Moratoriums Impact Ease of Obtaining Title Insurance Policies When Closing on REOs

Title insurance is a very important part of the REO transaction.  Originally resulting because of the CARES Act passed last March, several national title insurance companies issued bulletins to their agents regarding their various positions on what is needed for them to insure properties related to foreclosures.  This led to the title insurance companies placing additional requirements and restrictions in order for them to insure properties at REO following a foreclosure that was conducted while the Act was in place.  Although the Act itself has expired, the moratoriums are still in place and have been recently extended (again).  The national title insurance companies have expanded their bulletins to include the same or similar requirements for foreclosures occurring during the moratoriums going into this year.  At least one national title insurance company has taken a very conservative approach and will not insure any property related to a foreclosure action during the moratoriums, whether the property is vacant or abandoned.  These restrictions will apply to loans involving HUD, VA, Fannie Mae, Freddie Mac, or USDA.

It is important to understand how these requirements and restrictions will affect the REO process.  In order for the transaction to take place, any specific conditions relating to the foreclosure have to be satisfied so the title insurance company can issue title insurance at closing.  A determination of what additional steps or verifications may be required by the title insurance company must be made to avoid delays with the closing.  We recommend checking with the settlement agent early in the REO process to see which title insurance company is being used to make sure any extra steps required to get insurance are addressed well before the closing date.  The settlement agent should also verify whether the insurer has an overall prohibition on insuring these properties altogether so a different title insurance company can be used. 
​
Many of the title insurance companies have provided additional information in the bulletins and newsletters that they continue to be send out to their agents.  These requirements typically include written verifications or evidence that the property was vacant or abandoned and to show the moratoriums did not apply to the foreclosure of the property.  Some examples of the evidence the insurers may ask for are inspection reports, notices from local government that the property is vacant, findings of fact in the final order that the property was vacant in a judicial foreclosure, and statements from the servicer that the property was vacant or abandoned.