I reviewed a title yesterday on behalf of a buyer who was purchasing a property out of foreclosure from Fannie Mae. As you all know, Fannie Mae and most other big lenders and servicing agencies have gone to the "cradle to grace" concept. This means to the consumer that if they use the seller's title agent, as most REO contracts will say they must, there are absolutely no checks and balances as to title issues that may have been missed by the seller's title agent and/or the foreclosure attorney.
In the instant case the property was vested in Fannie Mae. The trustee had recorded the deed some months ago.
Upon my review of the title report I found that there was actually a missing grant in the chain, meaning that someone else has a legitimate interest in the property and could technically come back and reclaim the property from my buyer, had he proceeded to closing. In addition to that I found that the foreclosure attorney actually foreclosed what was a 2nd deed of trust, not the 1st deed of trust, because the documents were recorded out of order.
Anyway, I contacted the title agent representing the seller, which said title agency is either owned or managed by the foreclosure attorney, requested a copy of the existing title policy and discovered that in 2007 their own title researcher made them aware of the missing interest. The foreclosure attorney AND the title agent either missed this or ignored it. As to the fact that they foreclosed a 2nd deed of trust not the 1st they sent me a copy of a Letter of Indemnity. For those not in the business, this is basically an authorization from the underwriter to insure over the defect, thereby allowing the title agent to issue INSURABLE TITLE, which is what all REO contracts say the seller is required to give you. In this case the Letter of Indemnity was full of conditions, thereby making it useless.
The moral of this long winded tale? Do not accept the seller's assertion that you MUST use their title agent in REO transactions. Protect yourselves and your clients. If the prior legal owner were to file suit in this case all parties named in the current transaction, including realtors, would be joined in the suit. Even though the realtors had no hand in any of the title issues, they would have to pay counsel to get them out of the suit. Please rely upon the services of a qualified title agent well versed in the transfer of title out of foreclosure.
Call me at 410-663-7444 to further discuss this or feel free to post your comments and questions.
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