Our agents are being asked more regularly to insure purchasers at foreclosure sales. Due to recent rulings at the county level, we would like to take this opportunity to remind our agents of some of the requirements necessary to insure a purchaser or lender when a foreclosure is involved.
Insuring Purchaser at Foreclosure Sale
Do not insure a purchaser or lender at foreclosure sale unless you secure Stewart Underwriter approval.
If you are asked to insure title to a purchaser or lender at a foreclosure sale, you must complete the following enumerated tasks in addition to your standard underwriting. The Stewart underwriter will review your compliance with each requirement.
1. Verify that all foreclosure requirements (including a final, non-appealable judgment) under state law and our guidelines have been met.
In SC this means that notice of entry of the Judgment and Order of Foreclosure and Sale has been served on all parties. At this point in the litigation, this will normally be served by first class US Mail. Stewart considers the order non-appealable after 36 days from service (30 day appeal period (Rule 203(b)(1), SCACR), plus five days for mailing, plus an additional day). You must review the court file to confirm service on each defendant to include defaulting, or non-appearing, defendants. Often, foreclosure attorneys may not file an affidavit/certificate of service of the notice of entry of the foreclosure order with the Clerk (or serve the notice or a copy of the final order at all), so this may involve contacting the foreclosure attorney to get an Affidavit/Certificate of Service (Mailing). Note that the appeal period is stayed if a (i) Motion for Judgment n.o.v., a (ii) Motion to Alter or Amend Judgment or a (iii) Motion for a New Trial has been filed by any party. Then, the appeal period does not begin to run until receipt of notice of entry of the order granting or denying such motion.
2. Verify that the mortgagor subject to the foreclosure is not in possession of the property.
You may rely on any credible evidence such as a lender or broker confirmation, without inspecting the land, that the mortgagor has abandoned the property. If the mortgagor is in possession when you issue your commitment, the commitment and policies should contain the following exception: "Any rights, claims or interest of (the mortgagor name) in the Land or any claim that the foreclosure by (foreclosing lender) is invalid."
3. Determine that no other parties, such as tenants under prior leases, are in possession.
Verify no parties are in possession. Tenants’ rights may not have been extinguished by the foreclosure. For example, the Protecting Tenants at Foreclosure Act applies to "any foreclosure on a federally-related mortgage loan or on any dwelling or residential real property after [May 20, 2009]" and allows a tenant to remain in possession under a prior lease under certain conditions. If other parties are in possession, the commitment and policies should except to rights of parties in possession or should except to the specific lease.
4. Except to any applicable right of redemption or right to purchase.
If the USA or an agency (such as IRS, FHA, etc.) is a defendant to the foreclosure, it is highly likely that the USA has a right of redemption ranging from 120 days to 1 year.
Insuring Subsequent to a Foreclosure Sale
If you are asked to insure title to a purchaser or lender and a foreclosure deed creates a link in your chain of title, you must perform the following tasks in addition to your standard underwriting:
1. Do not issue without Stewart Underwriter approval if you know that a suit seeks to overturn/enjoin the foreclosure or REO sale of the property, or seeks damages because of alleged improprieties in the mortgage foreclosure action. If such a suit has been commenced please contact a Stewart Underwriter before proceeding.
2. Do not issue without Stewart Underwriter approval if you know that the lender is currently pursuing a separate deficiency judgment against the mortgagors and such judgment is not yet final.
3. Do not insure without Stewart Underwriter approval if you know that a suit seeks to overturn/enjoin the foreclosure or REO sale of the property, or seeks damages because of alleged improprieties in the mortgage foreclosure action. If such a suit has been commenced please contact a Stewart Underwriter before proceeding.
4. If you are asked to insure on the first sale after foreclosure, you should determine that the amount owed on the foreclosed mortgage exceeds the current resale price. Otherwise, secure Stewart Underwriter approval.
Additional Foreclosure Reminders
The Company considers title acquired through foreclosure of a condominium or homeowner's association lien to be an extra-hazardous risk. You may not insure a property where the search reveals a foreclosure of a condominium association lien or homeowner's association lien without the approval of a Senior Underwriter. SLS2016004.
For further information, please review the following bulletins:
SLS2010023 UNDERWRITING Insuring at or after Mortgage or Deed of Trust Foreclosure
SLS2014010 UNDERWRITING Insuring Post-Foreclosure Transactions Where Property Is Occupied By Foreclosed Mortgagor/Related Parties
SLS2016002 UNDERWRITING Foreclosures Extinguishing Subordinate Mortgages or Title Held By Fannie Mae, Freddie Mac, FDIC, or HUD
If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.
For on-line viewing of this and other bulletins, please log onto www.vuwriter.com.