Saturday, November 6, 2010

Wall papering over the hole in the wall

The Wall Street Journal reports that the largest title insurers have made an agreement with Bank of America and other large lenders that will allow the lenders to obtain title insurance even when there is a Maryland foreclosure in the chain of title. Fear of "bad affidavits" runs deep within the industry, now.

But those of us who litigate in this area know that other ripples are crossing the pond. In lawsuits over bad settlements (whether brought by buyer, seller, or lender) the settlement officer's standard of care is always made an issue. Because of the many hats worn by a settlement officer (title agent, seller's escrow officer, buyer's escrow officer, etc.) the claim is always made that the settlement company breached its standard of care. Perhaps the settlement company is alleged to have closed over bad documents, affidavits, or it improperly disbursed, missed a lien or encumbrance, ignored closing instructions, or violated title underwriting guidelines (by the way, who would want to be in that business?).

Expect claims of "you should have known" wherever a Maryland foreclosure appears in the title chain. The agreement to insure over this stuff may make title "insurable," but it certainly doesn't mean it will always be deemed "marketable." And that claim will be made against the title agent/settlement company, in addition to the seller. And don't forget the underwriter, ready to pounce for breach of underwriting guidelines, seeking indemnity under that agency agreement!

The standard of care for a reasonable settlement company (and its non-delegable duty to search title and disclose) has been raised because of the recent "bad affidavit" issues created by our friends in the foreclosure bar. With the actual knowledge imparted by the sheer volume of reports in the popular media about the issues, the lender's remedial actions, and the Court's recent emergency rule changes, how can a settlement officer/abstractor ignore reference to a foreclosure action in the title chain? He must review that file! That is what the reasonable settlement agent in Maryland now must do...period.