The nation’s largest title insurer, Fidelity National Financial, will require warranties from all lenders beginning Nov. 1 limiting the company’s liability in "robo-signing" disputes before it will insure title on real estate owned (REO) properties.
Fidelity had previously reached an agreement with Bank of America to provide representations that all foreclosure documentation and procedures associated with a property comply with state law and local practices, and that the lender will indemnify Fidelity against any losses that are the result of the bank’s failure to comply with those laws and practices.
American Land Title Association CEO Kurt Pfotenhauer has said the industry group has been working with federal regulators, lenders and other stakeholders to secure assurances from all lenders that they have performed proper due diligence on their foreclosures.
It was Bank of America that approached Fidelity offering to provide such warranties, after a competing title insurer issued a press release saying it wouldn’t insure another lender, said Peter Sadowski, Fidelity National Financial’s chief legal officer, in a conference call with investors last week.
Bank of America, which has announced plans to lift a freeze on foreclosure sales in 23 judicial foreclosure states, "wanted to be sure that we will be able to easily assure their sales once their foreclosure process begins again," Sadowski said. "They didn’t want the title companies to have any impediments or to give any impediments to their future sales of REO properties."
Fidelity Chief Operating Officer George Scanlon said Fidelity doesn’t believe it has additional exposure from title policies that it issues to REO buyers and lenders.
The new owners of the REO properties and their lenders "would have the rights of good faith purchasers which should not be affected by potential defects in documentation," Scanlon said.
"Even if a court sets aside a foreclosure due to a defect in documentation, the foreclosing lender would be required to return to our insurers all funds obtained from that, resulting in no loss under the title insurance policy."
In a question-and-answer session with investment analysts, Sadowski seconded that opinion.
"We feel comfortable that it is highly unlikely we’re going to have any issues with (REOs)," he said. "I think (Bank of America) felt the same way and this was simply something to ease future transactions."
Although it’s "very highly unlikely" that a foreclosure would be set aside, in such an event the buyers would get their money back from the lender who sold it to them, said Fidelity CEO Al Stinson.
"We have had discussions with other lenders about a form of global indemnity and we circulated a bulletin to all of our operations and agents that as of Nov. 1, we will require an indemnity from the seller, the servicer or a lender before we would ensure that REO sale," Stinson said.
Old Republic National Title Insurance Co. stopped insuring title for properties foreclosed on by JP Morgan Chase and GMAC Mortgage, according to media reports based on internal company memos.
The company has issued a statement saying its position was "misconstrued," and that Old Republic "continues to insure properties of all kinds according to its customary underwriting guidelines and will continue to evaluate those risks based on all relevant facts."
Stewart Title Guaranty Co. has reportedly issued guidelines to agents that include restrictions on insuring title for properties foreclosed on by JP Morgan Chase, Bank of America, OneWest Bank and GMAC Mortgage.
A spokesman for Stewart Title told Inman News that the company issued a bulletin providing guidelines and standards to enable its agents to insure REO transactions in jurisdictions where foreclosing lenders or state attorneys general have not issued foreclosure moratoriums.
