'Hundreds of foreclosures have been deemed defective by the title-insurance company.'
MORTGAGE BANKERS and real estate attorneys across the state say pending sales of homes that went through foreclosure are being stopped by concerns that the counseling requirement has not been satisfied and the title to the property might not be good.
As lenders across the country struggle to sort out confused, sloppy or abusive foreclosure practices, a 2-year-old state mortgage-counseling law in Rhode Island has turned into a stumbling block for many banks trying to move distressed properties off their books.
Mortgage bankers and real estate attorneys across the state say pending sales of homes that went through foreclosure are being stopped by concerns that the counseling requirement has not been satisfied and the title to the property might not be good.
The concerns have prompted title-insurance companies, which investigate land records and write one-time policies guaranteeing clean title, to deny insurance for many previously foreclosed properties.
“It is creating a huge backlog of files of houses that are sitting there in foreclosure status, empty, vacant and not being sold or moved off the inventory of lending institutions,” said attorney James Caruolo, who practices real estate law in Warwick. “This leads to problems with the condition of the homes and unpaid taxes. It ends up hurting the city and neighbors because you are not moving it on to a new buyer.”
The volume and extent of title issues connected with the Rhode Island foreclosure mortgage-counseling law is difficult to estimate. There is no central clearinghouse for pending foreclosure sales or properties caught in legal limbo because of title problems.
Caruolo said he has been personally involved with a couple of sales that have been held up over the past two months.
“The statute is a mistake and a disaster. … It has not saved any homeowners from losing their homes,” said Joseph Vitullo, underwriting counsel for Stewart Guaranty Title Company in Warwick, who added that the law had been copied badly from federal foreclosure law. “It is so poorly drafted that title companies are erroneously reading many requirements into the statute that have no basis in the law. The result is that hundreds of titles have been rendered unmarketable.”
Stephen Tetzner, founding partner of Homestar Mortgage in Providence and president of the Rhode Island Mortgage Bankers Association, said he has seen the problem on the loan-initiation side and it appeared to be slowing down the real estate market.