Insurance Underwriting Giants Slam Brakes On Issuing Title Policies On Foreclosed D.C. Homes; Say New Local Law Makes Risk Too Crappy To Take

In Washington, D.C., The Washington Post reports:

• A District effort to help distressed homeowners threatens to bring a halt to the sale of foreclosed properties in the city, depress home prices and cast new uncertainty on the local housing market.



• The District implemented regulations in May requiring lenders to enter into mediation with a homeowner before foreclosing on a home. But now, two large title insurers, which have about 80 percent of the D.C. market share, have stopped insuring the sale of foreclosed properties, saying the law makes it too risky.



• Without title insurance, obtaining a home loan is extremely difficult. The policy protects mortgage lenders from challenges to the title of a property. The problems could move beyond the foreclosure market to all home sales if lenders decide that any District home that could potentially fall into delinquency would face a similar problem down the road, according to industry officials and local lawyers. If these foreclosed properties linger on the market, unable to be sold, they could bring down neighborhood prices, they said.

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• At issue is one sentence in the council’s legislation: “Each foreclosure sale in violation of this act shall be void.” [...] First American Title Insurance and Fidelity National Title Group argue that the new regulations make it more likely that someone could challenge the validity of a foreclosure sale, forcing them to pay or defend claims in court. First American and Fidelity have 50  percent and 28 percent of the D.C. market respectively, according to data from American Land Title Association.

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• First American declined to comment but said in a letter to its agents that the regulations make it “virtually impossible” to write insurance. A borrower would have to sign a long affidavit certifying that the foreclosure had been carried out properly, according to the letter obtained by The Washington Post.

For the story, see District effort to help distressed homeowners could halt foreclosure sales.

Thanks to Bill Collins at Frontier Abstract, Rochester, NY for the heads-up on the story.