Lawsuits in the mortgage industry are becoming increasingly prevalent as banks are suing lenders and lenders are suing insurers in hopes of recouping losses from the sub-prime meltdown that occurred in 2008. The latest in this serious of suits comes from Bank of America (NYSE: BAC) which recently brought suit against insurer First American Corp (NYSE: FAF).
In the suit, Bank of America claims that First American failed to provide proper title searches on more than 5,500 home equity loans, resulting in $535 million in losses for the lender.
The suit, filed in Charlotte, N.C., alleges that First American relied on borrowers to disclose on information about liens and other issues that would cloud the title on their properties, rather than conducting traditional independent title searches which would demonstrate without a doubt that there are no other competing ownership claims.
“Bank of America had a reasonable expectation to be paid its charge-off amount or unpaid principal balance as the amount of loss in the event of an insured defect under the … policies,” the lawsuit states.
According to several media reports, the title policies were issued under what was called the “QuickClose Program”, which acted as more of a lien protection program rather than full-fledged title insurance.
Lenders, including Bank of America, started to turn to these protection plans because they could be processed more quickly and were less expensive than traditional title insurance.
Charlotte-based Bank of America says that it has had to write off between $1.5 billion and $2 billion in soured home-equity loans each quarter.