Why is Bank of America Suing First American for Half a Billion Dollars?

Did you know that Bank of America filed a complaint against First American Title Insurance Company for alleged failure to pay claims related to their quasi-title insurance products?

Hey that’s their language not mine! You can read it here: http://www.scribd.com/doc/28508474/Bank-of-America-v-First-American

BoA is saying that the title insurance provided by First American for title defects, undisclosed home liens, vesting claims and errors in the legal description of homes has caused harm to the tune of $500 million dollars!

Although Bank of America is probably First American’s largest client, as of February, First American denied more than 2,200 BoA claims, and hasn’t responded to more than 2,300 additional claims. Wow!

If these allegations are correct, isn’t it surprising that First American would treat one of their biggest customers in this manner?

Here’s a quick summary of the lawsuit issues (which can be found on page 11 of the lawsuit in the above link):

  • Wrong Lien Position: For example, a loan where BoA intended to have the 2nd lien on a property but in fact has the 4th lien because two intervening liens were not disclosed by the borrower during the application process and were not listed as secured liens in the borrower’s credit report.
  • Missing Signatures: The mortgage wasn’t signed by all owners of the property, or those required to sign the mortgage — like an owner’s spouse.
  • Wrong Legal Description: The legal description in the mortgage doesn’t match the last deed of record which conveys the property to the owner(s).

How could First American have let so many mistakes happen?

I don’t know about you, but I’d sure like to know how much of this work might have been sent off shore to India.

In my opinion working with local service providers always come out on top.

Here’s another take away for me: Only do business with folks you trust who know the market.

What’s your opinion?  We’d like to know.