- Real Estate
Title Insurance May Not Protect You After Foreclosure
Purchasing a home is likely to be the biggest investment made by most people at some point in their lifetime. Now that it is widely known that the banking industry resorted to using fraudulent documents in order to conduct wrongful foreclosures, the clear and uncontested ownership rights of millions of properties has been put into question. Property laws regarding ownership transfers vary from state to state, and often goes back hundreds of years.
Perhaps the most significant ruling regarding these issues was recently decided by the Massachusetts Supreme Court in the Ibanez case. The court ruled that these foreclosures were invalid due to invalid paperwork and "gaps" in the chain of title to the properties. The "Banks" could not prove that they had a valid assignment of mortgage prior to starting the foreclosure process. Mortgages are very much like real property and the only way to transfer ownership rights is to physically sign over and hand deliver the paperwork, much like someone would endorse a check or title to a vehicle. If that does not happen, then there is no change in the owner of record.
A similar case in Minnesota in which the District Court had ruled in favor of the "Bank" was recently overturned in favor of the homeowner by the MN Court of Appeals (Ruiz vs. 1st Fidelity Loan Servicing, LLC) and found that MN Statutes were not followed prior to the foreclosure. Due to these errors, the foreclosure was found to be invalid.
When loans are securitized, the notes and mortgages are supposed to be transferred several times from the originator to the trust (A to D assignments) and are then sold to investors. The banks did not bother to comply with the paperwork requirements, and now it has caught up to them.
As the "Banks" are quickly finding out, it may not be just a simple "fix" to go back and re-create the necessary paperwork and foreclose. Many of these original entities are defunct.
When a seller of a property wishes to sell or transfer their rights to a new buyer, there cannot be any defects or gaps in the "chain of title". Because the "Banks" did not comply with the laws to properly document these ownership transfers, they had to resort to using fraudulent documents. A SELLER CANNOT GIVE A CLEAR TITLE TO A NEW BUYER BY USING FRAUDULENT DOCUMENTS.
Now realizing that they have a property on their hands with an incurable title defect (of their own making), the "Bank" wants to unload these properties as quickly as possible to a new unsuspecting buyer. THIS IS THE REAL REASON WHY THESE FORECLOSED PROPERTIES ARE BEING SOLD AT SUCH "BARGAIN" PRICES.
Another nifty "trick" being used by the "Banks" during the closing process is to give the homeowners a "great deal" by waiving certain costs and fees, etc. if the new buyer closes the loan with the bank that is the "owner" of the property and keeping things "in house" (that way they can eat their losses and write everything off). They will often use certain companies (including title companies) that are "recommended" by the bank that "owns" the property. THIS IS CALLED STEERING AND IS ILLEGAL.
With these shoddy foreclosure practices now front and center, many of the title companies (that are outside of the "network" of the banks) are no longer insuring the title to foreclosed properties unless and until it can be determined that all applicable laws were complied with throughout the foreclosure process. Or in the alternative, the title companies that are working directly for the banks will issue an insurance policy just to get the deal to go through, and place several "exclusions" within the policy that will not cover any of the losses incurred due to these fraudulent documents. If and when the homeowner learns the hard way that they have been paying every month for a property that they do not have any legal rights to, they will find out that the title insurance policy that they have paid for does not "cover" these types of issues.
IT IS HIGHLY RECOMMENDED TO HAVE AN ATTORNEY (THAT YOU INTERVIEW AND IS FAMILIAR WITH PROPERTY LAW) TO REPRESENT YOU AT THE CLOSING TO REVIEW ALL DOCUMENTATION AND PROTECT YOUR INTERESTS. IF THE DEAL SOUNDS "TOO GOOD TO BE TRUE" IT OFTEN IS.