Loan Policies on the Flip Side

D M. L — Thu, 20 Aug 2009 15:16:51 EST

I work for a Mortgage Investment Company who owns and holds mortgages nationwide. As owners of the mortgages that we purchase and are assigned to us, we are also therefore assignee on the Loan Policies.

In a case in which there was a total failure of title, what would we need to do to prove a loss and file claim?

An example might be that a property is purchased from an estate and then mortgaged. Unaccounted Heirs of the estate later sue the present owner for complete title and win. The Title fails, ownership is reverted to the Heirs and our mortgage is subsequently washed out. What would we need in order to prove our loss and collect on a claim?

Another example would be that a property is purchased with a fraudulent ID used at closing. It is discovered that the ID belonged to a person who died before our closing occurred and was seemingly used with the intent to collect cash from the mortgages. We hold the second mortgage. The first lien forecloses and takes the property. There was no way to collect or enforce our lien from the first day onward. Do we have a claim since we provided the loan based upon assurances from the Title policy as to the condition of title that could not be supported?

I am not asking for legal advice. I only want to know what the process would likely be in a fictitious situation to further my understanding of Title related matters. On the surface this may seem like you would be giving up the keys to the store or telling me the industry secrets. In reality, I order a whole lot of title work in every state directly from searchers and agents for many different purposes based on the situation presented in each mortgage account. I order basic searches to discover present conditions and I order Title Insurance for new loan closings and REO sales. We also own the loan policies of every loan we purchase. It is a very rare thing when a Title claim incident occurs because I screen the professionals that we work with for the best that I can find. Claims were more likely to occur at the origination phase of the subprime quickie loans that later get trickled down for me to mop up after we purchase a loan with a problem. I admire the pursuit of perfection carried by the Title Industry and I support and defend you from coast to coast in that regard. However, there are times when legitimate claims arrise and it would be better for all if the method to resolve those issues was better understood. It would be nice if some of you would be kind enough to share your basic knowledge of claims with me. Thank you in advance.

Dave

D L's Blog

Loan Policies on the Flip Side