Focus On The Foreclosure Mess: Title Insurance, Robo-Signing, & Ibanez

by Rich Vetstein on October 26, 2010 · 7 comments

in Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Title Insurance

Two good questions came from my real estate blog readers about the recent foreclosure mess.

“Are title insurance companies still insuring foreclosure properties?”— James In Cambridge

Answer: Yes, they are. Initially, the press reported that some major title insurers had temporarily stopped insuring foreclosure titles from JP Morgan Chase, Ally Financial, and Bank of America. However, my understanding is that all title insurers have resumed insuring all foreclosure properties in the wake of several major agreements between national title insurance companies and lenders. These warranty and indemnification agreements would essentially shift the risk of loss from irregular/defective foreclosures back onto the foreclosing lenders.

From the conveyancing side, I can definitely tell you that title insurers have advised their attorney agents to go through foreclosure titles with a fine tooth comb and to be especially diligent in examining and certifying foreclosure titles. Buyers of foreclosure properties should be prepared for delays in getting their transactions closed.

“How is robo-signing different from the Ibanez case situation”?–Scott

Answer:  “Robo-signing” and the Massachusetts Ibanez foreclosure case are two different situations, but the root of the problem — the complexity of the securitized mortgage industry and the sheer volume of foreclosure paperwork to be processed — remains a contributing cause of both problems.

“Robo-signing,” as one of the leading foreclosure defense attorneys has claimed to the Huffington Post, refers to how financial institutions and their mortgage servicing departments hired hair stylists, Walmart floor workers and people who had worked on assembly lines and installed them in “foreclosure expert” jobs with no formal training to sign sworn documents submitted to courts. According to depositions released in Florida and the Post, many of those workers testified that they barely knew what a mortgage was. Some couldn’t define the word “affidavit.” Others didn’t know what a complaint was, or even what was meant by personal property. Most troubling, several said they knew they were lying when they signed the foreclosure affidavits, and that they agreed with the defense lawyers’ accusations about document fraud.

This is obviously a major problem in states such as Florida which require a judge’s approval of a foreclosure based on sworn documents. However, Massachusetts is not such a state. Other than verifying the borrower is not in the military, Massachusetts state law doesn’t require any sworn verification that the foreclosure is kosher (if you will). That may change after lawmakers and the Attorney General’s office react this foreclosure mess. In fact, the AG announced this week she is investigating on of the largest “foreclosure mills” in the state for alleged non-compliance with the new tenant foreclosure law.

The Ibanez problem occurs when mortgage loan documentation recorded with the Registry of Deeds lagged far behind the actual ownership of the loan, due to complex mortgage securitization agreements and sloppy follow up. Land Court Judge Keith Long’s ruling effectively invalidated thousands of foreclosures which suffered from this newly recognized “defect.” The Ibanez situation is not a product of fraud, like robo-signing, in my opinion. In fact, the practice of recording mortgage assignments “late” was long accepted by the title examination community prior to the Ibanez ruling. So it caught a lot of folks off-guard.Getting title insurance on an Ibanez-afflicted property is near impossible these days, and the robo-signing controversy certainly doesn’t help alleviate  the risk tolerance of anxious title insurance underwriters.

To be sure, both Ibanez and the robo-signing controversy have reverberated through the real estate community, and have impacted foreclosure sales on a number of levels. If you are considering purchasing a foreclosed property, please contact us so we can guide you through the complicated process and protect your interests.

If you need assistance with foreclosure defense, I recommend Liss Law–Massachusetts foreclosure defense ( based in Brookline, MA


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  • The case is U.S. Bank National Association v. Ibanez, Massachusetts Supreme Judicial Court No. SJC-
    10894 (January 7, 2011).

    the Ibanez case would seem to cast a real doubt as to the certainty of blindly accepting that there is no issue regarding a cloud on title in the marketplace.

    While I am not a lawyer…I have read the briefs (plaintiff and defendant)… and the decision of the court.

    The Supreme Judicial Court of Massachusetts has ruled that a foreclosure may be deemed invalid if
    the foreclosing bank or company can’t prove the chain of title ; this ruling does cast a cloud on the title, as it upholds the original Land Court decision.

    The Land Court decision in the case of US Bank National Association, as Trustee v. Ibanez and its two consolidated cases has created a conflict with REBA Title Standard #58 and its underlying rationale.

    And I do believe…the ruling affects properties already foreclosed upon…which does appear to open the door on title litigation.

  • Just wondering…title insurance is supposed to guarantee to a property buyer that some unknown lien or owner won’t appear out of the woodwork…claiming ownership. Considering the vast sums of money at stake…such insurance is highly valued. And the development of title insurance has enabled real estate transactions to close smoothly for the last 50 years. But no more…

    Can anyone who thinks clearly…suppose that a title insurance policy will retain it’s validity in the current securitized mortgage environment…as the title was clouded at the close of the initial transaction?

    In other words since the note and the deed were split at the initial closing, resulting in the note and the deed going in separate directions…the note going into a pool of possibly 100+owners assigned to a single mortgage…how in any legal confrontation or challenge…can a title company continue to assume the risk of guaranteeing a clear title?
    The legal seller has to possess both the note (not a security instrument) and the deed. For a title company, pleading…they ‘did not know’ contradicts their very reason for existence. Their business…’is to know.’

    Do title companies want to attain the pariah status of the recently disgraced rating agencies…guaranteeing that which can no longer be guaranteed…in the marketplace?

    The ultimate holders of the note are the investors…those 100+souls who have a piece of the note. Are they a party to a REO closing. By law…they should be…but they are not represented at closing. Which makes a REO closing…invalid…as the true owners of the note…don’t even know the property is changing hands.

    Put another way…would you invest your family fortune in a title company in this less than transparent securitized environment? Any one who would…represents the triumph of hope over wisdom.

    The credit markets froze when investors realized the paper they bought, paper backed by mortgages, was no longer worth the price of printers ink.

    When investors in title companies wake up to the same realization…that their money is not safe…every lawyer in the nation will be driving Maisbachs…even those who were last in their class…the litigation will become so great.

    • Nellie, the notes are sold after the closing, well after. At the time of the closing, at least in Mass., attorneys and the title companies ensure that title is clean. This isn’t really an issue with title, as the law knows it, but ownership of the underlying obligation and the right to foreclose. You’re barking up the wrong tree.

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