Title Insurance

The Pal-Item reminds us of the home builder scandal that hit the Cincinnati area 3 years ago and questions why state law makers in Ohio and Kentucky have not acted to prevent housing fraud.

Link.

In that scheme, a large home builder, Erpenbeck Co., borrowed money, constructed homes, sold them off to consumers, then pocketed the cash, leaving the homes still subject to the construction loans. From what I can tell, the home owners got financing through the builder through Peoples Bank of Northern Kentucky. Peoples had their mortgage interests in the homes insured, but the home buyers did not, leaving the home buyers to pay off their own financing plus the construction loan if they wanted to keep their homes.

In the end, the holders of the construction loans decided to take the loss rather than foreclose on the home owners, and the builders and bankers went to prison. Richmond’s connection was through Peoples’ banker John Finnan, who graduated from Richmond High School, and worked at a local bank before moving on. He got 63 months in federal prison out of the scam.

It looks to me like the existing laws worked pretty good: No one lost their home over it and the schemers went to prison, so I do not understand the Pal-Item’s call for legislation. They point to a measure that failed in Ohio:

Ohio Rep. Michelle Schneider, a Madeira Republican, introduced a bill last year that would have required title agents to explain to home buyers the difference between lenders title insurance, which protects banks making loans, and homeowners title insurance, which protects the buyer.

I spend a lot of time in my real estate class trying to explain the difference between the mortgagee and the mortgagor, and I doubt that this measure would have much of an impact on public understanding. In most home closings, the buyers are like deer in the headlights, ready to sign anything at that point, to get them through the experience. The disclosure in the proposed Ohio law would just result in another piece of paper in the transaction to be signed but seldom read. The home buyers rely on those involved in the transaction, the title agents, bankers and real estate agents, not to screw them. Generally, it works out, and outside from a little fee gouging around the edges, the buyers get what they bargained for.

This entry was posted on Tuesday, March 8th, 2005 at 7:01 am and is filed under Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.