Monday, January 31, 2011

Title Insurance and Foreclosures Defenses – Title Insurance Companies are Sticking Their Heads in the Sand

I was involved in a real estate transaction where my client was buying a foreclosure from a bank that purchased the property at auction as the high bidder. When the client came to me, she had already hired a title company to handle the closing and issue title insurance. I requested a copy of the title commitment from the title company and asked if they were going to review the foreclosure file for any issues, including fraudulent affidavits. The title company told me that it was not required to do so, that I could perform some due diligence if I wanted to.

I advised my client of the issue, informing her that she was buying a property that could have a potential title claim related to the former owner asking for their property back. I suggested that I review the file to let her know the likelihood of that happening. I explained to her that the underwriter stated that, "We review the dockets in REO (bank owned) properties. We do not review copies of service returns or affidavits of indebtedness in foreclosure files unless there is a question raised by the review of the docket, such as lack of service return or a Motion or Objection challenging the foreclosure. As for the Affidavit of Indebtedness, there is no way for the title examiner to determine whether an Affidavit of Indebtedness was proper or not, barring an Objection and/or court order regarding same. When you order your closing update, however, we also update the docket to make sure that no new challenge to the foreclosure proceeding has been filed in the court file."

That answer troubles me a bit in light of some recent court rulings. Additionally, I was taught to always review the foreclosure file before issuing a title insurance policy. If you have your lost your home or are buying a previously foreclosed upon home, I would suggest you contact an attorney for a free consultation to discuss your rights. It's the smart thing to do.