Monday, October 25, 2010


Some of the nation’s largest title insurance companies have threatened to stop issuing title insurance for Chase and GMAC foreclosure properties. See, Washington Post article here. See, My Fox Phoenix report hereThe reason is that the so-called “robo-signers” have created a situation where title insurers feel uncomfortable issuing polices on these banks’ properties. (See my previous post). The supposition is that defects in the foreclosure process have caused defects to title. However, there are reports that some title insurers will issue insurance so long as Chase and GMAC agree to indemnify the insurer should the foreclosure be found defective. See, Miami Herald article here. It remains to be seen how this will affect Arizona home sales.

So, what does this actually mean? Title insurance is a policy that a buyer obtains when property is purchased to protect the buyer from defects in “title.” Title is the legal elements that constitute the right to control and dispose of real property. When title is “defective” the seller cannot legally convey clear title. No purchaser of property in their right mind would purchase without title insurance. Most lenders require that title insurance be purchased at the time of sale, otherwise they will not lend for the property.

Consider the following example: John buys a home from Frank. Frank sold the home in his capacity as personal representative for his father’s estate. Unknown to John, Frank failed to give notice in the probate action to certain heirs who were entitled to the home per the will. Thereafter, the disenfranchised heirs bring suit to recover the home. John is protected from financial losses by his title insurance.

Consider another example: John purchases a home from Frank. According to the county records, Frank “purchased” the home from Sue some 6 months previous. The only problem is that Sue never “sold” the property. The deed from Sue to Frank was an absolute forgery. When Sue returns from her 2 year Christian mission to Africa, she finds John living in her home. Sue sues anyone and everyone, including John, so she can recover her losses. John is protected by title insurance.

Consider a final example: Bill owns a home he purchased with a loan from Chase bank. The home has significant equity. Last June and July Chase misapplied two of John’s mortgage payments. Thereafter, Chase initiated foreclosure proceedings during which Chase failed to provide notice to John about the proceedings. Last week Bill found out his home was sold at a foreclosure auction to Sue. Bill sues anyone and everyone, including Sue, so he can recover his losses and/or receive a return of the home. Sue does not have title insurance because the insurer refused to issue a policy on Chase properties. Sue must defend title and her investment with her own money.

These examples may seem far fetched, but they are not as rare as one might expect. Moreover, the fee for title insurance is a good investment to protect from these types of harms. In light of these examples, it is easy to see the importance of the announcement that title insurance companies will not issue polices for Chase and GMAC foreclosure properties. How much would you pay for a home with no ability to purchase title insurance?

Wednesday, October 20, 2010


There has been much talk in the media regarding whether or not foreclosures should be halted. Accusations have been made that banks are illegally foreclosing on innocent homeowners. The accusations stem from the so-called “robo signers,” who signed foreclosure documents without verifying the accuracy of the documents—not a good idea. See, Daily Finance article here. Now that foreclosures are moving forward again, consumer advocates and attorneys general are questioning whether banks have sufficiently complied with the foreclosure laws. See, Rueters article here. I note, with few exceptions, that the accusation against the banks is that the foreclosures are procedurally wrong—the homeowners are still in default.

From a practical prospective, it is difficult to contest a foreclosure when the homeowner is in default on the mortgage. As someone who advises and represents parties in contested foreclosures, the best result a homeowner in default can expect is to prolong the foreclosure process. However, in some instances, prolonging the foreclosure process through judicial procedure is counter productive for the homeowner because the homeowner has a very real possibility of losing in court.

Judges are often not sympathetic when a homeowner in default contests the foreclosure with highly technical arguments such as “I never received the notice sent in the mail” or “The notice was never posted on my property.” Banks often deny problems in the foreclosure process and often have some proof that the legal procedures were followed. Furthermore, these arguments typically fail because the homeowner had to receive some sort of notice otherwise the homeowner would not know to file suit to stop the foreclosure. Moreover, it’s easy for the court to disbelieve the homeowner who is months behind on the mortgage and does not have the ability or intention of bringing the mortgage current. In these situations, Courts view the efforts to stop the foreclosure as gamesmanship by the homeowner.

Furthermore, let’s say that the homeowner convinces the court to stop the foreclosure because of a technical problem with the foreclosure process. The homeowner in default does not keep the home free and clear of the mortgage. The bank will simply restart the foreclosure process, which only takes 90 days in Arizona. Therefore, in most instances contesting the foreclosure is only prolonging the inevitable. Furthermore, unless the homeowner is highly sophisticated in the law, so as to represent him or herself, it will cost thousands in attorneys’ fees for the homeowner to fight the process.

Notwithstanding the above, there are some instances when the foreclosure process has been wrongly initiated and/or legally defective and it makes sense for the homeowner to fight the foreclosure. These situations typically arise when the homeowner (1) is current on the mortgage, (2) can become current on the mortgage, and/or (3) has equity in the home. In these cases, fighting the foreclosure makes sense. A homeowner with one or more of these factors is a highly sympathetic plaintiff and can expect to do well in court. However, if the homeowner is not current on the mortgage, cannot become current on the mortgage, and has no equity in the home, fighting the foreclosure will be difficult to justify.

Monday, October 11, 2010


The Supreme Court recently heard arguments on the case of Snyder v. Phelps, et al. and will decide the case this season. This case is certain to test the limits of the free speech clause of the First Amendment. Fred Phelps, of the Westboro Baptist Church, has gained notoriety for protesting at funeral of military service members. However, this time Phelps and his followers protested against the wrong family when they protested the funeral of Snyder's son, Lance Corporal Matthew Snyder.

For the subject protest, Phelps positioned his followers outside Cpl. Snyder's funeral so that when the family left the funeral they would see Phelps' hate signs—signs such as "GOD HATES YOU" and "THANK GOD FOR DEAD SOLDIERS.”

Naturally, Snyder was emotionally disturbed by Phelps and his followers. So, he sued for, among other things, Intentional Infliction of Emotional Distress. Snyder won winning a multimillion dollar verdict. Phelps appealed on the theory that his hate speech is protected by the First Amendment. Hence, he is at the Supreme Court asking for relief.

Most are familiar with the First Amendment. The First Amendment is the part of the Constitution that allows citizens to speak what they want (within reason) without fear of prosecution. However, many may not be familiar with the tort of Intentional Infliction of Emotional Distress.

To prove Intentional Infliction of Emotional Distress, Snyder had to prove that Phelps intentionally or recklessly caused emotional distress by showing the following:

1. Phelps’s conduct was extreme and outrageous; and
2. Phelps's conduct was either intentional or reckless; and
3. Phelps’s conduct caused Snyder to suffer severe emotional distress.

Conduct is “intentional” if a person’s objective is to cause emotional distress. Conduct is “reckless” if a person is aware of and disregards the near certainty that it would result in emotional distress.

Given the standard for Intentional Infliction of Emotional Distress, it is not too hard to see why Phelps lost. The conduct of Phelps and his followers is beyond defense and societal decency. I can’t imagine how the Snyder family felt.

I firmly believe Phelps is free to continue the protests under the First Amendment. The government should not make his acts criminal or seek to restrain his speech. However, I also believe that Phelps should be held accountable when his actions harm real people. It would be sad if our Supreme Court allowed people like Phelps to intentionally cause harm to another without repercussion.

Allowing claims for Intentional Infliction of Emotional Distress will not harm the First Amendment. You have not seen the government trying to stop Phelps’s speech. Claims for Intentional Infliction of Emotional Distress merely give victims a means of recovery from harmful speech.