Hidden Defects in Title

Although there is much more about the new statute yet to analyze, here are some scenarios, and the questions they raise, which might give pause to underwriting counsel:

• First scenario. A property is struck down in foreclosure to the highest bidder. That bidder solicits a title search and title insurance. The complaint did not allege, not did mortgagee prove, compliance with all the provision of banking law sections 595-a and 6-1. If the mortgage was not a high-cost home loan (an analysis the title company must undertake), there is presumably no issue because the affirmative allegation could not have been required.
• Second scenario. If the title company confirms that the mortgage was in the high-cost category, but the foreclosing mortgage holder neither asserted nor proved compliance with the statute, the possibility of serious danger prowls so presumably an insurer would be reluctant to insure the title.
• Third scenario. Change the facts to a case where the mortgage is concededly a high-cost home loan but the allegation is both pleaded and proven, a predicate for judgment of foreclosure and sale. Can the title company evaluate whether compliance with statutory dictates really exists – just in case a defaulting borrower (or some other party) surfaces after the sale to challenge the action? Mindful that the new statute imposes a plethora of mandates and prohibitions, as well as harsh and extensive enforcement mechanisms, there may be room for doubt in resolving scenario number three.

Dangers in Enforcement