Guess the banks got caught with their preverbal pants down again.
Seems "representatives" of some of the banks who provided affidavits confirming their personal knowledge and "right" to foreclose on a property were in fact...NOT!
As a result, the judges who granted permission to foreclose were granting these foreclosures without having all the facts regarding who owned the property and who had the right to foreclose.
Oh, what an ugly can of worms. This means that if it cannot be proven that the entity who foreclosed on the homeowners had the right to do so, then the homeowners may have a right to sue and get their property back!
But wait, the sellers can't just take the property back! It's already been sold to an innocent buyer. Will poor Bob and Betty Buyer be kicked out of their home?
No, thankfully they won't. What SHOULD happen is the title insurance that was HOPEFULLY purchased on the property will kick in and a cash settlement will be issued to the foreclosed homeowner.
HOWEVER MOST title companies don't want to do this! Some are FREAKING out about this loophole and have declined to offer insurance on REO properties until this mess gets worked out.
OK, now we have a potential ugly black CLOUD on the property's title and we can't get title insurance. What's the work-around the REO banks are doing?
They are offering the buyers to use the bank's company owned title insurance.
Well, that kind of solves our immediate problem of obtaining title insurance. But what about long term issues for the buyer and industry in general?
First of all, many purchase agreement contracts include language that the property shall be delivered to the buyer FREE of clouds on the title. Buyer's SHOULD insist on this because that cloud will still be there when they turn around to sell the property years down the road.
A new buyer will run into the same challenge finding an insurance company willing to issue title on the property, ad infinitum!
Could this potential affect the salability/value of the property? YUP!
The work-around for this problem is to have the same title company who was willing to insure with the cloud continue to insure ad infinitum! This means;
1-The buyer and seller will never have a choice on title company selection.
2-If that title company goes out of business, another title company (by law) will have to pick up the "dirty title". What other title company in their right mind is going to want to do that?!
My final concern is that if the banks are willing to insure on these clouded titles with their own title companies, then what happens if all of these previous homeowners DO decide to sue AND win?
Does the title companies that are owned by the banks have enough assets to pay-out for these potential issues? Or, are they figuring on a government bailout to cover the cost if things get really ugly?
If the title policies are FORCED on another title company, will THEY have enough funds to cover the potential pay-outs?
I'm sure there are buyers out there that have pressured the transaction team to close the deal ASAP. In answer, real estate and bank industries have worked out a plan B, but I wonder what future ramifications are in store for our industry for what appears to be short-sighted decisions?
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