As reposted from the Ohio Association of Independent Title Agents (OAITA) Blog below:
The recent foreclosure crisis that has kicked up across the United States has claimed another victim — the title insurance industry.
At the beginning of October, the American Land Title Association (ALTA) was busy promoting the solidarity of the title insurance industry in the face of accusations that banks had manipulated the foreclosure process to obtain titles to foreclosed real estate.
ALTA issued several press releases indicating that anticipated losses in light of the use of “robo-signers,” invalid affidavits, forged assignments and standing issues would cause no tangible harm to the title insurers who issued title insurance insuring the buyers of those foreclosed properties.
ALTA was hoping to use the strength of the title insurance policy to convince banks to indemnify title insurers against claims or damages relating to the illegal methods the banks utilized to process hundreds of thousands of foreclosure cases across the United States.
Recent ALTA advocacy updates sent to ALTA members referred to “behind-the-scenes” efforts on the part of ALTA’s Underwriter Section to negotiate the terms and particulars of an industry-wide indemnification.
In part, this was thought necessary because although no lawsuit has yet gone this far, there is no question that class action litigation will take the banks to task on the procedures they employed to foreclose millions of homeowners. The claims could result in courts employing equitable principles to invalidate prior foreclosures and to create situations that would necessitate title insurers hiring cadres of defense attorneys to defend the soon-to-be-filed class actions that are now being organized. Regardless of whether the claims will prevail, there is no doubt that actions will be filed and no doubt that title insurers will have enormous defense costs.
As the national underwriter-controlled advocacy group is apt to do, ALTA was preceded in the indemnity effort by its largest member, Fidelity National, which organized its own indemnification program with Bank of America several weeks ago. The industry was merely trying to emulate that effort with the other banks then-reviewing their own foreclosure practices across the United States (i.e. GMAC Mortgage, JP Morgan Chase, Wells Fargo, etc.).
Unfortunately, as is the primary weakness of ALTA, the other national underwriters who have significant stakes in the title insurance industry decided not to follow suit with the indemnity requirement and/or decided that the opportunity to grab market share from Fidelity National’s disgruntled lenders — who were being prodded for indemnities they did not want to sign — was too good to pass up.
It was only a matter of time before the whole greedy mess of humanity known as the ALTA foreclosure indemnity effort and its facade of solidarity came crumbling down.
This morning, First American, the nation’s second largest national underwriter, announced in its 3Q 2010 earnings call that it would not require the indemnities originally sought by the industry.
Following suit and realizing that its own colleagues were circling the shark-infested waters, Fidelity National decided to reverse course on its pursuit of foreclosure indemnities. With the exception of the Bank of America matter, they too are now out of the foreclosure indemnity business.
To the casual observer, it appears as though the title insurance industry — once again — lost its nerve to use its oft-ignored leverage to force the banks to accept responsibility for their actions. The problem with the foreclosure crisis is not that individual homeowners have the ability to question millions of recent foreclosures due to procedural technicalities. It is well known that these claims will most likely fail. The problem is the fact that the banks and their authorized agents, attorneys and representatives committed obvious criminal acts. Forging affidavits and presenting them as evidence is a crime in every state. These are criminal actions that the title insurance industry has no indemnity against.
Sure, there was tortious conduct in the process of obtaining title and, yes, it is probable that insurers could reject such claims when made, but if the title insurers could not stand up to the banks when they had the leverage — with banks staring down 50 separate investigations from the state attorney generals — does anyone think that the title insurers will actually deny these claims when the banks start making them when the lawsuits start arriving in the mail?
Yeah, me neither.
Furthermore, what strikes me as ironic is that the title insurance industry was only willing to pursue indemnification from the banks when they knew the banks were each reviewing their own procedures. Once the banks announced — without any independent verification from a reputable watchdog — that all was always well and that there were no problems with their foreclosure processes, the title insurance industry immediately lost its will to dig deeper or demand anything to assure it that the bank’s procedures would not create problems for title insurers.
This is institutional negligence at its worst.
It’s like taking a borrower’s word that he or she paid off their own mortgage and there would be no need for the title agent to order an independent payoff and the title agent being comfortable with that representation.
Hello? That doesn’t work in our 9-to-5 business. It sure as hell shouldn’t work in this foreclosure situation either.
Sadly, ALTA indicated that it was going to update its members as to how the foreclosure indemnity efforts were progressing. I am eagerly awaiting a report. After First American and Fidelity effectively quit on the venture, I can’t imagine that ALTA is going to tout the solidarity angle anymore.
Which leads me to my familiar question.
Title insurance industry, why are you so short-sided?
Do you really think that the banking community — or any referral source community — is ever going to respect you if you can’t even keep your biggest four underwriters on the same page on an issue so obviously beneficial to the solvency of the industry that it mandates holding your ground?
And to ALTA. What good are you if you are always late to the dance and leaving too early?
Can someone please answer these questions for me?