TItleVest's Cynthia Kern weighs in on risks associated with insuring foreclosures
Confusion about foreclosures and how they are handled has left the title-insurance industry scrambling to protect itself and has complicated home sales around the country.
"You are taking on a lot of risk of either the foreclosed owner coming back and challenging the foreclosure process itself or another lender saying they own the note," said Cynthia Kern, director of operations at TitleVest, a New York title insurance agency.
But Colorado already has a key safeguard in place that the title insurers would like nationally — an agreement that protects other parties if a lender or mortgage servicer botches a foreclosure.
"The issues that you are hearing about on a national basis don't have an effect on the foreclosures here," said Brian Hamilton, an executive with Land Title Guarantee Co., the state's largest homegrown title insurer.
Title insurance protects a buyer from claims in case a seller's ownership of a property is contested.
Several large lenders, including Bank of America, have slowed or halted foreclosure sales in recent weeks to review loan files of delinquent borrowers and ensure they were processed properly.
Those actions came after workers handling foreclosures admitted to signing hundreds of legal affidavits a day without looking at the underlying documents.
Fidelity National Financial Insurance Co., the nation's largest title insurer, initially said it would require lenders to provide a warranty starting Nov. 1 assuring their foreclosure procedures and documents were correct and agreeing to pay costs, including court costs.
But it quickly backed down after other title insurers didn't follow its lead.
First American Financial, the second-biggest insurer of titles, also said it won't push the issue, noting that some servicers have balked and refused, said Kenneth DeGiorgio, the firm's executive vice president in a conference call Thursday.
Instead, it appears that title insurers, fearful of losing market share to competitors, are willing to accept servicers' assurances that they have tightened their procedures adequately.
Stewart Information Services Corp., the state's second-largest provider of title insurance, told investors Thursday that it "stands ready to issue its title insurance to purchasers of foreclosed properties from institutional lenders representing that they have followed all applicable legal processes."
There are also questions about whether warranties or indemnification agreements can provide a long-term solution.
Mortgage servicers and lenders in theory would need to set aside major funds to back up possible claims.
"We don't know if banks will be willing to give that indemnification forever," Kern said. "For an indemnification to be meaningful, it has to have the money behind it."
Four large national firms and one local firm underwrite about 80 percent of title insurance policies in Colorado, according to the Colorado Division of Insurance.
Colorado is also the only state where public trustees or county treasurers oversee the foreclosure process.