As expected, the title insurers are now walking back their prior wave of title policies where the property is (a) faulty at inception and (b) acquired by illegal use of nonjudicial process. The problem is simple: if the methods or means of foreclosure was illegal, States like Hawaii say the sale is void and title is restored to the homeowner.
“Investors” who buy property at foreclosure auctions are making claims arising out of their attempts to resell property acquired at auction. The title is either clouded or nonexistent leaving them to claim compensation from the title insurer who issued the title policy.
It all started when according to very high placed sources I have in the title insurance business, the decision was made that both the original title policy and the policy issued at foreclosure auction was probably bad. They attempted to include exceptions to coverage, essentially saying that the policy did not cover fraud.
The title companies were in a double bind, not unlike the double blind fraud on MBS investors and home buyers. If they refused to issue title policies then their business would dry up and the banks would go start their own title companies. But if the claims started coming in and it was determined title insurers had to pay, they would all go bankrupt.
Filed under: foreclosure