TITLE AGENT LIABILITY FOR ERRORS AND OMISSIONS AND TITLE INSURANCE

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FROM FAQ RECENT ENTRY:

> Comment:
> Interesting idea, although flawed.
>
> Your title insurance company will only process a claim if there has been a loss (or an imminent danger of one. i.e., an attack on the title), and only then if it is not of the insured’s doing (or could have been prevented through action by the insured.)
>
> Since foreclosure is ostensibly always the insured’s fault (except of course in the rare case of forgery and intervening liens), you would be hard pressed to find any insurance company that would see it as an insurable loss or attack on title. The insured had an obligation to perform under the note they signed (ahem, which usually includes a “successors and/or assigns” clause), and failing to follow through on that creates an uninsurable loss – securitization or no.

ANSWER: My point, perhaps not articulate enough, is different from what you are addressing. If at the closing there was a pooling and service agreement already in existence and known to the title agent. If at the item of the loan closing there was an assignment and assumption agreement already in place.

If the investors had already purchased mortgage backed securities, that included a description of a “temporary” set of notes (See Lehman filings), that would be replaced by “real” notes and security instruments pledged as security to the holders of asset backed securities, and if the terms of the pledge within the SPV was an allocation of funds contrary to the terms of the note and mortgage, and if the title agent was aware of sufficient facts to put him on notice that (a) undisclosed third parties were involved in the transaction and (b) that undisclosed fees were being paid and (c) that this could create grounds for three-day rescission, but for the fact that the real “lender” has not been disclosed— assuming all of that, because that is actually what happened — does that not mean that there was actual knowledge by the title agent that there are dozens and perhaps hundreds of even thousands of people who have an equitable and legal interest in the security instrument encumbering the property.

I agree that the title policy does not require intervention of the carrier until there is a claim. But the errors and omissions carrier for the title agent when put on notice of the claim would have an immediate interest in mitigating the potential loss. It is not that there is a hypothetical cloud on title, it is real from the moment that the transaction was consummated.