Can title insurance protect a lender when escrow leaves prior loans unpaid?

What started as a routine refinance quickly turned into a nightmare. The refinance was intended to pay off the borrower's existing mortgage. But First American discovered that the title agent's general manager had stolen money from the escrow account. Several loans that were supposed to be paid off were left outstanding, including the one tied to this refinance.

The borrower's previous lender soon began foreclosure proceedings, claiming it was still owed over $535,000. That left the new mortgage lender's lien at risk of being completely wiped out—a potential $655,000 loss without title insurance protection.

That’s when title insurance proved its worth. First American promptly accepted the claim under its Lender’s Title Policy, assumed the lender’s legal defense, and obtained the verified payoff to settle the prior mortgage. Title insurance covered the full amount to restore the lender’s lien position, preventing foreclosure and avoiding financial loss to the lender.

This case shows exactly why title insurance matters. Even when someone commits fraud or makes a costly mistake, title insurance helps ensure that lenders aren’t left to face the consequences alone on matters covered by their title insurance policy. First American’s response turned a potential foreclosure into a moment of relief—a powerful example of what it means to stand behind its promise of protection as detailed in First American’s title insurance policy.

Disclaimer:

As with any insurance contract, the insuring provisions express the coverage afforded by the title insurance policy and there are exceptions, exclusions and conditions to coverage that limit or narrow the coverage afforded by the policy. Also, some coverage may not be available in a particular area or transaction due to legal, regulatory, or underwriting considerations.

Please contact a First American representative for further information. The services described above are typical basic services. The services provided to you may be different due to the specifics of your transaction or the location of the real property involved.