Title insurance is an insurance policy that you will need to consider getting if you are about to purchase a home. You may be required to purchase title insurance, depending on what state you live in, or what lender you worked with. There has been some controversy lately concerning title insurance, and homes that have been foreclosed.
What is title insurance? It is an insurance policy that protects the bank that lends money to a consumer, for that person to use to purchase a home. Most lenders will require a consumer to buy a title insurance policy if they want to be accepted for a mortgage loan. Title insurance also serves as a guarantee that a particular consumer does, in fact, own a certain property. Title insurance is something that can be used to protect both the lender and the consumer if a situation comes up that questions or disputes a title for a property.
Part of the reason title insurance has been in the news lately goes back to the recent mortgage crisis. Many families found themselves in a situation where the amount of money they owed on their mortgage was much higher than the amount of money their house was actually worth. This, as we all remember, was one of the things that lead to many homes going into foreclosure. I am giving an overly simplified description of the mortgage crises here, in order to give you a basic idea of how this relates to title insurance today.
Since then, a lot of people have purchased those foreclosed homes. There has been some fear on the part of the new owners that the previous, or original, owners could return, insisting that they are the legal owners of that particular house, because they purchased title insurance on it. What happens now?
Last week, Bank of America announced that it was going to suspend sales of foreclosed homes nationwide. This bank has previously decided to freeze the sale of foreclosures in 23 states, so the bank could take time to investigate and review documents that identify who the rightful owner of a property actually was. There has been some implication that at least some of these documents were done incorrectly, or were “sloppy”. Why 23 states? This is because those states used “judicial foreclosure”, which means that the sale of a foreclosed home by a bank must be approved of by a court before the sale can happen.
In any case, Bank of America has expanded the freeze on sales of foreclosed homes to include all states at this time. Old Republic National Insurance Company has decided to stop issuing new policies to homes that had recently been foreclosed by GMAC Mortgage or by Chase.
It is unclear right now what the overall impact will be in regards to the housing market, and on the economy. It is also unknown exactly what is going to happen in situations where a bank has made mistakes on the paperwork that goes with a mortgage loan, or with a sale of a home, especially if that home has been resold by the bank.
Image by David James Ovens on Flickr