October 9th, 2010 8:40 AM by Lehel S.
Old Republic National Title Insurance said last week that it will no longer insure title to any property foreclosed by Chase or GMAC after both mortgage servicers halted foreclosure sales in 23 states and said they are reviewing legal filings that may not have been properly verified or notarized.
Most lenders won't issue a mortgage without title insurance, which ensures buyers have clear title to the property and protects theirs and lenders' financial interests if ownership disputes arise.
Old Republic's action is the latest twist in a growing controversy that has called tens of thousands of foreclosure cases into question in the 23 states that require court approval. Bank of America said Friday that it, too, will stop foreclosures in those states while reviewing its records for the same problems tying up JPMorgan and GMAC foreclosures.
Representatives of the three servicers have given sworn statements in lawsuits that they signed thousands of foreclosure affidavits without signing them in a notary's presence or verifying the supporting documents, as the law requires.
"The bank forecloses on a property, sells it to a legitimate third party," Stopa says. "Two weeks later, the former homeowner says the paperwork was wrong and the judgment has to be set aside. The (new) owner is out."
Adds Rafael Castellanos, managing partner at Expert Title Insurance Agency in New York, "It is possible for a homeowner to come back and stake a claim to their property."
The American Land Title Association (ALTA), which represents title insurers, says possible flaws in foreclosure documents should have little impact on buyers of foreclosure-sale homes because they can argue they bought the home in good faith and the law protects them.
"It is unlikely that a court will take property from an innocent, current homeowner and return it to a previous homeowner who failed to make payments on the loan subject to the foreclosure," the ALTA said in a statement.
But if other title insurance companies do follow Old Republic's lead, that could prevent or delay more foreclosure sales. More than 151,000 bank-owned properties were sold in the second quarter — 15% of all home sales, according to RealtyTrac.