Title Insurers in Talks With Lenders on Warranties

Title insurers are in talks with banks and regulators to obtain warranties from lenders assuring they followed proper procedures before selling foreclosed homes, said Kurt Pfotenhauer, head of the insurers’ trade group.

“Everyone sort of sees the same risks, and that’s the good part,” Pfotenhauer, chief executive officer of the American Land Title Association, said today in a telephone interview. “You just have to craft a solution that’s acceptable to all the parties, and we’re making progress.”

Bank of America Corp., the biggest U.S. lender, on Oct. 8 extended a freeze on foreclosures to all 50 states amid concern by federal and state officials that homes are being seized based on faulty information. The Charlotte, North Carolina-based bank agreed that day to issue warranties for Fidelity National Financial Inc., the largest title insurer, said Peter Sadowski, executive vice president and chief legal officer for Fidelity.

“It’s a representation that there are no issues going forward and an indemnity if someone makes a mistake,” he said.

JPMorgan Chase & Co. and Ally Financial Inc.’s GMAC Mortgage unit have also stopped repossession cases in 23 states where courts supervise home seizures, amid allegations that employees submitted documents with unverified or false data to speed the process.

End of Week

A decision on the warranties may be reached by the end of the week, Pfotenhauer said. The assurances would help lenders resume foreclosures of homes with mortgage defaults and continue selling off their backlog of repossessed properties, he said. Pfotenhauer wouldn’t name the companies or regulators involved in the talks.

Fidelity National shares have dropped 10 percent this month. The company had about 38 percent of the market in the second quarter, according to the title insurance association. Shares of Santa Ana, California-based First American Financial Co., the No. 2 insurer, have fallen 5 percent.

Costs for title insurers to defend customers and reimburse for lost properties rose to $480.5 million in the first half of 2010, an increase of 14 percent from a year earlier, according to the American Land Title Association.

Among the tasks performed by title insurers is reviewing the public record for a court order that confirms a bank owns a particular property before it’s foreclosed on, Pfotenhauer said.

“Court rulings on valid foreclosures are going to be challenged,” he said. “That means we may get pulled into litigation.”

Preventing Risks

The warranties in the works are intended to protect title insurers from similar risks in the future, Pfotenhauer said.

Bank of America’s agreement with Jacksonville, Florida- based Fidelity National calls for the lender to cover the title insurer’s costs in the event of an error in the company’s processing of foreclosure documents, Sadowski said. The bank will notify the insurer in each case that the foreclosure complies with state laws and regulations.

Bank of America is in talks with other title insurers for similar agreements, said Richard Bramhall, the bank’s chief title officer. He declined to name the other companies.

“Our goal is to restore order to the chaos,” he said. “We’re optimistic that this will help calm the waters in regard to all the anxiety you see all over the country.”

To contact the reporter on this story: Danielle Kucera at dkucera6@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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Title Insurers in Talks With Lenders

Lori Moffett/Bloomberg

Shares of Jacksonville, Florida-based Fidelity National Financial, the largest U.S. title insurer, have dropped 9.9 percent this month.

Shares of Jacksonville, Florida-based Fidelity National Financial, the largest U.S. title insurer, have dropped 9.9 percent this month. Photographer: Lori Moffett/Bloomberg

Oct. 12 (Bloomberg) -- Peter Sadowski, executive vice president and chief legal officer of Fidelity National Financial Inc., discusses Fidelity's agreement with Bank of America Corp. on title insurance costs. Bank of America, the largest U.S. lender, has agreed to cover the title insurer's costs in the event of an error in the bank's processing of foreclosure documents. Sadowski, speaking from Santa Barbara, California, talks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

Oct. 11 (Bloomberg) -- Frank Sorrentino, chairman and chief executive officer at North Jersey Community Bank, talks about the possible impact of a halt in home foreclosures at the largest U.S. mortgage firms on the housing market. Sorrentino talks with Matt Miller and Carol Massar on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Oct. 4 (Bloomberg) -- Mark Zandi, chief economist at Moody's Analytics Inc., talks about the impact of bank foreclosure errors on the housing market. Bank of America Corp. delayed foreclosures after a federal regulator called for a review because lenders may have submitted defective documents when repossessing homes. Court documents showed JPMorgan Chase & Co. and Ally Financial Inc. employees may have submitted affidavits without confirming their accuracy. Zandi talks with Erik Schatzker on Bloomberg Television's "InsideTrack." (This is an excerpt of the full interview. Source: Bloomberg)