Fidelity requiring warranties from banks
The impact of Foreclosure-Gate on the title insurance industry continues to rear its ugly head. Today, Fidelity announced it will require lenders to sign a warranty ensuring their foreclosures were done properly before issuing title insurance.
“It’s just the prudent thing to do,” Peter Sadowski, executive vice president and chief legal officer for Fidelity National, said in an interview. “It is important for the servicers and the lenders to represent to us and to the people we are going to be insuring that there are no problems.”
Under the new policy,“[e]ven if a court sets aside a foreclosure due to a defect in documentation, the foreclosing lender would be required to return all funds obtained from our insureds, resulting in no loss under the title insurance policy,” Foley said.
This is huge news. Presuming this policy gets adopted by all title insurance agencies (as I presume it will), then this may prevent the destruction of the title insurance industry (a fear I’ve been discussing for many months). Essentially, the title insurance companies are shifting the risk associated with wrongful foreclosures and blighted titles onto the banks. It’s as if they’re saying “You did it wrong, banks, so if there’s a problem with title, you pay to fix it.”
Meanwhile, the banks want us to believe that their foreclosures are being done correctly. Just this week they terminated their temporary, self-imposed moratorium on foreclosures, coupled with press clippings that they found no problems with their foreclosure processes. This is one of those instances, though, where actions speak louder than words. The fact that Fidelity feels the need to insure against the possibility of title defects via faulty foreclosures speaks volumes. After all, the banks may say the foreclosures are being done correctly, but the title insurance companies obviously know better. At this point, so do we.