Fidelity National Drops Nationwide Indemnity Requirement

This whole title insurance thing is getting confusing.

Fidelity National Financial Inc., the largest U.S. title insurer, canceled a requirement for lenders to guarantee proper foreclosure procedures amid “heightened review” processes by banks.

The company won’t require an indemnity agreement before insuring individual foreclosed properties, according to a memorandum to employees yesterday. It will continue the arrangement with Bank of America Corp., the largest U.S. lender.

Fidelity National reversed course from a requirement put in place a week ago after institutions took steps to police foreclosure paperwork, according to the memo. Failure of other insurers to follow its lead also put the Jacksonville, Florida- based company at a competitive disadvantage, said Peter Sadowski, executive vice president and chief legal officer.

“Although competition was a factor, we wouldn’t take undue risk for competitive reasons,” Sadowski said in an interview. “We feel comfortable with the new process.”

But what I take it to mean is that, at least partly because other title insurers weren’t requiring Fannie and Freddie to indemnify their foreclosure sales, Fidelity National dropped the requirement that they (and other lenders) do so, too. But it’s not clear if, in lieu of this indemnity, Fidelity is going to require the lenders to actually prove they have standing to foreclosure.

Whatever the case, Fidelity National seems to be saying that a risk that was there just week ago, no longer exists.

  1. David Dayen says:

    I think it becomes a little less confusing when you realize that Fidelity National used to run Lender Processing Services, and they work out of the same office.

    Good string to pull.

    • BoxTurtle says:

      Fidelity is trying hard to come up with a chain of events/ownership that does not require fidelity or one of their sub-entities to eat The Big Shitpile. The problem is that no matter what catagory they blame (Bank, mortgage processors, investors, deliquent borrowers) they end up with Shitpile chili on their plate.

      And I’ll bet they got no business with that requirement in place except from themselves.

      The only way the don’t eat Big Shitpile is with a government bailout.

      Boxturtle (And Obama will stand up to them, so they’re screwed. Right???)

    • emptywheel says:

      Oh, I know about that. So they’ve got exposure in the fraud, probably more than most anyone but David Stern and some people at BoA and GMAC who were no doubt insulated from anyone in charge.

      But from a standpoint of actually exposing where the shitpile is, what does this mean? Fidelity STILL would have the same disincentive to not look for fraud because they suspect they’d find it. Is this Fannie and Freddie pushing Fidelity to expose itself?

  2. Arbusto says:

    So it’s caveat emptor even more for buyers looking for a house and during close of escrow. Well at least the employment hopes for lawyers will improve due to this foreclosure fiasco.

  3. MadDog says:

    It sounds like Fidelity National’s motivation of “competitive disadvantage” was simply greed.

    And it also sounds like Fidelity National got the “message” from the regulating “powers-that-be” that everbody has been promised a “get out of jail free” card.

    I’m no longer surprised that we’re “looking forward, not backward”.

  4. Watt4Bob says:

    It reminds me of the way the stories changed daily back in September of 2008.

    You can’t tell which way the wind is blowing by watching Fidelity National, because they’ll do what ever is necessary to prove they’re team-players.

    Tommorrow it will be someone elses turn to “take one for the team.”

    It’s another variation on the revolving-villains game, call it the revolving BS game.

    Every night, they have a conference call to convince each other that things are going to be OK, and choose who’s going to contribute what to the BS that they feed us through the MSM.

  5. Mary says:

    If you go back and look at my long, boring comments, I think you’ll understand better why they’ve ended up where they are now. A foreclosure sale is a court ordered sale. Whatever the problems caused by the fraud on the court or misrepresentations ot the courts, setting aside a court ordered sale is an extreme remedy and not one that is nearly as likely as a court ordering damages (which might actually mean more $$ out of pocket by the bad actors). Voiding the sale would be an equitable remedy (as opposed to a legal remedy) particularly since the sales were likely “voidable” as opposed to “void” (not going into the legal difference here, but there is a significant difference) and you have the equities of a good faith purchaser for value and without notice – at least for the initial sales – at the foreclosure sale to facotr in. A gfp is a hugely favored entity at law.

    Now that courts are on notice and AG offices are pursuing criminal actions it becomes even less likely that a court would set aside a current or future foreclosure sale based on shoddy procedures. The title company does not insure that the foreclosing seller has not done anything wrong – they do insure that the court that ordered the sale had the legal authority to order the transfer of title. If no one posted appellate bonds and timely filed an appeal, then the court did have that legal authority, even if it appears later that someone lied to the court. The remedy becomes damages, not so much a revocation of title.

    BOA might very well want to keep some options open for situations where damages might exceed the costs of undoing a sale, esp of BOA is aware of a lot of misfeasance. Going back now and trying to set aside sales with the only rememdy for the purchaser being recovery on their title insurance (especially if they didn’t put much down themselves and if the foreclosing purchaser’s lender can be worked with) and a restoration of title to the wrongfully foreclosed – they might not want to go that way, but they might want to keep that option open bc it might result in a cheaper fix, overall, to indemnify a title company for having to pay off on an owner’s policy and undoing a sale.

    In any event, the overall risk of courts massively undoing sales was never nearly as great as of courts awarding damages, halting in the pipeline foreclosures, and starting to put the fear of god into lawyers and execs signing off – all while AGs are breathing down necks for publicity, overall settlements, and maybe some scalps.


    • emptywheel says:

      Not that it negates your larger point at all, but one of the lawyers involved in these cases let me know he HAS gotten a foreclosed house back for his client and it sounds like more are trying this.

      • Mary says:

        Absolute can be done – and is in part the point I’m trying to make on the BOA situation. It also makes a difference on what point in time he’s talking about as to how easy it is to get done. If the order of foreclosure has been entered, but the sheriff’s sale not held yet, it can be done more easily. If the Sheriff’s sale has been held, but buyer has only put down their deposit, also easier. If the Sheriff’s sale has been held, and all funds tendered and the Sheriff’s report of sale tendered, more difficult, still not undoable. If the Report of sale has been tendered and the period of time to object to the sale has expired with no objections – – much more difficult. And it also would be interesting to know if they got “the house back” based on a court order divesting a good faith purchaser for value and without knowledge and after the period for objections to the report of sale and distribution were filed, or if they got everyone involved to sign off on undoing the sale voluntarily.

        All of those make a difference – not everyone means the same thing by “a foreclosed house” (i.e., have all appeal periods run) and “getting back” (i.e., by a workout, or by a court ordered divestiture, etc.)


    • JADodd says:

      I have not had the opportunity to read your “long, boring comments.” However, your analysis is limited to those jurisdictions which mandate judicial foreclosures. At last count, this was only 23 states. The other 27 states permit foreclosures without any judicial involvement. Therefore, there is no “judgment” to set aside.

      In fact, here in Colorado there is no way to raise the issue of fraud within the foreclosure process itself. The debtor is entitled to what is called a Rule 120 hearing, but the only issue before the court is whether the debtor is in default. If the debtor wishes two challenge the standing of the party foreclosing, the debtor must file a separate lawsuit seeking an injunction against the public trustee. Few debtors have the financial means to pay the filing fee let alone the attorneys fees for such litigation.

      I have not seen anyone discuss the actual contents of a title insurance policy. Again, here in Colorado, the title insurance policies do not cover defects and title which are not of record unless you pay an additional premium for special endorsement. I have not seen any of the new title insurance policies, but I expect that they have, or will soon have, and exclusion for foreclosure defects not of record. (As my own personal experience demonstrates, the banks are no longer filing assignments with the clerk and recorder.) For a fee, the buyer’s lender can insure against this risk. However, the borrower is required to pay for the title insurance. Once again, the cost of this entire mess will be borne by the middle class.

      • Mary says:

        My comment is a continuation of comments over a series of posts by EW and David Dayen and you probably need that context to know what is being addressed. The original concept that I responded to was a concept that the title insurance company was or should be required to look into the substantive (not mere procedural) validity of foreclosure sales and that when Fidelity National first asked for an indemnity from BOA it was “shifting” its responsibility for substantively investigating fraud in th foreclosure process back on the banks. Since all of that involved foreclosure and mortgages, not deeds of trust, my comments were focused on foreclosures.

        The point that you make, about title insurance NOT typically covering matters not of record (such as underlying fraud in obtaining an order of foreclosure) has been the one I made. There was also a lot of confusion about what happened to liens of record after foreclosure and other issues such as owner’s vs. lender’s policies. In connection with foreclosure sales, most lenders to a purchaser at a foreclosure sale do require that the title companies insure over the foreclosure sale. However, fraud can be a basis to set aside a foreclosure sale in some of those states. I had previously pointed out that even in foreclosure states, an issue similar to what you mention in a DOT transfer will still exist, which is that a court is going to be extremely reluctant to involve itself to undo title, being more likely to grant damages. And also that I did not think it was worthwhile or workable to try to make a title insurance company somehow the entity to investigate fraud in foreclosure proceedings. I thought the indemnity was not some backhanded attempt by the title companies to shift a responsibity they would otherwise have and also thought that in the end, even without it, foreclosure fraud was more likely to generate damages than title set asides. So that is some of the context.

        As you can see, this post is also about the foreclosure process and the change in stance of Fidelity to not require the indemnities other than from BOA.

        Fidelity National reversed course from a requirement put in place a week ago after institutions took steps to police foreclosure paperwork

        emph added

        Deed of Trust states(commonwealths) like VA (I’m not familiar with Col. directly, but it seems to be a DOT state instead of a mortgage state as well) have different procedures (and again, although I’ve said this before in other places I guess it needs to be repeated in each instance – EVERY state has its own peculiar laws for conveyance of title on default and you have to look to every state to see what their rules are).

        Typically (go talk to a lawyer about your specific situation) in a mortgage state, all the mortgagee (bank) has is a lien on (not title to) the real estate and so a foreclosure process is used, where the court must order the transfer of title. That’s why title is transferred in a non-recourse manner by a Sheriff and why there are no upstream general warranties of title given by the conveyor.

        In a Deed of Trust state, often a mortage will also be recognized as a lien document if banks choose to use them (and for some securitization packages, banks do use them even in DOT states), but there is also an option for the lender to receive a Deed of Trust instead of a mortgage. In this case, the legal (recorded document) and equitable (beneficial interest) title are severed. A “trustee” receives record TITLE to the property, “in trust” and has trustee insturctions from the borrower and lender as to what is to happen if the lender gives notices of default (obviously, this isn’t something that a lender gets to heavily negotiate in a residential closing and they end up pretty much stuck with a very one sided document).

        Again, I’m not familiar with COl, but many DOT states have special “rights of redemption” statutes so that a DOT “sale” is not truly final for a period of time after the sale, during which the equitable owner can redeem back the property. As you mentioned with $$ to fight a DOT sale or fraud, it is also VERY unlikely that most borrowers would ever have the $$ available or a new lender available for them to be able to redeem back.

        I’m not going to speak to Col, since I’m not familiar with it, but I will say that in most DOT states, you do continue to have the issue of who has the Note. The Trustee holds in trust for the Noteholder in most DOT states, and most equitable title owners do have a process to demand that the Trustee actually receive notice of default from the true Noteholder. A Trustee put on notice that the entity giving them the default notice may not be the wet-ink noteholder can end up with some liability in many states.

        I do not contest (and never have) your assertion as to where the cost of the “mess” is going to end up – with the middle class. What we have had, though, is a kind of meandering discussion over where the title companies fit into all of this, and protections for a foreclosure purchaser/DOT transfer purchaser v. protections for the persons being foreclosed upon, and how they vary and the role of the courts & title companies in foreclosure sales (your comment adds in the role of Trustees under DOTs and that change on the role of courts, etc.)

        I’m not familiar with the 120 hearing, but since one of the primary issues we have discussed vis a vis fraud is whether or not the person/entity claiming defaults actually is the holder of the Note or has rights under the Note, it would seem to me that someone might be able to pull this into those hearings – but since, again, I’m not familiar with that process, I’ll leave that to you. It would seem to me that to allege default under a note, the party allegeing default has to produce the note – at least in most states. If Colorado doesn’t require that, it is very much outside the scope of my experience. But whether you can play with that or not, I am completely in agreement with your other point, i.e., that a borrower probably can’t afford the kind of representation that would keep them from losing their home even if there are avenues available.

        And I think that’s the bigger issue to address, more so than indemnities between BOA and Fidelity. fwiw.

  6. matutinal says:

    Sounds as if shining a light on the mortgage/banking industry is critical – we need a best-selling Silent Spring or Unsafe at Any Speed expose to make the hoary details of this scandal acceptable – even fashionable – to talk about. Somehow, though, I doubt that will happen. The media seem to have lost any taste for such “reality,” preferring their own manufactured kinds.