Toxic Titles | Title Companies Limit Ability to Use Deed-in-Lieu as a Remedy

Title Companies Limit Ability to Use Deed-in-Lieu as a Remedy

It has come to our attention that Fidelity National Title Insurance Company, First American Title Insurance Company, Stewart Title Insurance Company and Old Republic Title Insurance Company will no longer issue title insurance in connection with a deed-in-lieu that is held in escrow (or bailment). An example of the scenario where a deed-in-lieu is held in escrow is as follows:

Borrower defaults and lender agrees to forbear from enforcing its rights while borrower attempts to secure financing. In exchange for the time, borrower delivers a deed-in-lieu, which is held escrow/bailment by lender or its counsel pending a default/satisfaction. Upon an event of default, the settlement/loan modification documents provide that the deed-in-lieu is to be released immediately (often without notice to the borrower). At that point, lender would record the deed in its name or in the name of an SPE and seek to obtain title insurance.

In the past, lenders or their assignees have been able to obtain a title insurance policy insuring their interest and hence marketable title. We have learned within the last week or so, these title insurance companies will no longer insure title for an interest obtained under such circumstances. The two main reasons articulated to us for their determination are: (a) the title insurance companies are fearful of being embroiled in litigation over claims that the deed-in-lieu was improperly or prematurely released from escrow (apparently the number of claims concerning this issue has skyrocketed) and (b) there is a concern that other creditors may attack the deed-in-lieu if it turns out that the value of the collateral increases substantially from the time that the deed-in-lieu is placed in escrow and actually recorded, thereby giving the lender a windfall.



6 Responses to “Toxic Titles | Title Companies Limit Ability to Use Deed-in-Lieu as a Remedy”
  1. Pamela Edwards says:

    I agree with Marilyn.Couldn’t have said it better myself.

  2. Bill says:

    All of the Title Companies, and especially Fidelity title should be investigated. The problem is they need to be investigated by an entity that doesn’t have an interest in the matter. That would exclude the Government.

  3. marilyn lane says:

    my comment was for John’s comment.

  4. John says:

    Great! I have said the real help for all of us would come from the Title Companies.
    Their adding a paragraph that absolved them from all liability would not hold up or look too good to a jury of homeowners.
    Homeowners buy Title Insurance not banks so their loyalty should be to those homeowners. Anyway, why would a Title Insurance Company lay down its reputation for a bank?
    Just the opposite, all Title Companies don’t like the County records they depend on being all screwed up by the financial institutions. Records in error cost their companies money paying out claims.

    • PJ says:

      Nice thought, but unfortunately, one of the founding members of MERS is ALTA, the American Land Title Association (which is the national organization to which these title companies belong). And your point about homeowners buying title insurance, while correct, misses the mark as well. Banks require title insurance to be purchased to insure their lien priority, whenever they accept a mortgage on real property. Most homeowners buy the Owner’s policy because the cost is usually insignificant if purchased simultaneously with the mortgage (lender’s) policy.

    • marilyn lane says:

      sorry you are wrong. The Title Companies attorneys file the fraudulent transfers and keep the fraud going especially when it protects them from haing to Indemnify when they are caught with a forged deed.

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