Title Underwriter Refuses To Defend Against Forgery Claim Made By Countrywide; Says Lender's Recklessness Brought On Its Own Problems

In Chicago, Illinois, the Chicago Tribune reports:

• It could be the tip of an iceberg. Ticor Title, one of the largest title insurance firms in the country, is suing Countrywide Home Loans, the nation's largest home lender, saying it shouldn't have to pay out on a title policy because of Countrywide's gross negligence. The suit, filed last month in Cook County Chancery Court, concerns just one Chicago mortgage made by Countrywide in 2007, but the implications are enormous, say real estate and title insurance experts.

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• The case that Ticor has drawn a line in the sand over concerns a $360,000 first mortgage on a graystone Victorian in the Kenwood neighborhood on the South Side. The story of that loan was told in a front-page Tribune story in February,(1) several weeks after a clothed, mummified male corpse was discovered in the boarded-up house by a real estate speculator who had purchased the property from Countrywide in a foreclosure auction.

• The corpse was later identified as Randy Johnson, who had grown up in the house and continued to live there until he disappeared in late 2005. The gruesome discovery prompted Cook County Public Administrator Michael Bender to look into the case. Bender's staff quickly determined the backdated deed that had transferred the home from Johnson's deceased mother, Arrellia Johnson, to a woman named Rhonda Evans was a fake, and not all that hard to spot.(2)

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• Three months after the fraudulent deed was recorded, Evans sold the house to Donald Franklin of Harvey for $450,000. Franklin borrowed the entire amount in two simultaneous mortgages from Countrywide. The public administrator, who handles the affairs of people with assets who die without wills, moved to intervene in Countrywide's foreclosure case and asked the court to restore the property's title to Arrellia Johnson's heirs. Four days later, Countrywide asked its title insurer, Ticor, to represent its interest in the case. Ticor refused.(3)

Reportedly, as these two titans battle it out in court, the home of the late Arrellia Johnson sits vacant, boarded up, with a leaky roof, and is likely to stay that way until the title dispute is cleared up. Further, the estate's legal bills reportedly continue to accumulate as every court date requires the presence of an attorney from the public administrator's office - bills ultimately to be paid out of the late Ms. Johnson's estate when it is settled.

For more, see Title firm ready to do battle (Suit over Chicago house could set up national showdown).

(1) For the February Chicago Tribune story, see This house was a steal (How fraud led to this property changing hands 3 times as son of owner sat dead inside).

(2) According to the story: Arrellia Johnson's name was spelled two ways and the alleged 1996 warranty deed was created on the stationery of Recorder of Deeds Eugene Moore, who did not take office until 1999. Another warning sign: The deed was notarized by Mae Evans, who is the mother of Rhonda Evans.

(3) Reportedly, in the suit, Ticor argues Countrywide was "reckless and grossly negligent in its underwriting of the Franklin mortgage." That carelessness is the only cause of any loss suffered by the lender, Ticor alleges. Its claims go further: Ticor alleges that Countrywide "adopted corporate policies that resulted in the abandonment of proper underwriting standards as part of its effort to increase market share, and in the short term, profits."