Title insurers drop demands on mortgage lenders in foreclosure cases

Oct. 28 (Bloomberg) -- Ohio Attorney General Richard Cordray talks about the probe by attorneys general in all 50 states into mortgage foreclosure practices and the disclosure by Wells Fargo & Co. that it found flaws in court documents. Wells Fargo, the biggest U.S. home lender, said it will file supplemental foreclosure affidavits to courts in about 55,000 proceedings after finding some statements "did not strictly adhere to the required procedures." Cordray speaks with Margaret Brennan on Bloomberg Television's "InBusiness." (Source: Bloomberg)
By Elizabeth Razzi
Washington Post Staff Writer
Thursday, October 28, 2010; 9:26 PM

Mortgage servicers have successfully pushed back an attempt to make them explicitly responsible for title problems resulting from their handling of foreclosure paperwork and legal procedures.

Three major title insurance companies - First American Financial, Old Republic International and Stewart Information Services - told Wall Street analysts in conference calls Thursday that they had decided not to demand written indemnifications from lenders re-selling foreclosed homes. Combined, the three companies account for 52 percent of the title insurance market.

Such indemnification agreements were drafted earlier this month with input from Fannie Mae and Freddie Mac and their regulator, the Federal Housing Finance Agency, along with the title industry's trade group, the American Land Title Association. They were seen as a way to keep the market for foreclosed properties working despite legal uncertainty.

Title insurance guarantees that the chain of ownership is clear, unblemished by missing documents, outstanding liens or other factors that would impede an owner's right to sell the property. Lenders require buyers to pay for title insurance coverage that protects the lender against those risks. Buyers have the option of paying extra to have such coverage for themselves.

An indemnification would cover the title insurer's legal fees and other expenses if a court overturned a foreclosure because the lender had mishandled paperwork or followed incorrect legal procedures. But some banks and other mortgage lenders had resisted taking on the additional liability and threatened to take business to title insurers who didn't require it.

Earlier this week, the nation's largest title insurance company, Fidelity National Financial, announced it would cancel its indemnification requirement, which had been scheduled to go into effect for all lenders Nov. 1. Fidelity is continuing to require the agreement when doing foreclosure business with Bank of America, however.

The title insurers said they would evaluate home-sale records on a case-by-case basis before writing a title insurance policy covering the new lender and owner.

"We have concluded that it is prudent to continue to insure sales of REO [real estate owned] properties," said First American Financial chief executive Dennis J. Gilmore.

He said one reason for the decision was push-back from lenders who service mortgages.

"It's our understanding that in the marketplace, some servicers have indicated under no circumstances will they provide an indemnification," Gilmore said.

Executives at Old Republic International told investors Thursday that they thought protections already written into their policies would be sufficient to shield them from significant losses on foreclosure sales. They said they would continue to "revisit indemnifications" as the foreclosure crisis unfolds.

Ted C. Jones, director of investor relations for Stewart, said in an interview, "We have not asked for indemnifications at all." The company will issue policies to buyers of foreclosed properties from lenders that confirm that they have followed all applicable legal processes, according to a company memo.

While lenders would most likely have to compensate title insurers - and buyers - if a court overturned a foreclosure, indemnification would have covered the title company's legal fees as well.

© 2010 The Washington Post Company