Title insurance is valuable protection for owners and lenders in
today's real estate market. Upon the issuance of an Owner Title
Insurance Policy (owner policy), the property owner is protected
from a vast array of title defects and ownership challenges. The
owner can refinance or sell the property knowing that the Owner
Policy insures the property's marketability.
When the lender secures an underlying loan or obligation with a
mortgage on real property, the Mortgagee Title Insurance Policy
(loan policy) protects the validity, enforceability and priority of
the mortgage. The loan policy also provides much of the same
coverage contained in the owner policy, but the loan policy insures
and protects only the lender, not the owner.
Whether or not the owner is protected by title insurance depends
upon whether or not the owner chooses to purchase an owner policy.
Institutional lenders, particularly those placing a first mortgage
on real property, always require the protection of a loan policy.
The value of the loan policy becomes apparent when the lender takes
title to the property. The lender becomes the owner when the lender
forecloses on the insured mortgage, so the protection of the loan
policy has become important to many lenders with the current
increase in foreclosures.
Real estate that has gone through one or more foreclosures may be
affected by a variety of title issues. When such property is sold,
the buyer takes the property subject to any title issues that were
not eliminated by the foreclosure, and the title to the property is
also subject to defects in the foreclosure process.
The title search at the Registry of Deeds, completed prior to the
purchase of real estate at a foreclosure sale, may reveal
undischarged mortgages granted by a prior owner. The title search
may also show tax liens, tax takings or other liens that have not
been released or discharged prior to the foreclosure.
In Massachusetts, conveyancers must now also confirm that the
foreclosure complies with the recent U.S. Bank National
Association v. Ibanez et al decision. ("Ibanez").
Massachusetts Land Court Miscellaneous Decisions No. 384283, 386018
and 386755 (KCL) The Ibanez foreclosure was one of many
foreclosures which took place after the transfer of a group
of mortgages from one lender to another lender. The
Land Court judge in Ibanez noted that the transfer of the mortgages
in the Ibanez case and its companion cases was not recorded at the
Registry of Deeds where the property was located by the recording
of an assignment of the mortgage. The assignment is the public
record at the Registry of Deeds of which entity is the current
holder of the mortgage.
The Ibanez decision requires that a mortgage foreclosure
must be commenced by a lender that holds the mortgage at the time
of the publication of the required foreclosure notice. With the
frenetic pace of the mortgage market over the past several years,
many assignments of mortgage were not recorded in a timely manner,
so there are a significant number of foreclosures that were not
conducted properly under the standard imposed by the
Ibanez decision. The Ibanez case is being
appealed, but since the decision owners and buyers are subject to a
new title issue regarding Massachusetts foreclosures, an issue for
which an owner's title insurance policy would provide protection. A
foreclosure completed by a party that did not hold the mortgage at
the time of publication of the foreclosure notice might need to be
redone in order to clear the issue raised by Ibanez. An
owner who purchased the property and holds a title insurance policy
which was issued after a faulty foreclosure under Ibanez
is protected by the policy if he or she is selling or refinancing
Other recent events have raised additional questions about the
effectiveness of foreclosure proceedings in Massachusetts and
throughout the United States. Some banks have temporarily stopped
all foreclosure proceedings because the affidavits which are
recorded with foreclosure deeds were being signed by individuals
who were not familiar with the facts stated in the affidavit. The
effectiveness and accuracy of the Mortgage Electronic Registration
System (MERS) is being challenged, which may raise more questions
about which lender holds the mortgage and has the power to
foreclose. As of May 1, 2010, the Federal National Mortgage
Association does not allow MERS to be named as a plaintiff in any
foreclosure action, neither judicial nor non-judicial. Quitclaim
deeds offer little or nothing in the way of protection for the
buyer at a foreclosure sale, and an attorney's title certification
cannot provide the security of a title insurance policy.
The title insurer has a duty under the policy to indemnify the
insured against loss caused by a covered matter which arose prior
to the date of the title insurance policy. The title insurance
company also has a duty to defend the insured in litigation arising
from a risk insured against in the policy. Title Insurance is the
best protection available against ownership challenges and adverse
claims resulting from defective foreclosure sales.
Elizabeth J. Barton is title counsel for Connecticut
Attorneys Title Insurance Company (CATIC, a regional title
insurance company) in its Wellesley office. She is vice chair of
the MBA Property Law Section Council, as well as the chair of the
Joint Foreclosure Legislation Task Force and the Education for
Attorneys Representing Individuals Facing Foreclosure for the MBA.
She is also a member of the Real Estate Bar Association (REBA), the
REBA Title Standards Committee and the Merrimac Valley Bar