Clear title is becoming a serious issue in the residential mortgage sector. It might be more accurate to say that clear title has been a serious issue in the residential mortgage sector, but it's now becoming a more commonly known problem. It appears that what's happening is people are realizing that the banks have done some pretty crappy, and sometimes fraudulent paper work on the mortgages that they're now trying to foreclose, and as the courts have started calling them on it the title insurance companies have decided that they can't insure what the banks are trying to resell.  Here's the scoop:

So why is it a big deal that Old Republic National Title isn’t going to insure Chase’s or GMAC’s foreclosures?

Because if a house doesn’t have clear title, you can’t get a title insurance policy for it. If you can’t get a title insurance policy for a property, lenders won’t lend because there is a huge risk that someone else is going to come forward with a valid title claim and take away the property and they will lose the investment they’ve made in the mortgage.

Clear title is one of the main tenets of homeownership in this country. If lenders can’t be assured that the seller (in this case, the banks who are reselling millions of foreclosures as REOs) have clear title to the property, they won’t issue a mortgage.

Which means homeowners can’t buy homes.

Which will be the perfect storm scenario that tanks the already crippled housing market.

If you think the current foreclosure freeze is bad news, think about what will happen if the millions of homes that are already in foreclosure and the millions more heading into foreclosure can’t be resold.

You know where all this is heading, right? Hello class action lawsuits.

(h/t to Fec for the link)