The leading trade group for title insurers on Monday declared that despite "possible flaws" in the foreclosure process, the growing scandal will actually have little adverse impact on the new owners of REO properties, or on title insurance claims.
"If a new homeowner's title is challenged because of a faulty foreclosure, the title insurer may have an obligation to defend the challenge," said Kurt Pfotenhauer, chief executive officer of ALTA. "However, it is unlikely that a court will take property from an innocent current homeowner and return it to a previous homeowner who failed to make payments on the loan subject to the foreclosure."
On Friday the share price of certain title companies got nicked, in part, because of reports by some mega servicers — namely GMAC, Bank of America, GMAC Mortgage, and JPMorgan Chase — that they were reviewing their foreclosure practices for procedural flaws.
A research note from Moody's said "How title insurance companies address the problem, and whether the companies will exhibit a blanket reluctance to insuring any properties foreclosed on by GMAC Mortgage, is also an open question."
Moody's, however, believes that GMAC (and others) will fix their foreclosure problems, allowing title insurers "to insure good title to ultimate purchasers."
