Fidelity National Financial Inc. (FNF), the largest U.S. title insurer by market share, will require lenders to sign a warranty assuring their paperwork is sound before backing sales of foreclosed homes.
An indemnity covering “incompetent or erroneous affidavit testimony or documentation” must be signed for all foreclosure sales closing on or after Nov. 1, the Jacksonville, Florida-based company said in a memorandum to employees today. The agreement was prepared in consultation with the American Land Title Association and mortgage finance companies Fannie Mae and Freddie Mac, Fidelity National said.
“It’s just the prudent thing to do,” Peter Sadowski, executive vice president and chief legal officer for Fidelity National, said in an interview. “It is important for the servicers and the lenders to represent to us and to the people we are going to be insuring that there are no problems.”
Bank of America Corp., the biggest U.S. lender, agreed to a similar contract with Fidelity National on Oct. 8, the same day it extended a freeze on foreclosures to all states amid concern by federal and state officials that lenders are seizing homes without properly reviewing documents. The bank plans to start resubmitting foreclosure affidavits next week. Attorneys general across the country have opened a joint investigation into foreclosures, saying they will seek an immediate halt to any improper practices at mortgage lenders and loan servicers.
Fidelity National, in separate announcements today, named a new chief executive officer and said that its earnings rose 13 percent in the third quarter.
Fidelity National shares dropped 7.8 percent this month through yesterday amid concern that foreclosure mistakes may allow former owners to challenge the repossession of their homes. Shares of Santa Ana, California-based First American (FAF) Financial Corp., the No. 2 insurer, fell 3 percent. The Standard & Poor’s 500 Index gained 2.2 percent in that time.
Title insurers use their records and public documents to verify a seller is the home’s true owner and that the property is free from liens. They collect a one-time premium at the closing of the purchase and pay costs that may arise if someone disputes the new owner’s right to the property.
The indemnity agreement requires lenders to protect title insurers at their own expense from “any and all liability, loss, costs, damage and expense of every kind” if errors arise in foreclosure procedures, according to the document.
The expenses may include attorney’s fees, a decrease in the property’s value and inability to sell the title, Fidelity said in the document. The lender must also notify the insurer in each case that a foreclosure complies with state laws and regulations, according to the agreement.
The indemnity agreement is available for use by all title insurers, Fidelity National said.
“This is a standard all lenders should follow,” said Kurt Pfotenhauer, chief executive officer of the American Land Title Association, a Washington-based trade group. “The sooner that indemnification agreement is adopted market-wide, the more confidence investors can have in this foreclosure market.”
Costs for title insurers to defend customers and reimburse for lost properties rose to $480.5 million in the first half of 2010, up 14 percent from a year earlier, according to the association.
Fidelity National had 38 percent of the title insurance market in the second quarter, according to the trade group. First American had a 27 percent share.
Scanlon Replaces Stinson
Fidelity National CEO Alan L. Stinson stepped down and will be replaced in that position by Chief Operating Officer George P. Scanlon, the company said in a statement today.
Stinson decided to remain with Fidelity National in a “less rigorous capacity” as an executive vice president, Chairman William P. Foley III said in the statement.
Separately, the company said its third-quarter earnings rose to $83.2 million, or 36 cents a share, from $73.4 million, or 32 cents, a year earlier. Foreclosures halted because of documentation problems won’t have a “material adverse impact” on Fidelity National’s title business, Foley said in the earnings statement.
“Even if a court sets aside a foreclosure due to a defect in documentation, the foreclosing lender would be required to return all funds obtained from our insureds, resulting in no loss under the title insurance policy,” Foley said.
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