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Largest US Title Insurer To Demand Indemnity And Foreclosure Warranty From Banks

Tyler Durden's picture




 

The good news: title insurers may be getting back into the game. The bad news: they will demand indemnity and warranties from the issuing bank assuring their paperwork is sound
before backing sales of foreclosed homes. At least this is what the largest title insurer in the US, Fidelity National, will do going forward (which makes one wonder just what exactly FNF's job function is if the mortgage issuing bank, such as BofA, now caught in too numerous RoboSigning scandals to mention, essentially takes over the title guarantee process...) From Bloomberg: "An indemnity covering “incompetent or erroneous affidavit
testimony or documentation” must be signed for all foreclosure
sales closing on or after Nov. 1, the Jacksonville, Florida-
based company said in a memorandum to employees today. The
agreement was prepared in consultation with the American Land
Title Association and mortgage finance companies Fannie Mae and
Freddie Mac, Fidelity National said." And what happens if the bank is once again caught to be, gulp, lying? Who foots the bill then? Why the buyer of course. All this does is to remove the liability from companies like Fidelity National and puts it back to BofA, which is already so much underwater it has no chance of really getting out without TARP, contrarian Goldman propaganda notwithstanding.

More from Bloomberg:

“It’s just the prudent thing to do,” Peter Sadowski, executive vice president and chief legal officer for Fidelity National, said in an interview. “It is important for the servicers and the lenders to represent to us and to the people we are going to be insuring that there are no problems.”

Bank of America Corp., the biggest U.S. lender, agreed to a similar contract with Fidelity National on Oct. 8, the same day it extended a freeze on foreclosures to all states amid concern by federal and state officials that lenders are seizing homes without properly reviewing documents. The bank plans to start resubmitting foreclosure affidavits next week. Attorneys general across the country have opened a joint investigation into foreclosures, saying they will seek an immediate halt to any improper practices at mortgage lenders and loan servicers.

Title insurers use their records and public documents to verify a seller is the home’s true owner and that the property is free from liens. They collect a one-time premium at the closing of the purchase and pay costs that may arise if someone disputes the new owner’s right to the property.

The indemnity agreement requires lenders to protect title insurers at their own expense from “any and all liability, loss, costs, damage and expense of every kind” if errors arise in foreclosure procedures, according to the document.

The expenses may include attorney’s fees, a decrease in the property’s value and inability to sell the title, Fidelity said in the document. The lender must also notify the insurer in each case that a foreclosure complies with state laws and regulations, according to the agreement.

The indemnity agreement is available for use by all title insurers, Fidelity National said.

The American Land Title
Association, which is nothing but a lap dog for the bankers, of course applauded this development: after all there are millions in pending foreclosures to be done.

“This is a standard all lenders should follow,” said Kurt Pfotenhauer, chief executive officer of the American Land Title Association, a Washington-based trade group. “The sooner that indemnification agreement is adopted market-wide, the more confidence investors can have in this foreclosure market.”

At this point it is only a question of who can kick the massive mortgage fraud can the farthest down the road, before it all comes crashing down. In the meantime, we can get back to more important things: like record banker bonuses due to be paid in a few months (of the pre-TARP 2 version).

 

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Wed, 10/20/2010 - 15:58 | 665088 Bob
Bob's picture

Gotta get those bonuses out before TSHF!

Wed, 10/20/2010 - 16:07 | 665120 Dagny Taggart
Dagny Taggart's picture

I have a feeling they'll make more on the credit default swaps profits when the SHTF than their piddlely ole bonuses. They created those swaps to pay each other (S & M version of the circle jerk) when it fails.

Wed, 10/20/2010 - 16:26 | 665177 traderjoe
traderjoe's picture

Assuming the counter-parties are solvent...

Wed, 10/20/2010 - 18:57 | 665512 Dagny Taggart
Dagny Taggart's picture

If Soros still owns part of it, it probably ain't goin' down first... just a hunch.

Wed, 10/20/2010 - 15:58 | 665090 Number 156
Number 156's picture

Title insurers are the new AIG backdoor bailout conduit.

Wed, 10/20/2010 - 16:01 | 665095 centerline
centerline's picture

Well, I guess its high time to go make another withdrawal from my BOA account.

Wed, 10/20/2010 - 16:03 | 665100 covered
covered's picture

Indemnify our lies bitc...well, you know.

Wed, 10/20/2010 - 16:04 | 665103 detersbb
detersbb's picture

What is there needed function in today's society?

 

Will banks really require title insurance on foreclosed homes, or is this consolidation of 2 industries?

Wed, 10/20/2010 - 16:19 | 665119 williambanzai7
williambanzai7's picture

Until such time as satisfactory proofs of title and lien status are given by BAC, I recommend all mortgage payments be paid in kind using the following instrument:

Anyone who has ever, or who knows anyone who has ever collected a payment from a Title Insurer please raise your hand...

Wed, 10/20/2010 - 16:53 | 665264 bada boom
bada boom's picture

Yeah, and what about all those insured municipal bonds?

 

Wed, 10/20/2010 - 18:36 | 665484 iconoclast63
iconoclast63's picture

Whoever flagged WB7 as junk should first be set upon by rabid hyenas then dipped into a vat of boiling bacon grease.

Wed, 10/20/2010 - 18:37 | 665485 title examiner
title examiner's picture

WB7,

What a wonderful certificate.  Did you make that one up?  Where did you get the curtains around it?

Oh, a title insurance company making a pay-out?  It isn't really done that way...

What is more likely is that the Agent will keep the money and never turn the policy into the regional office...

I ran titles for years and years.  On rare occassion, you would find where the title insurance company buys a property up, due to some catastrophic failure.  After the fraudsters figured out how to do multiple assignments of loans, they had to cut some checks, if an agent insured one of those.  Mortgage Brokers got real happy selling the same loans over and over and over again....

I'm told the miniscule claims ratio managed to jump high enough to just about put some of them out of business, though.

Wed, 10/20/2010 - 19:37 | 665585 OldTrooper
OldTrooper's picture

What is more likely is that the Agent will keep the money and never turn the policy into the regional office...

Hmmm, might get away with that for about 3 months.  My underwriter audited us every 6 months.  There may be some things that went on in management that you weren't involved in and know nothing about.

Wed, 10/20/2010 - 20:51 | 665735 title examiner
title examiner's picture

Ever heard of SGE Mortgage?  Perhaps not.  That should have put the TIs on notice.  Those folks weren't caught for a long while.  It isn't that different from what we are seeing now, except most of the assignments went into people's IRAs rather than MBS.

You haven't shot anything down, but you are resorting to innuendo.  Try contributing something to move the discussion forward.  I get that there is a difference between Casualty and Indemnity insurance, a very nice contribution, indeed.  We could get that from a wiki, and that is about all you have contributed, beyond some bare assertions.  But the residential closing mill tactics don't cut it.

I was hanging around inside LTIC and courthouses when I was a little kid, went to kindergarten next to the courthouse--I somehow think I have more than 15 minutes of training.  There may be some things in management that YOU don't know about, dude.

Wed, 10/20/2010 - 22:17 | 665874 OldTrooper
OldTrooper's picture

If your underwriter would let you go with out a premium payment for more than three months I'd like to know who you were writing for!  I had strict accounting for policy jackets and premiums - reported every month.

And I don't care where you went to kindergarden.

I'm not familiar with the issues in SGE Mortgage.  Post a link and I'll check it out.  There have been plenty of shady lenders, so why should this one case have put TI's on notice?  (an honest question, btw)

You asserted or implied that local title companies often pocket premiums and fail to report issuance of polices to the underwriters, didn't you?  Are you really willing to stand by that?

If so, then you worked for some shady outfitts and I believe your bad experience has tainted your comments.

 

Wed, 10/20/2010 - 23:27 | 665991 Village Idiot
Village Idiot's picture

I had a title company decline a claim once. Title Companies are some of the biggest scam artists.  All regulated, of course.

Thu, 10/21/2010 - 00:05 | 666042 OldTrooper
OldTrooper's picture

Can't say if it was right or wrong without details.

Wed, 10/20/2010 - 16:08 | 665121 99er
99er's picture

Chart: ES and ZB

Damage already done.

http://99ercharts.blogspot.com/2010/10/es-zb_7472.html

Wed, 10/20/2010 - 16:08 | 665125 kaiserhoff
kaiserhoff's picture

I understand completely. FidNat gets a nice cut of every deal.  They stand ready to defend you in case some Klingon from a parallel universe has a valid claim on your double wide. 

The banks will go along, because FidNat has a lot of lawsuits to defend, and lawyers to pay.  If the title insurer goes under, the paper is downgraded, and the whole world has to admit WE'RE BROKE!

Not really a circular firing squad, more like a Mexican stand-off..., until someone sneezes.

Wed, 10/20/2010 - 16:12 | 665127 TheMonetaryRed
TheMonetaryRed's picture

Banks to title insurers:

"How about this: If you don't sue us, we'll let you collect your fee on every new foreclosure sale without taking on any of the liability. Sound good? Okay, let's go out there, close some deals and make some money!"

So it's official: Henceforth, anyone who pays for title insurance when buying a foreclosed property is an idiot.

Wed, 10/20/2010 - 16:08 | 665129 HarryWanger
HarryWanger's picture

Meanwhile, Netflix soaring AH on earnings to a new p/e of 1000. Get it while it's hot!

Wed, 10/20/2010 - 16:09 | 665130 firstdivision
firstdivision's picture

WFT is going on with NFLX?!?  65 P/E not high enough, so they miss estimates and it goes to the fucking moon!!  This is getting hilarious.

Wed, 10/20/2010 - 23:29 | 665996 Village Idiot
Village Idiot's picture

I remember those guys at what, 5 bucks a share?  They were going after the big guy - Blockbuster.  Nice work.

Wed, 10/20/2010 - 16:11 | 665136 piceridu
piceridu's picture

What a business model, they just eliminated their liability. 

TI was to protect against the very things that are happening at this moment.

 

What title insurance protects against:

Here are just a few of the most common hidden risks that can cause loss of title or create an encumbrance on title:

* False impersonation of the true owner of the property

* Forged deeds, releases or wills

* Undisclosed or missing heirs

* Instruments executed under invalid or expired power of attorney

* Mistakes in recording legal documents

* Misinterpretations of wills

* Deeds by persons of unsound mind

* Deeds by minors

* Deeds by persons supposedly single, but in fact married

 

 

I'm sure we'll be getting a discount for the little to no coverage they now offer?

Another one of those fear based scams that no one ever questions.

Wed, 10/20/2010 - 16:36 | 665202 macholatte
macholatte's picture

that's all probably true, the list you detailed, however, don't you need to take a look at who the customer is and who is getting the coverage? For example:

You buy a house with a new BofA loan. The seller buys a title policy that basically guarantees that he has the right to sell the home to you and that no "problems" exist (such as you list) other than those detailed in the title policy. Also there is a lenders policy that insures them that they have a first lien on the property and that the house really does exist and so on.

At foreclosure, it would be BofA who buys the title policy that insures them that they get title to the property if they prevail at the auction or, that the successful bidder gets it.

The situation that I believe exists here is that the title companies typically require notarized docs and depend on them. Example: the deed.

So the title company looks at a document that was notarized and believes it. Why shouldn't they?

If the bank had Mary signing Bill's name and Fred notarized it, the title company would not know about it nor would they care. They are  without liability and it is they who have recourse against the bank. So now, they want the banks to indemnify them that no matter what funny business happened, the bank is going to eat it or no more title insurance = no more foreclosures.

Don't be surprised if title companies start sueing lenders preemptively.

 

 

Wed, 10/20/2010 - 19:50 | 665613 OldTrooper
OldTrooper's picture

So the title company looks at a document that was notarized and believes it. Why shouldn't they?

Most States have law(s) on the books that allow for anyone to accept the notary acknowledgement as prima facia evidence that the document was executed by the person and that their capacity (as a corporate officer for example) is correct.

That's why they believe it.

If that weren't the case then no one - NO ONE - would be able to accept an acknowledged, recorded document.  Days or weeks of research would be neceassary to ascertain the validity of the acknowlegement and obtain proof that the person executing the document had the capacity to do so, and did in fact execute the document.  Think transactions are expensive now?  Start questioning every notary acknowledgment and see how expensive it is.

There's no fool proof system - that's why fraud is a huge source of claims for title insurers - but until you come up with a better way I guess we're stuck with it.

Wed, 10/20/2010 - 17:18 | 665320 title examiner
title examiner's picture

Piceridu,

I'm not so certain that the things on your list are all actually covered, particularly if they are recent events.  Meaning, they like to hide behind the theory of 7 years of adverse possession under color of title.  Color means you have a nice deed recorded at the Courthouse and you have been paying the taxes and controlling the land, among other things.  Possession generally doesn't run against minors, morons and people who aren't competant to sign a deed.

Generally, coverage has been parsed down to complete failures of title.  Most policies have the magic weasel words about "subject to easement and restrictions of record."  They put that crap in, because they switched over from doing full title searches to limited title searches.  Like, Owner forward.  They did this because there was so much work to do, they wanted to send the work to India and the Phillipines, so they could have it done for like a dollar and so that price could end up as a title research fee on your HUD-1 at $125 or more. 

Their experiment with these "super quickie" 12 minute searches eventually started producing huge claims, however.  Folks with rings in their noses started showing up at the courthouses, they got about half a day's training and then they were title examiners.  The kids with rings in their noses got about $7.50 per title.  Actual title examiners, who did things like research the records for 50 years, like the bar standards require, they were getting about $100, if they weren't on some silly salary.  Title research became stacking up deeds, stacking up loans and liens--surely anyone could do it, even the folks in India.

The bogus foreclosures are very recent and these will have some nice weasel words, if not bold print, excluding them from coverage.  They'll politely tell you to go get a lawyer and sue the bank that sold it to you.  I'd expect them to also limit or eliminate any warranty they are giving when they convey, making a foreclosure deed, or any subsequent conveyance have the full force and effect of a quitclaim deed.  Quitclaims aver that if they have an interest, they are conveying it.  You can't really sue on a QCD, as there is no Warranty upon which to claim.  "As is, where is," perhaps we own it---perhaps you'll own it.  We hope you make 7 years without an action being filed against you.

Or they may give you a very limited Warranty in the conveyance clause, where the deed itself doesn't warrant certain pesky little flaws.  So, your sales contract should probably be checked carefully for the kind of conveyance language and associated warranty that may be required. 

Best practice would be to get a QCD from the party that was foreclosed, that should be rather curative and you should probably be able to argue for removal of limiting language.  Another nasty little trick is to make certain that any Attorney's Certificate of Title is issued to you and to your bank.  Because if the Attorney messes up on a Certificate of Title, you can tag some E&O insurance.  But they are generally very careful not to certify anything to the purchaser, just to the bank.

BTW, tagging the closing attorney's E&O is exactly what the Title Insurance Companies do, when a problem pops up.  The biggest problem we used to face was that an instrument wouldn't be recorded properly in a deed or lien index.  Of course, the local disengenuine Clerks would slip corrections into the record, without noting it is a late addition.

And here is the big rule of thumb:  If someone makes a mistake.....NEVER use them to correct the problem, because they will make a bee line for CYA.  I've seen folks get the owner's affidavit from a closing and threaten folks with jail if they didn't sign a corrective deed, or some such.

So, what kind of Owner's Affidavits are the banks signing for their foreclosures and for the subsequent sales to "innocent purchasers?"

Wed, 10/20/2010 - 17:32 | 665350 title examiner
title examiner's picture

Oh, and I should mention the Limited Warranty Deed.  That one, they warrant what they did "from the time they got the property" and everything before that time is not warranted...meaning Quitclaimed.  Probably including any bogusness before the deed was signed.

All those little words in the deed and sales contract mean things.

Wed, 10/20/2010 - 16:20 | 665160 Mad Max
Mad Max's picture

This and similar actions will totally destroy the value of any house that is currently owned by a normal individual but was purchased in a foreclosure context in the last 5 years or so.  The previously foreclosing bank won't provide any indemnity or further warranty, and the title insurers won't want to provide a useful policy on any new sale from a solvent owner to a new person.

Yours truly,

Mr. Sunshine.

Wed, 10/20/2010 - 16:21 | 665162 tahoebumsmith
tahoebumsmith's picture

Nothing but one big circle jerk to keep the lid on. This whole ponzi starting back in 2002 when the cdo/ mbs/ cds/derivitives markets spread like wildfire is coming unglued at the seams. The truth is that the real value of MOST of these synthetic assets are pretty much worthless and if truth be known the big five whores that are running this country would be INSOLVENT overnight... MARK TO THIS BITCH! How long can they keep this cover-up going? The FED and Fannie/Freddie are in sooooo deep they need to keep kicking the can until the can becomes nothing but metallic dust. Then what? Like is there going to be another bubble they can inflate to cover this one up? I don't think so boys...GAME OVER, just fricken give it up before the USA becomes so distanced from the rest of the world we end up in a war we will not win...

Wed, 10/20/2010 - 16:21 | 665167 bankonzhongguo
bankonzhongguo's picture

Its like everything else. 

What is a market for? 

What is the SEC for? 

What are BLS data for? 

What is title insurance for?

Is anything working the way it should?  Anything?

 

 

Wed, 10/20/2010 - 16:25 | 665176 putbuyer
putbuyer's picture

Barry says fuck off! "I know who puts coin in my pocket"

WASHINGTON (AP) -- President Barack Obama's top housing official said Wednesday that lenders are within their rights to resume foreclosures this month despite allegations that they erred in processing documents. But he said the banks could face fines if found to have broken the law.

"They've made a business decision," Shaun Donovan, the secretary of housing and urban development, said in an interview at the White House.

http://finance.yahoo.com/news/Obama-official-says-banks-can-apf-671089494.html?x=0&sec=topStories&pos=4&asset=&ccode=

Wed, 10/20/2010 - 16:35 | 665208 Cognitive Dissonance
Cognitive Dissonance's picture

"They've made a business decision," Shaun Donovan, the secretary of housing and urban development, said in an interview at the White House.

If by "they" the White House means the To Big To Fail banks then "we" (as in the taxpayer) has just made a business decision.

Wed, 10/20/2010 - 16:33 | 665201 Cognitive Dissonance
Cognitive Dissonance's picture

So let's see if I have this right. The Title companies can off load the risk and still collect the premium?

Man, I'm in the wrong business.

Wed, 10/20/2010 - 17:07 | 665300 the grateful un...
the grateful unemployed's picture

Title companies take care of a lot of other than bank matters regarding property, things like easements, access, etc. They also see that liens are recorded, because if it isn't recorded, then its not legal. One homeowner might sue another over property, and win but if it wasn't recorded in the first place, the Title Insurance Co would not be liable. Their role is pretty straightforward. We haven't seen second or third party claims against property, yet, but we will. 

Of course the Title Co's can't really do their job in this environment, even in a fairly black and white situation, they need more clarity.  

Wed, 10/20/2010 - 16:46 | 665244 Bankster T Cubed
Bankster T Cubed's picture

not even gonna bother reading any of that

because it doesn't fucking matter

 

Wed, 10/20/2010 - 17:00 | 665275 Ned Zeppelin
Ned Zeppelin's picture

I was waiting for this. 

This cures to some extent the problem, but still leaves Fidelity holding the bag if (a) there is a problem, and (b) B of A can't pay the indemnity, which is nothing more than a naked, unsecured promise to pay (the irony is somewhat interesting.)  So while Fidelity has take on the risk, and it seems has offloaded it via the indemnity agreement, that is not a sure thing: the title insurance continues on long after B of A has gasped its last breath.

If I'm Fidelity, I'm still going over these foreclosures very carefully, and "managing the risk" internally by simply declining to take on certain foreclosures, even with the affidavit.  As a practice, this may be exaclty what they are doing - if they think after a review of title there is not a likelihood of funny business, they will proceed and get the indemnity as belt and suspenders. If on the other hand, the particular mortgage holder involved in the foreclosure has been the source of other, known problems, they may shy away, affidavit or no affidavit. 

I also see as unresolved the issue of dealings with any mortgage in a non-foreclosure context that is held nominally by one of these securitized trusts. How do you know the mortgage payoff is being directed to the right party? They will cover this via affidavit no doubt, and then keep their fingers crossed.

Wed, 10/20/2010 - 20:49 | 665725 OldTrooper
OldTrooper's picture

You have a good grasp on the situation, Ned.

If I were Fidelity I'd also be keeping close track of every bank's financials.  After all, the indemnity is only as good as the bank's ability to pay.

Wed, 10/20/2010 - 17:02 | 665281 dantes1807
dantes1807's picture

This really doesn't do much. Banks such as Bank of America as the seller always had to make reps about the property anyway. If they were known to be false, the title company could sue the seller (in this case the bank). This adds an indemnity but I wonder how broad the scope is.

Also, banks can just use a different title insurer. I'm sure other insurers will just take Fidelity's business.

Wed, 10/20/2010 - 17:56 | 665408 Ned Zeppelin
Ned Zeppelin's picture

Title companies tend to move in herds when it comes to risk issues. If Fidelity thinks it is a rsik, the rest will follow quickly, to the point where they will refer to this indemnity agreement as "one of those Fidelity style  indemnities" before long.

Wed, 10/20/2010 - 22:40 | 665918 OldTrooper
OldTrooper's picture

Who are you who are so wise in the ways of title insurance?

http://www.youtube.com/watch?v=zrzMhU_4m-g

 

Wed, 10/20/2010 - 17:23 | 665334 Edmon Plume
Edmon Plume's picture

It's interesting that the fidelity service arm offers a variety of loan "services", including web-signing services for docs:

http://www.servicelinkfnf.com/page/services/origination/programsSolution...

Is this just an attempt to distract blame for their own farts?

Wed, 10/20/2010 - 17:24 | 665336 eatthebanksters
eatthebanksters's picture

What benefit does a buyer get from an indemnity for title insurance from a corrupt and bankrupt seller?  Its as worthless as the bogus and counterfit shit these guys have been pawning off as investment grade securities...

Wed, 10/20/2010 - 18:02 | 665420 Ned Zeppelin
Ned Zeppelin's picture

Naked Capitalism has some pretty persuasive arguments there that this is not as big of a deal as one might think. But, I think the problem is one of cumulative effect.  Sure you might be able to fight the fight, loan by loan, building by building, but what is the cost of all that hand to hand combat, what is the value you get once you foreclose, and how long before no one wants to own a security that has to go through hell and back to realize on its remedies.  What happens as the values of those securities deteriorate over time?  Mark to unicorn to the rescue, I suppose, but you now have a new drain on cash flow, a line item on the expense list called "Hand to Hand Trench Warfare" which can be very expensive over time, not to mention the drip-drip-drip of litigation from those seeking put backs of bad loans. 

 

 

Wed, 10/20/2010 - 18:31 | 665463 Waterfallsparkles
Waterfallsparkles's picture

I would like to read the Title Policy.  Does this mean that they will exclude coverage for Bank Fraud, Affidavits, Invalid Notes etc.?  If that is the case the Buyer would not have any coverage if those events occurred.

A Title Company Indemnity means to me (in fancy language) that the Buyer would not have any claim against the Company for the stated events, problems.  Kind of like Homeowners insurance were you may not have coverage for Flood Insurance as that would have to be purchased separately.

Would they have to Legally defend you against such actions?

Plus, what would happen if you Sell the House 10 years later and the Bank is out of Business.  Way to many questions, without answers.

I think I will stay away from Buying any Foreclosures..

Wed, 10/20/2010 - 18:31 | 665473 TuesdayBen
TuesdayBen's picture

The US title industry is like the US Gubmint: Both have a fundamental reason to exist, and both are vastly overblown and need to be pared back about 80-90%, back to the core component that makes sense and provides some benefit.

Wed, 10/20/2010 - 18:51 | 665501 ghostfaceinvestah
ghostfaceinvestah's picture

So instead of coverage from a state-regulated insurance company, your title is guaranteed by a TBTF bank who has been notoriously negligent in their handling of mortgages?

You would have to be a fool to buy an REO under those conditions.

Wed, 10/20/2010 - 19:26 | 665560 OldTrooper
OldTrooper's picture

There's an awful lot of people commenting on title insurance that don't know shit about it.

It started with this bullshit in the original post:

And what happens if the bank is once again caught to be, gulp, lying? Who foots the bill then? Why the buyer of course.

This is patently not true.  The buyer will (should) make a claim on his title policy and the title insurer will take over from there.  The indemnity from the foreclosing bank gives the title insurer recourse in the event the claim is caused by 'errors' the bank made.

Are the title insurers eliminating their risk?  Of course they are...that's how they make money.  Understand that title insurance is an indemnity contract, not a casualty contract.  They insure against PAST defects in title.  Past defects, because of state real estate laws and official county records, can usually be detected and corrected - or, in other words, risk can be eliminated.

Among the largest sources of claims for title insurers is fraud (because it is by necessity hidden and not always possible to detect in the public records).

Indemnity agreements are commonly used in the title insurance industry - to give the insurer recourse against sellers if there is a misrepresentation that results in a claim (ie. mechanics liens or unpaid utilities and, now, bad foreclosure documentation).  I'm not at all surprised that the title insurers came up with this approach.

They will certainly look at the financial position of the indemnitors as part of the process - if they don't then they'll deserve whatever happens.

Wed, 10/20/2010 - 19:50 | 665614 title examiner
title examiner's picture

We'll see what is or is not patent in about two months, when the first policies issued after this policy change become available for review.  Or one of us could dig into underwriter's manuals.  The topic isn't ripe without the new documents.  My belief is that foreclosure failures will be exceptions, perhaps even boilerplate, if not a scheduled endorsement.

You realize that Mortgagee policies upgrade to Owner's Policy status, when foreclosed.

How you do propose to handle a loan that got tossed into several different MBS packages?  A race, perhaps?

Wed, 10/20/2010 - 21:33 | 665812 OldTrooper
OldTrooper's picture

Well, I worked in title insurance for 16 years, and owned my own title company for 6 of those years.  I did the title work and insured projects in Colorado resorts, where huge liability and screwed up old mining title was the norm.  I never had a claim.  I think I have a fair grasp on title issues and liablity.  There's not much you can tell me about my prior profession.

So far the only thing we know is that Fidelity is willing to insure these with the bank's indemnity.  There's been no talk of changes to the standard ALTA policies or additional exceptions to title.  It is doubtful that an exception for foreclosure failure will even be attempted by the title companies.  Attorneys would be all over that like flies on shit.

I do think that buyers should insist on the Standard ALTA Owner's Policy, with standard exceptions 1-4 deleted, and not accept the short-form policy (I always do).  I pay for a survey to get that coverage when I buy property.  A buyer of an REO would also be wise to run his title commitment by an attorney if he doesn't have the expertise to understand it himself - or just wants to share the risk with his attorney's E&O provider (done that a few times myself).  If an offensive exception is there (a big if) it should be objected to and removed.

However, to suggest that the title insurance companies or the underwriters will ignore legitimate claims, putting the loss on the insured, is patently untrue.  They understand that would ruin them faster than the claims.

With regard to your last question:

How you do propose to handle a loan that got tossed into several different MBS packages?  A race, perhaps?

I think that the courts wil decide that, like with mineral ownership, a right to income from a bundle of loans is not the same as executive ownership, in essence that the MBS owners only own some kind of royalty interest, not an executive estate (which is actually kind of true).  Uncle Sam will remove tax problems with unwinding these (can't have our favorite bankers taking a loss, after all) and the melt-down of our economy will proceed.

There will be legal hurdles, no doubt, but don't for a second think they won't be resolved - in the banker's favor.  Credit River went nowhere and so will this mess.  I don't like it, but have to call it as I see it.

Wed, 10/20/2010 - 22:31 | 665898 title examiner
title examiner's picture

An assignment is an outright conveyance, not a mere usufruct, not some mineral interest,  and it conveys an interest in both instruments: note and mortgage (or security deed.)  Statutorily, instruments like the mortgage, security deed, assignment of rents and lease and the UCC filings perfect the security interest on the record and delineate remedies, pursuant to powers granted in the note itself.  Assignments typically refer to a note by date and to recorded instruments by book and page, as well, and vice versa--complimentary. 

If somebody is stupid enough to take an assignment without also getting the original paper note and paper originals of the recorded documents, they'll find out it isn't good practice, soon enough. 

The argument that the debt and the mortgage get severed and thereby one or the other becomes unenforceable is quite a strange, extremely strained bird.  The functionality of these instruments are usually defined by statute--and they have all been up and back down again for generations.  All matter of attacks have been adjudicated and refined over the years.

It is possible that the banks have messed themselves up with some unrecorded MBS instruments, but as long as there is a valid debt reflected by a note, a valid security instrument--signed by the debtor, most states have reformation statutes that can even correct legal descriptions to show the correct property, intent of the parties and all that.  And it is difficult to image that corrective instruments could not correct problems, given the policy of after aquisition. Title always vests.

With the foreclosures, however, you typically get only one bite at the apple.  So, if you manage to botch it badly enough, you probably do land in the E&O zone. Those statutes are pretty clear:  You must vest before the foreclosure, after aquisiton won't do--a power is being exercized.  And the statutes typically call for a judge to order something to be resold if folks botch it the first time around.

Mineral Rights flow under a completely different set of statutes.

With the multiple MBS assignments, the first valid 100% undividied interest is the most likely one to prevail.  You can't sell a house three times.  The first time you sell 100%, you have no title left to convey.  If the 100% got sliced and diced, it can be recombined and perfected on the record.  That is the basis of the nightmare argument against MERS and whatever slicing and dicing they are doing, off the record.

Thu, 10/21/2010 - 00:00 | 666035 OldTrooper
OldTrooper's picture

You bring up some good points.  And I'm glad to be discussing them with someone that has a grasp of the (real estate) law behind the mess that exists.

I'm not really professionally involved with the the matters at hand right now (I've been doing oil and gas title for the last 5 years) so let me ask a few questions:

First, were the mortgages actually assigned to the MBS'es?  I haven't seen any assignments of record.  Off record assignments would be effective to the parties to the assignment, even if they didn't appear of record. Something tells me (spidey sense?) that no actual assignments were done.  If so, is the documentation for an MBS sufficient to actually assign the mortgage?

Second, everywhere I've worked the note and the deed of trust or mortgage are distinct.  That is to say that it is entirely possible to discharge the land from the lien without discharging the debt.  It's not common, by any means, but doesn't the note evidence the debt and the mortgage provide a means of enforcing the obligation?  Related, but separate, issues.

Third, do we discuss the 'legal' problem or the 'political' problem?  There are legal issues, to be sure.  But I think that the political issues will trump the legal ones and compliant courts will find a way to accommodate the TBTFs.

I think (it's only my opinion - so far) that the courts will (eventually) decide that the owners of MBS'es purchased an 'income stream' - not the actual mortgage - and that title to the mortgage resides where the last entity paid full consideration for that mortgage.  Why do I think that?  Because that protects the banks and we all know they are TBTF, right?  This would present problems, but not insurmountable ones, for banks.

Regardless of what we think about it, the courts, and state and federal legislatures, will find some way to make home loans foreclosable, IMO.

Current foreclosures may have problems.  That would hurt banks badly, but not as badly as ALL their mortgages being bad.  The gubermint won't let the banks take that kind of a hit - their 'system' would fail and we can't have that, can we?  (purely rhetorical question)  The banks will take a short-term hit to ensure that the rest of their portfolio is enforceable - and fools with elected offices or black robes will do their bidding.

There is a great difference between what we both probably think should happen and what will happen.  This is my prediction on how events will unfold over the next few years.

You and I are used to relying on statutes and accepted legal principles to make informed decisions about who owns what.  Those days are nearing their end.  The rule of law, in my opinion, has ended.

Wed, 10/20/2010 - 21:25 | 665799 unum mountaineer
unum mountaineer's picture

hilarious. just hilarious. what the fuck does any of this matter. just like everything else another process, another system exposed to be positive for a serious case of the CLAP...somehow, people within the system want to convince me that I should stick my jimmy in full tilt without fucking protection, tounge the bitch down, call her and take her out to dinner, and then have them meet the parents? get the fucouttahere.

 

what's even more of a slap in the face by these pimps is that they're going to come to one of the last watering holes that tells it how it is plain dealer style and try to digitally beat you over the head with their lofty explanation of how wrong and stupid the same muther fuckers they try to reel in by day job and that the same muther fuckers they brow beat to get money so they can continue all status quo like it's all good...go all in stocks..get the fuckouttahere...real customer service skills on show...show some respect (even though you not getting my $$) junk if you want. again, drinking the single malt hump day heavy. got that Conrad Murray playlist. FTW, hope all those investment advisors out there take a long walk on short pier once they realize people either dont have the $$ to play monopo-ponzi pass go collect 200 dollars, or are fucking wise to their shit....

Wed, 10/20/2010 - 21:44 | 665829 OldTrooper
OldTrooper's picture

Not quite sure what you're gettin at, Mountaineer, but I've got to kind of agree with you on some level.

I sold my title company in 2006 when I saw the writing on the wall, got farm land free and clear and have been quite happy to be out of the rat-race lately.

My point is that, while they may go down, the title insurers (and all the other insurance comapnies for that matter) will most likely do the best they can by their insureds.  Who buys insurance from a company that refuses legitimate claims?

I think they will pay claims (hell, they ARE paying claims - that happens in down times in that business) as best they can.

Whether any of our 'institutions' survives another 5 years - that's a different question.

Thu, 10/21/2010 - 00:49 | 666108 Augustus
Augustus's picture

It is possible for the buyer to get their own title insurance policy.  But I would sure like to read that language they want to add.  Perhaps a homeowner would be well advised to get something like that when they pay off a mortgage or if they refinance, as well as an owner's title policy.

Thu, 10/21/2010 - 00:51 | 666109 Augustus
Augustus's picture

==

Sat, 11/13/2010 - 08:20 | 724492 mark456
mark456's picture

Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic.
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Tue, 02/22/2011 - 16:36 | 986287 2lasi
2lasi's picture

 

All the rules have changed in the last couple of months. Lending banks are now being held accountable for the trap they set, borrowing money they didn't themselves have, while using loose and illegal practices in the process. The massive lawsuit against Wells Fargo / Wachovia, Indymac / OneWest bank, Citibank, Bank of America, JP Morgan Chase, GMAC..............can actually, not only put a stop to your foreclosure, but also pause your house payments with no loss to you............

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