California Judge Tosses Out Title Industry Lawsuit

A federal judge in the Northern District of California has thrown out a lawsuit by the American Land Title Association against 18 insurance companies or insurance-related corporations which alleged the firms were selling title insurance products illegally.

These products, ALTA claimed, were being marketed as "mortgage impairment" or "lien priority" insurance, which in fact are a type of title insurance.

While not ruling on the substantive issues, Judge Phyllis J. Hamilton granted the defendants' motion for summary judgment.

In the ruling, the judge said insurance regulation is an issue that is left up to the states. "Each individual state must decide who can be licensed to sell title insurance policies within its borders. Each state has a strong interest in having the issue decided in its own courts, not in a Federal District Court in California.

"Any individualized issues regarding the lien priority policies can be more efficiently resolved in the individual state courts, which are more familiar with the laws of insurance regulation of their particular states," Judge Hamilton wrote.

The executive vice president of ALTA, Jim Maher, said the group would prefer to have a single court ruling that would apply nationwide. Right now it is considering whether to proceed in select jurisdictions nationwide. As of now, it is not appealing Judge Hamilton's ruling.

Meanwhile, the co-founders of one defendant, Group9 Inc., Langhorne, Pa., said the product it offers is not even being marketed as a title insurance alternative.

It is an errors and omissions policy for home-equity loans, said company executives Chris Ulsh, president, and Chris Mallon, executive vice president.

Group9 offers a whole range of services, including streamlined property reports, flood certification, collateral validation, closing services and recording services. It is a licensed agency to sell E&O insurance as well as licensed as a title agency in 40 states.

Mr. Mallon explained the biggest threat to home-equity lenders today, especially given the speed the process has taken on, is borrower fraud. In fact, the majority of claims are fraud-related. There are uninsured property searches conducted during the home-equity origination process.

What Group9 did, he said, is to wrap an E&O policy around the entire process. "This is not unlike other E&O insurance" that many originators have. It is also a similar product to one being offered by some large title underwriters. Those firms do not market it as title insurance.

But, he continued, "Ours is a more extensive program ... designed to meet the needs of today's home-equity market."

Mr. Ulsh noted that the uninsured property searches have been common in the home-equity lending process for years, backed by E&O insurance. Group9 is offering "a more robust, comprehensive E&O product." He reiterated no one ever said this product was title insurance. (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com