been sold to new buyers with no record of meeting affordability requirements. The city says that the title insurance companies are putting homebuyers at risk by not disclosing these requirements.
“If you are looking at this problem from a consumer-friendly standpoint, we believe the industry needs to reconsider its position and should be listing (affordability restrictions) in the requirements and should have been listing them in the requirements in the first place,” City Attorney Kristin Bronson said this week.
The city first raised this issue with the Land Title Association of Colorado, the industry’s local trade group, in a letter from Mayor Michael Hancock on March 30.
“The failure of the title companies to perform due diligence has put the city’s affordable housing stock at risk by taking homes away from those who are income-qualified; and my greater concern is that Denver residents who relied on the title companies to provide them assurance of good title to their homes did not in fact obtain good title,” Hancock wrote in that letter.
LTAC responded via a letter of its own in April. That letter classified the city’s affordability rules as “covenants, conditions and restrictions,” comparing it to rules imposed by homeowners associations. Those associations can dictate uses of a property, such as what color an owner can paint their house.
In the Denver program’s case, it can mandate occupancy by income-qualified people and cap maximum resale value. It’s the position of LTAC those rules have no bearing on the strength of a proposed home loan or a lender’s ability to protect its position on the property.
“These types of documents, as a result, are not included in the requirements section, as there is no action that can be taken to remove their effect on the property,” LTAC president Kelli Klein wrote in the letter. “Rather, they are listed as an exception to title.”
Denver’s Bronson disagrees. As she outlined at a recent meeting of the state’s title insurance commission, the city’s covenant language has varied some since the affordable home ownership program was launched in the early 2000s, but “pretty much all of them contain language that makes the transactions voidable from the outset if you are selling out of compliance” with affordability rules.
“That presents great risk to the lenders because they are lending on what they believe is solid ownership,” Bronson added.
When contacted for further comment this week, a spokesman for LTAC said the association stands by its April letter. Klein, in an interview with The Denver Post earlier this spring, said title companies are barred from providing legal advice about housing covenants at closing and from interfering with sales contracts.
For some, the battle over who should be responsible for informing buyers about affordability rules exposes flaws in the city’s long-time approach. When its once-active oversight of the program dwindled during and after the Great Recession, the city began to rely more heavily on market levers like title insurance to keep the program running smoothly. What it ended up with was more than a quarter of the homes in its portfolio falling out of compliance.
Boulder real estate lawyer Jon Goodman likened it to speed limits. Simply setting them and expecting people to obey doesn’t cut it. Signs and policing are needed.
“Buyers think that the title company won’t close the deal unless the seller can convey ‘clean’ title, but the title company doesn’t need to do more than list the title flaws as exceptions to the insurance,” Goodman wrote in an email this week. “The fiction is that buyers study and understand the title commitment or hire a lawyer. Yet everyone, including the city, knows that’s a myth.”
Bronson emphasized not all title companies are denying claims related to affordable restrictions. She has heard of instances of insurers covering price differences for people selling their affordable homes at depressed rates and moving to market-rate residences. Still, the city officials said LTAC and the state advisory committee should make a best-practices recommendation that such restrictions be treated as policy requirements so similar situations don’t occur in the future. It’s not just Denver’s affordable housing stock that’s at stake.
“We believe this is a statewide concern,” Bronson said. “We are incredibly dissatisfied with the position taken by the industry here. This is not a consumer-friendly approach.”