Is it a mess or wholesale fraud? It depends on if foreclosure sales will provide home loan relief to the banks or cause them even more liabilities due to improper title insurance. Banks claim that in order to get the housing market going again they must liquidate the foreclosures on their books, but now that they are being challenged in court over robo-signers and improper title insurance, they are having trouble selling these foreclosures. No investor in their right mind would pick up a foreclosure without some guarantee that the title is free and clear. No title insurer is going to insure a foreclosure knowing that the bank’s admitted practices have put the entire title insurance process in jeopardy. Thus, the bank or someone may actually own a house, but it’s worthless if it cannot be sold on the market due to improper title insurance issues.
Lenders are investigating what their liabilities are and foreclosures have stalled in 49 states. The longer banks wait to get rid of the foreclosures the more they are going to take a loss on them. If all the foreclosures end up going on the market at the same time, the market will be flooded, with foreclosures competing against each other, and prices for prime real estate will be impacted, too. Yet, how do they convince title insurers who don’t want to take on the liability of multiple owners appearing after the sale of foreclosure to insure their foreclosed homes?
Stop Losses Planned
Bank of America thinks it has come up with a plan. It has approached one title insurer, Fidelity, and offered to include a stop loss agreement to encourage title insurers to continue to insure the foreclosed homes so they can sell them. In that respect, if the loan is eventually challenged in court by other potential owners, and it creates a loss, the bank has said it will pay the loss on those foreclosed homes. The banks have probably realized that they will take a loss either way, but the way to minimize it is to get the process rolling again at all costs.