The Foreclosure Mess As It Relates to Title Insurance
Is it just me or is the US Foreclosure mess just out of control? It is now January 2011 and the stimulus has all but been exhausted and the housing market doesn’t seem the least bit recovered. Where is all of this recovery talk coming from? What was actually “stimulated” besides the Economic Experts that see better days ahead? In regards to housing I hate to say but all I see is a dismal reality still clouding the months ahead.
According to RealtyTrac there were 2.9 million foreclosure notices filed during 2010. This was a record high, but actually doesn’t even factor in all of the potential foreclosures saved due to the robo signing scandal. Think about all of the delayed foreclosures that will begin re-filing in the early part of this year.
How is this mess affecting and how will it concern the Title Insurance Industry?
I am seeing more homebuyers employ counsel and be more mindful to their Title Documents than ever before and for good reason!
The muddled catastrophe that has been upon us from defective documents to perhaps fraudulently processed foreclosures has shed focus on the need for comprehensive title insurance. Homebuyers and their counsel should make sure they’re getting a policy that covers any costs tied to hidden fees or liens placed against the property that may have not been found during a traditional title search.
Any home buyer especially those purchasing homes through a foreclosure or a short sale, need a policy that covers legal fees if someone challenges the validity of their title. The fact is that the underlying mortgages have been sold so many times that the original documents are rarely found. This matter gets to the real heart of the financial meltdown. (By the way regarding the “Meltdown” if you want to read an excellent book get yourself a copy of “The Big Short”, I will have to write more on this another time)
It’s not only that there will be thousands of homeowners who will fight for the reversal of their recent losses due to recent foreclosures. The issue of other potential lien holders not getting the proper notice which would eliminate their lien interest is also a massive problem. Title Companies are left with the burden of not only making sure they can insure the new deed from the bank or foreclosing creditor, but also that the foreclosure eliminated any and all past liens of title. We will all undoubtedly hear stories of homeowners who lost their home due to foreclosure who were able to take their home back. This is exactly why Title Insurance for home buyers is more important than ever. (See Past Post about Why Do We Need Title Insurance)
If and when a dispute arises the boni-fide purchaser’s policy would kick in and the legal costs to cover the dispute would be taken care of. As I have written previously this is precisely why Title Insurance is needed.
This mess is not going away anytime soon. The mortgages were pooled so fast and so furiously that some homes are even being foreclosed on by separate investors at different times, each believing they have the right to the security interest that the mortgage protects. Some Title Underwriters are even going as far as not insuring certain foreclosures via certain lending institutions. The Risks for Title Companies just keeps adding up and as foreclosures continue to mount the degree of the dilemma just worsens and worsens.
Unfortunately for the Title Examiners this burden will be left for them to settle. How will it play out, who knows? But so long as any home buyer purchases Title Insurance from a reputable Title Agent any potential loss will be covered. In the end that is all a home buyer can worry about, “are we covered?”
Some Suggestions to Home Buyers:
- Obtain a copy of the Title Report prior to closing
- Ask for a “Marked Up Title” and “Short Form Policy” if available at the time of closing. Verify that there are no exceptions to title that are lien related. Verify that all mortgages, judgments and liens have been paid or satisfied.
- When in doubt, hire and seek counsel. Each state has different laws and it is important that you protect your investment. After all, a home is typically the single largest investment any of us will ever make.