By Jeanne Johnson of LandRecs.com
In order to stop foreclosures, it is inevitable that existing mortgages will be modified so borrowers can make their monthly payments. In the past, when mortgages were modified, title policies were still in the picture, because intervening liens were a concern. For example, let’s say Sam Smith wanted to modify the terms of his loan by increasing the loan amount. You were the first mortgage lender. If you modified the loan, you had to worry about what that would do to your 1st lien position. If there was a second mortgage or a tax lien on the property, changing the terms of your loan might bump you into second place.
Think about it. Titles on all of these troubled loans have already been insured. They won’t need to be insured again. I expect the new loan modification law will be written so that the modifications that will generally decrease the interest rate will be seen as an advantage to any secondary lien holders. Therefore, the modification should date back to the original loan, and no endorsements will be needed. So, there won’t be any need for a title review, or a modification of the title policy. Even if the laws are not written to address the issue, doesn’t it make sense that the terms of the modification will certainly be better than the original loan, so no one in a secondary position can claim they have been damaged?
I think loan modifications are good for the consumer, and good for the economy, but I think they provide no role for title companies.