Title insurance…CYA …. and now you know why!

Oh my goodness, no one saw this coming

The recent news regarding the possible halt to foreclosures has most people in the real estate industry scrambling. Blogs are being written, news articles are being published and talking heads are sharing what the think about the matter. The volume of home owners in danger of being foreclosed on seems to be rising everyday. The call for a halt to all foreclosures until the paperwork is reviewed and corrected has increased from a murmur to a dull roar.

What about all the foreclosed property that has been purchased?

Hypothetical … The Jones family stops paying their mortgage in 2008. In 2009, their lender finally gets around to foreclosing on the property. The lender goes through what might be questionable steps to take possession. The lender then hires ABC Realty to list and sell the house. ABC Realty is a top notch REO firm and they put up one picture in the MLS, put a cheesy combo lockbox on the door and wait.

Sign of the times

Along come the Jones. The Jones have been searching for a real bargain in this market. They have instructed their agent ( most likely their third or fourth agent) to find them a deal. They have probably written three of four low ball offers and been rejected. The come across what used to be the Smith’s home. At this point, they are able to see beyond the missing stove (they can buy a new one with a Home Path loan). They realize that the horribly stained carpet can be cleaned or replaced. The holes in the wall that the Smith’s left behind can be repaired. This is the best of the rest. They instruct the agent to write an offer, submit it to the bank and let them know when the bank replies.

You got the house

Or do you?

It is now a year later. You receive something in the mail that indicates the Jones family is challenging the foreclosure. Oh my, they have gone to court. They are saying that the proper procedures were not followed ( read, the law was not followed) in the foreclosure and they are asking the court to over turn the action. They want their house back and they want it now!

This really opens yet another can of worms

First reaction, they can’t do that… can they? Why yes they can. If their lender used one of the various fast track processing techniques that have been exposed, the foreclosure can be over turned. It is a legal matter. If the radar gun used to clock you at 90 mph was calibrated to clock everyone at 90 mph regardless of their actual speed, and that was made public, there would be a lot of speeding tickets overturned. I know, it seems that lenders are not required to actually follow the law and in most REO sales, lenders ignore state law, but this time they have crossed the line.

The Jones family can win and the Smiths will have to move out of the Jones house. It can happen.

  • But what about all the money the Smiths have paid for the house
  • and what about all the money everyone made on the sale of the house
  • and what about the money that the Jones have not paid
  • and ( insert your question here)?

Like I said, this opens a great big can of worms !

The Smiths can only hope that at settlement, when they asked their agent if they really needed the enhanced, owners version of title insurance, the agent said yes and explained why and they took it. You see, if they opted to just take the lenders policy (which is required by most lenders) they have no protection. They will have to go to court and sue the pants off the listing agent, the lender that had foreclosed, the selling agent and anyone else with a deep pocket.

If, they took the owners policy, at least they will be financially covered for their loss. Title insurance is a good thing. It insures that when you buy a home, the title is clear and the home is yours. There have been stories of over looked liens and long lost relatives coming forward after the sale and title companies have resolved these issues. No one saw this train barreling down the track. Not to worry, if the train shows up and you bought the total package, you are covered.

In light of this problem, Old Republic is no longer writing title insurance on purchases in some States. They are a pretty big company. Others will follow suit. If the problem blows up, title companies will be next in line for a Government handout to remain solvent. The amount of money at risk if cases start being won and foreclosures overturned is enormous.

And what of REO sales that are pending and REO properties that are currently for sale. Hmmm, you might want to reconsider a purchase until this mess is sorted out. Those home prices that seem to good to be true….they are too good to be true. The safest course for a buyer looking at REO properties today is to step back and put that thought on hold until there is some more clarity to the situation.

If you are in the position of looking for a new home, you may want to focus on homes that are not in financial trouble. You might find that what I have been sharing for quite some time is accurate. There are really a great deal fewer homes for sale than all the properties that appear to be on the market.

Yep, we will toot our own horn

We have been sharing information about buying and selling over the years. We have cautioned our clients about the potential dangers of some purchases. We have encouraged EVERY client to pay for the enhanced title policy. We believe our job as buyers agents includes a great deal more than sending listings and showing homes. It is our duty to protect the interests of our clients.

Lourdes Tudela and John MacArthur

We are Lourdes Tudela and John MacArthur. We are buyer’s agents working out of the ReMax Realty Centre in Olney, Maryland. We cover Maryland and the District of Columbia. If you are looking for a new home and want representation that will protect your interest, we would welcome the opportunity to represent you. Feel free to visit our website MyBuyersAgents. We can be reached at 301-509-5111. If you have questions about title insurance, you can call our friends at Capital Settlements. Their information is found on their website, Capital Settlements.

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