Two Companies Stop Issuing Title Insurance On Foreclosed Homes Home Improvement Partner

Oct 24

Two Companies Stop Issuing Title Insurance On Foreclosed Homes

Posted by: David Robert in Home Improvement News Add comments

Those of you trying to purchase a foreclosed home using title insurers Old Republic National or Stewart Title may be in for an unpleasant surprise: the two companies have stopped issuing title insurance on certain properties foreclosed on by lenders due to questions over the procedural validity of the foreclosures.

Old Republic National title insurers first stopped issuing title insurance on homes foreclosed on by GMAC Mortgage and JP Morgan Chase. Then, Stewart Title stated that they wouldn’t issue title insurance on homes foreclosed on by the same two lenders, as well as Bank of America and OneWest Bank.

Some title companies worried

This is the latest fallout from the recent lender-foreclosure scandal, in which the procedural authenticity of a number of these foreclosures is coming into question. In a nutshell: Title insurance ensures that the property that you are buying is free from liens and other property issues so that the ownership can legally transfer from homeowner to homebuyer. This is particularly important if someone steps up to lay claim to your recently purchased property, which apparently has become enough of a risk for these two national title insurers to stop issuing title insurance for many foreclosed homes.

With foreclosures, it’s important to note that the buyer can only use the title or escrow company that the lender is already using. Because of recent developments, Old Republic National and Stewart Title apparently feel that certain titles are not completely clean in a foreclosure until the lender or servicer can prove the foreclosure was done properly. Until that’s ironed out, the actual ownership rights of some of these homes could come into question and sales of homes will be stalled.

This is a very important stance both Old Republic National and Stewart Title are taking. These companies are showing honesty in their decisions, and I commend them. After all, if the legal system is finding lenders improperly (hence, illegally) foreclosing on homes — even those under loan modifications or short sales — a clean title can not really be obtained. The move could also be motivated by financial preservation. Obviously, title companies want to avoid a massive wave of former homeowners claiming the right to take back their homes. Settling such claims could end up being a very high bill.

If your sale has stalled due to a decision by the title insurance to hold off on final approval, what can you do?

Wait it out. It’s unclear how long the temporary halt will take place. Extend your rental lease another 3 or 6 months until it’s clear the outcome of the foreclosure debacle.
Pay cash for the home. A clear title is not necessary. But would you want to pay hard cash to later find out that the home is not really yours and was given back to the former homeowner in a lawsuit? Or maybe there was a lien on the property that you now have to clear up to get clean title?
Shop around for another home. You can search for one that isn’t a foreclosure property, such as a home owned outright by the homeowner or a short sale. However, be careful with short sales. As a short sale transaction can take many months to closing, a foreclosure is possible down the line while the transaction is being processed by the lenders. I actually have had this happen to me a few times.
Use another title company. Local contacts at two other national title companies – Fidelity National Trust and First American Title Company — recently confirmed that they were still issuing titles on foreclosed properties. Potentially, lenders currently using Old Republic National or Stewart Title could switch to other title companies in order to continue selling foreclosed homes. However, realize that this decision ultimately depends on the lender.

Also realize that working with another title insurance company might move things along, but it may not provide the same peace of mind. Taken to court (and it is already happening), lenders have to prove the legitimacy of each judicial foreclosure. Until legitimacy is proven, the title is at risk, as there is no clear owner. It will cost companies money to halt issuing new title insurance on foreclosed homes, yet both Stewart Title and Old Republic National are taking that risk. This much is also clear: Without a clean title issued to the homebuyer, a new mortgage loan cannot be obtained, and in an already struggling economy, this will result in a much slower rebound if potential homebuyers cannot obtain loans due to lack of title insurance.

Have you been affected by Old Republic National’s or Stewart Title’s decisions? Let us know in the comments section:

Photo: Jeff Turner via Creative Commons 2.0

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