Foreclosure and title insurance

Foreclosure is when you have to leave your home and turn it back to the lender. There is a huge wave of foreclosures taking place in the United States. Canada is seeing foreclosures but not near to the depth that you will see across the border.

There are buyers taking advantage of the properties that are now available for sale. At issue is whether or not title insurance might respond to a foreclosed home purchase claim. What if the foreclosure is overturned?

Title insurance is purchased by the bank or lender on the mortgage. This insurance guarantees that the chain of title is clear. Issues such as an outstanding lien or paperwork that is not yet processed would be addressed under this insurance. It will provide legal counsel and expense if you are a victim of mortgage title theft.

The buyer of the house has the option to purchase title insurance and it is usually offered at the time of placing the mortgage. It can be purchased later and many insurance brokers have access to this product.

The title insurance industry in the United States is taking a position that the banks have to warrant that they have followed all the legal procedures in their handling of foreclosures. If there is a problem with these procedures then it should fall upon the banks, not the title insurers.

Fidelity National Financial which has about 38% of the US title insurance market has declared that as of November 1 2010 all lenders seeking a Fidelity National policy for the sale of a foreclosed home must warrant that all documents and procedures involved in the foreclosure process were handled properly. They also must agree to pay the costs for the title insurer in the event that a court finds fraud or errors in the foreclosure process.

So if you are buying a foreclosure property you should still consider purchasing title insurance. If things do go sideways you will have a higher chance of getting paid. It doesn't really matter to you who is making the payment, just that it will be there.