Foreclosures Gone Wild...Chapter 2

In the previous FGW post (below), I explained a bit about 1 aspect of the foreclosure mess, MERS. Here, I'll discuss the next problem in the process...Title Insurance.

First, here is a brief explanation of what title insurance is: It provides coverage for future claims or future losses due to title defects which are created by some past event (i.e., event prior to the acquisition of the property.) Protecting purchasers against loss is accomplished by the issuance of a title insurance policy, which states that if the status of the title to a parcel of real property is other than as represented, and if the insured suffers a loss as a result of title defect, the insurer will reimburse the insured for that loss and any related legal expenses, up to the face amount of the policy.



A few headlines out this week:

• Old Republic National Title Insurance, the fourth-largest title insurer in the country, announced it will not write new policies for foreclosed homes handled by the four major institutions that disclosed possible paperwork improprieties
• The Federal Housing Administration Commissioner, David Stevens, has joined David Axelrod in stating that the Administration sees no reason to halt all foreclosures...“We believe freezing foreclosures for all banks in all states, whether we have reason to believe them to be in error or not,(can you believe that he actually said that out loud, in public!) is simply not the prudent step to take in this fragile housing market,” he said.

It should be crystal clear to everyone exactly who the administration is trying to protect here...they talk about protecting the homeowners and the fragile housing market, but they are just protecting the TBTF  (too big to fail) banksters. Just keep on pushing forward...federal and state laws/statutes be damned! How about the next time the IRS calls you in for an audit regarding all of that under reported tax liability, just tell them that it was a 'clerical' error that they shouldn't worry about.

To get back to the title insurance issue...if we look back at the past 24 months of issued policies, are we going to be seeing huge claims against the Title Insurers who issued policies on all of the foreclosures already sold? Are we going to see new policies issued (if, in fact the insurers issue policies on foreclosures going forward) with specific exceptions built in to shield the insurers? Is the price of title insurance going to jump, or is there going to be a new Govt. title insurer of last resort (funded by the good old American taxpayer)  like what happened in the Florida homeowner insurance market? Or, as I have been hearing for the past few days, are the TBTF banks going to reach an "understanding." with the title insurers that if they suffer claims losses as a result of faulty paperwork (FRAUD), the banks will pick up the tab? If this last scenario happens, it will, in my humble opinion, just become another taxpayer pass-thru directly to the TBTF institutions from the untraceable TARP funds.

Take my word for it...shortly (but possibly after the midterm elections) you will hear about (or maybe it will be hardly reported at all) a Title insurance loss 'backstop' plan...it may even look like it is coming from the banks...but it's coming from me, you and the rest of the flock.

But every cloud has a silver lining...right? The silver lining that I see here is twofold:

1. Maybe the banks will get serious, trained, and organized regarding the processing of short sales. If, in order to take back a foreclosure, they are going to have to accurately identify ownership and complete legally verifiable paperwork, they may think that it is easier and more profitable to just approve a short sale.
2. The homes of all of our clients that are traditional sales should look that much more attractive to the buyers out there now...allowing those values/prices to firm up.

Thanks for reading...and come back for the next installment of ...Foreclosures Gone Wild!