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Hot potato time for title insurers

By Jay MacDonald · Bankrate.com
Monday, January 3, 2011
Posted: 10 am ET

It hardly requires a crystal ball to foretell that this sparkling New Year will soon be sullied by the ongoing mortgage mess. Joining last year's headline-grabbing robosigners and rocket dockets will be this year's new players: the title insurance companies.

As New York Times columnist Ron Lieber recently wrote, title insurance companies will likely be the next institution to have their mettle tested by the mortgage fiasco, which is feeling more like a chronic condition than a crisis by now.

When we think of title insurance, if we bother to think of it at all, it's as the largest fee on our home settlement statement at closing. Unless we're buying the home outright, our mortgage lender requires us to purchase title insurance in case someone should turn up claiming to be the rightful owner of the property. Warning: spoiler alert.

The previously placid title insurance industry received a major wakeup call last fall when the mortgage giants put foreclosures on pause in light of some seriously sloppy paperwork being jammed through the courts by the foreclosure mills. They've all started up again, of course, but for title insurers, the nail-biting has just begun.

"What would happen if scores of people who had lost their homes to foreclosure somehow persuaded a judge to overturn the proceedings?" Lieber wonders. "Could they somehow win back their rights to their homes, free and clear of any mortgage?"

From kicked to the curb to full ownership? The thought fairly boggles the mind.

To make that billion-dollar question even more chilling is the fact that, in many cases, the banks have already sold said homes to new buyers -- new buyers with title insurance of their own. If the average title search is anywhere near as flawed as the document checks of the robosigners, we're in for some wild court cases.

Talk about a house of mirrors. Now don't you wish you'd taken Mama's advice and earned that law degree?

Although big mortgage managed to quickly sweep robogate under the rug, chances are the court cases smoldering beneath it are just now sparking up across the land.

Are you caught up in this mess, either due to foreclosure or because you bought one that's being challenged? If so, has your title insurance come into play?

I'd love to hear your story.

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10 Comments
Jess
March 02, 2011 at 5:28 pm

Blah, Blah, Blah.....anything for a story. Do any of today's journalists have any consideration for the power of suggestion or our economy in general?
From what I read, the point here was not to define what title insurance is, but rather will one economic woe create a domino effect. One major factor in the rise of foreclosure rates is the fact that many Americans are out of work and have no income to support a mortgage payment. We as American's have grown accustom to living lifestyles not within our means, and we are now all seeing the results. Shame on the lenders who have approved mortgages using poor underwriting measures, and shame on those who took mortgages they knew full well they couldn’t afford. The lending indutry is under a great deal of scrutiny right now and should be held to the federal guidelines handed down through the acceptance of modification incentives. Hopefully, those who are deserving will get the opportunity to modify, or will have rights to argue when they are not given the rights afforded to them.
Now it's time for a clean up-which is no easy task. We do not live in a perfect world! The silver lining to it all is, that those who can afford to purchase can benefit by purchasing a home from institutions who need to liquidate, while still having the option of purchasing the protection provided by title insurance. Title insurance is always a good idea, which is why it's imposed by lenders. The premium difference between a loan and purchase amount is very minimal overall, so why not opt for the same protection? Choose direct lending..if you need a middle man to polish your credit standing, know your risks. Time to revamp...hopefully we have all learned something through it all. I'm certain the title insurance companies have.

Patrick
March 02, 2011 at 1:00 pm

Minimum title policy cost 5 thousand dollars... That is outrageous!!!

Jay MacDonald
January 11, 2011 at 5:10 pm

Hi, Tonia: My apologies for the delayed reply but I wanted to pick the brain of one of my favorite advisors in the field, Jason Biro at SavingYourAmericanDream.org. Here's his advice. Hope it helps.

I am so sorry to hear about your situation and everything your family has been through. On a positive note, there are still many, many things you can do.

The first step is to focus on the modification and getting into a more affordable payment. No matter what happens with the topdot lawsuit, you need to be able to afford your home. As soon as you can, get in touch with a nonprofit housing counselor or consumer advocate (who will not charge you for their help). You can work with a national or local nonprofit, or you can reach a HUD-approved counselor by calling 1-888-995-HOPE. An advocate or counselor will work with you to see if you qualify for a modification, based on your income, how much you owe on the loan, and how much your home is worth. An advocate or counselor will also be able to tell you if a modified mortgage payment would make your mortgage affordable enough so you can stay in the home without worrying about missing payments in the future.

The FHA truly sees foreclosure as the last resort, and it has many programs in place to help homeowners. One of these programs is called FHA-HAMP, which is part of the federal Making Home Affordable Program (http://makinghomeaffordable.gov). Wells Fargo is participating in FHA-HAMP, which means they are required to work with you on the modification. Again, this is where it’s important to work with an advocate or counselor, as the counselor will make sure you are providing the right information to Wells—and that Wells is complying with all of the program guidelines (which doesn’t always happen).

On the legal side, apart from hiring a lawyer, there are still several things you can do. First, I would get in touch with the FHA at 800-225-5342 to let them know that there is potential fraud associated with your loan. I would also contact both NACA, a national nonprofit (www.naca.com), and CMAC, a nonprofit that conducts free audits of predatory loans (http://cmacaudits.com). I am not sure what the outcome was from your state-required mediation, but I want to stress that working with a Wells on a modification is also a defense against foreclosure: as long as you are being considered for a modification through the Making Home Affordable program, Wells is not authorized to proceed forward with a foreclosure sale. So, keep working on your modification (which will take some time and will require quite a bit of effort), and continue to pursue the legal options I’ve outlined above.

If you have a pending court date set, make sure to detail the entire chain of events so it’s clear to the judge that you have been trying to make the best of a bad situation (and a situation that may have been predatory). Detail what you have told me and file it with the court, complete with documentation to back everything up and details about your financial hardship. If this particular judge is indeed trying to help homeowners, your effort should not go unnoticed. But don’t rely on a letter alone. Submit a letter and court filing along with everything else I have mentioned above.

If you have any questions or need additional help, please feel free to contact me.

Jason Biro
Co-founder
SavingYourAmericanDream.org

Shel
January 06, 2011 at 10:37 am

I have worked in the title industry and in the banking. this article is only touching the surface. the ownership issue will be taken care of under the owners policy. The lenders Lein position to protect in case of nonpayment of the loan under the lenders policy. Marketability protects the money you put down. But that isnt controlled Its depends on what the market will bear. ( Value )

tonia
January 06, 2011 at 10:09 am

I did a refi with topdot mortgage.My new fha loan was now unaffordable even though better rate.i did pay off some debt but they stole 33,000 plus fro us.They sold loan to Wells Fargo.Then soon after topdot was fined by HUD.Alot of the workers are doing hard time.I got a company to do a mod for me but they took 2900 and no results.I got a lawyer to do a audit for 600 he found rosiging,possible fraud etc.He wants 4000 to litigate and 700 monthly.I can't do that.Husband has good job.We are waiting to hear from Wells About papers recently submitted.We had a ny state required foreclosure conference in supreme court.We went to legal aide who said we have a case but we make too much money for them.i have a nother date with supreme court.My family knows the judge.He doesn't know me.i want to write him a letter to tell him whats going on with my case and that I can't get legal aide.I want him to know how we are suffering.He is the kind of judge who cares for the homeowner.What should I do? Please Help

Jeremy
January 06, 2011 at 1:52 am

Title insurance is a slick way for real estate agents to send kickbacks to their buddies. Iowa has it right: a statewide property registry, which resolves title issues ahead of time and obviates the need for title insurance.

When I bought my house a couple years ago, it was an easy choice to skip the Owner's Policy and only buy the required Loan Policy. The same GAO report cited above (http://www.gao.gov/new.items/d07401.pdf) shows that only 5% of title insurance premiums are paid out as losses and loss adjustments.

Jay MacDonald
January 05, 2011 at 10:49 am

Great question, David. Here's the answer, directly from the American Land Title Association website. Hope this helps:
There are two kinds of title insurance: the Loan Policy, which protects the lender's investment, and the Owner's Policy of Title Insurance, which protects the buyer's interests. If you are obtaining a loan to purchase your house, the lender will usually require that you purchase a Loan Policy to protect their investment. We strongly encourage consumers to obtain an Owner's Policy for a one-time fee paid at closing to protect their interests. Who pays for the Owner's Policy varies from state to state and sometimes even within a state. For instance, on much of the West Coast, the seller would purchase the Owner's Policy for the buyer. On the East Coast, however, the buyer usually pays for the Owner's Policy. An Owner's Policy is not automatically issued in every state. Be sure to ask your local title company or real estate agent how it's handled in your area and whether the Loan and Owner's policies come together or are sold separately.

David
January 05, 2011 at 4:36 am

I just made an offer on a house for my daughter, and it's a FORECLOSURE sale by the Fannie Mae bank holder of the title.(I'm a scuba diver swimming in murky water in this environment). What's the best way to protect ME; title insurance -- as I understand -- will protect the Bank but what about ME and my 20%downpayment?

Jeremy Yohe
January 04, 2011 at 3:20 pm

This article only stirs more unnecessary fear that homeowners who purchased a previously foreclosed home will lose their investment. The author fails to convey the benefits an owner’s title insurance policy can provide and does not mention homeowners will be protected if ownership issues arise because of a lender’s foreclosure documentation practices if they purchased an owner’s title insurance policy.

For a one-time fee, an owner’s title insurance policy provides protection for as long as a homeowner or heirs own interest in the property. Only an owner's policy protects the buyer should a covered title problem arise that was not found during a title search, including ownership challenges. Other possible hidden title problems can include errors or omissions in deeds, mistakes in examining records, forgery and undisclosed heirs.

Homeowners who have any questions or concerns about their rights should notify the title insurance company that issued their owner’s policy. Look for your owner’s title policy in documents you received after your closing from your title company. Consumers are encouraged to learn more about the value of title insurance at http://www.homeclosing101.org.

The article also inaccurately labels title insurance as the largest fee on the settlement statement. According to a study included in a 2007 GAO report on title insurance, the average cost of title insurance accounts for 4 percent of all closing costs. Meanwhile, other charges such as government taxes and fees comprise nearly 90 percent of fees on the settlement statement.

George F.
January 04, 2011 at 12:18 pm

Actually, the real estate commission is, by far, the largest item paid for at the closing when real property changes hands. Usually lender points are next and then title insurance. Why the false claim that title is always the most expensive? And why the scare tactic that the searches may be as flawed as robosigning mortgage servicers? What evidence is there of the frequency of flawed title searches approaching anywhere near the problem of ubiquitous robosigners? Very disappointing article. Better to stick to facts in the future please.