Title Insurers want the banks to pay the losses from foreclosures

By Elizabeth Razzi
The Washington Post
10/23/10
The title insurance industry is maneuvering to protect itself from losses if courts rule that banks have played fast and loose with the foreclosure process. But people who buy foreclosed properties from banks may face some degree of loss despite having a title policy.

Fidelity National Financial, the largest title insurance company, is leading the industry in demanding that lenders warrant that they have followed all legal procedures in the handling of foreclosures and indemnify the title insurers if a court decides otherwise.

"They are putting on record that it is absolutely the bank's responsibility," said Susan Wachter, professor of real estate at the Wharton School of the University of Pennsylvania.

But Wachter said buyers of these properties risk getting caught up in litigation among title companies, banks and possibly other entities if the foreclosure is overturned by a court. "There is still uncertainty," she said. "It's a question of litigation; it's a question of transaction costs."
That uncertainty will continue to place a chill on the foreclosure market, she said. Real estate agents are already seeing would-be foreclosure buyers retreating from the market, said Lucien Salvant, spokesman for the National Association of Realtors. And observers fear that a market chill, if it persists for more than a few weeks, could drive property values down further.

Title insurers are at the hub of real estate transactions. They guarantee that the chain of title is clear, unblemished by missing documents, outstanding liens or other factors that would impede an owner's right to sell a piece of real estate and deliver a clean title to the new owner. Lenders always require buyers to pay for title insurance coverage that protects the lender against those risks. Buyers have the option of paying extra to have such coverage for themselves.

Fidelity National Financial, which has 38 percent of the market nationwide, underwrites policies under the brands Fidelity National Title, Chicago Title, Commonwealth Land Title and Alamo Title. As of Nov. 1, all lenders seeking a Fidelity National policy for the sale of a foreclosed home must warrant that all documents and procedures involved in the foreclosure process were handled properly. They also must agree to pay the title insurer's costs in the event that a court finds errors or fraud in the foreclosure process.

Those agreements will be required even sooner for Bank of America, which plans to resume foreclosure sales next week. Peter T. Sadowski, Fidelity's chief legal officer, said the indemnity agreement was drafted by Fannie Mae and Freddie Mac, and that he hopes their regulator, the Federal Housing Finance Agency, soon makes it mandatory for loans backed by Fannie and Freddie as well.

Fidelity executives said they do not anticipate having to pay claims anyway, even if a court sets aside a foreclosure due to a defect in documentation or process. In a conference call to Wall Street analysts Thursday, Sadowski said, "If a foreclosure is set aside - which is very unlikely to happen - the purchaser who bought the property is going to get his or her money back from the lender who sold it to him."

In such an instance, the title insurance company would deal with the lender on behalf of an insured buyer, Sadowski said later in an interview.

Although Sadowski said he does not expect the foreclosure crisis to result in significant losses to the company, Fidelity National nevertheless is building up its cash on hand. The company has halved its dividend and announced plans to cut $50 million in expenses within the next six months. Company officials cited continued uncertainty in the real estate market and the desire to repurchase shares of company stock as reasons for the cash buildup.

The plans and concerns of the other major providers of title insurance - First American Financial Corp., Stewart Title and Old Republic International - will be disclosed this week. Each is scheduled to report third-quarter earnings to investors Oct. 28. Along with Fidelity, they account for 90 percent of the title insurance market.

Old Republic National Title Insurance ceases writing insurance on JPMorgan Foreclosures

...The prices of foreclosures would plummet,

because lenders will not issue a new mortgage

without title insurance...

By David Streitfeld
The New York Times
10/2/10

A major title insurance company has stopped insuring homes foreclosed by JPMorgan Chase, another sign that the controversy over the legal practices of the big lenders is starting to influence the housing market.

The company, Old Republic National Title Insurance, told its agents Friday that it would not write policies on foreclosed Chase properties until “the objectionable issues have been resolved,” according to a memorandum sent out by the firm’s underwriting department.

A Chase spokesman declined to comment. Old Republic executives did not return calls for comment. The title insurer, which is based in Minneapolis, said earlier in the week that it would not write policies for properties that had been foreclosed by another big lender, GMAC Mortgage.

As GMAC and Chase try to deal with questions over their legal methods, they have halted all foreclosures in the 23 states where they need a court’s approval. Late Friday, Bank of America said it would stop all its pending foreclosures in those states as well.

GMAC and Bank of America have declined to say how many cases are involved. Chase said it was halting 56,000 cases. About two million households in the country are in foreclosure, and millions more are on the verge.

After a lender seizes a home in a foreclosure case and the defaulting homeowner is, if necessary, evicted, the company works with local real estate agents to prepare the house for sale. The National Association of Realtors said distressed sales, including foreclosures, were 34 percent of all existing home sales in August. In some stricken areas, the percentage is much higher.

When foreclosures are done with faulty documentation, that could leave the new owners of the house vulnerable to claims. Title insurance protects the buyer against defects, errors or omissions in the chain of title.

Old Republic said in the memorandum that its agents were already reporting written cancellations of contracts involving both Chase and GMAC.

Shares of the major title insurance companies dropped on Friday amid concern that their business would suffer as a result of the foreclosure freezes. Fidelity National Financial fell more than 4 percent, while First American Financial dropped 3 percent.

Fidelity National issued a statement saying it did not believe the problems with the foreclosure process would have “a material adverse impact.”

Mark P. Stopa, a lawyer in Florida who represents defaulting homeowners, said that if more title insurance firms began to shy away from insuring foreclosed properties, the entire housing market could suffer. The prices of foreclosures would plummet, because lenders will not issue a new mortgage without title insurance.

“Judges have to force banks to do foreclosures correctly,” Mr. Stopa said. But that would require a significant increase in staff, he said, and “I’ll believe it when I see it.”

Grandpa

What happens when a homeowner is booted from their home as a result of foreclosure and months later finds out it was not a valid legal proceeding? Do they move back in? What about the buyer of the foreclosed property? Class action lawsuit?