Stewart Title Sues Elderly Couple for $4.2 million

Did you catch the New York Times story about an elderly couple being sued by Stewart Title? This title company does business in California. Stewart Title is holding the couple (Rita Starr and Ivor Rose) liable for fraudulent mortgage loans against properties they own, but were taken out by a convicted swindler, Michael A. Stern. This tangled story has locked this Miami Beach couple into a five-year legal battle with Stewart Title.

What!!!
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Wasn’t title insurance intended to protect buyers when a loss on a loan arises from forgery? This story is a powerful reminder that title insurance protects a lender not the individual buyer.

Please weigh in on this story – what we are hearing is a secret in the industry – that individuals can also purchase the same title insurance that is normally purchased for the lender for as little as $25 to protect themselves from situations like what’s happening in the Stewart Title lawsuit.

Most home buyers don’t shop around for a title company – rather they work with a title company recommended by their real estate agent. It is not widely known that buyers can purchase these individual or borrower policies which are very inexpensive, but could save the agent and borrower from getting locked up in lawsuits just like this one.

Here’s the story:

Ivor Rose and Rita Starr were real estate investors in, who accumulated about $15 million of income producing properties in Florida without debt before they ever met Michael Stern. They eventually became business partners in several unrelated properties, which were also bought without debt.

The trouble started when Stern began obtaining mortgages on their joint properties and the couple’s other holdings using a forged signature. Stewart Title does not dispute that Rose and Starr never benefitted from any of the loan proceeds.

For example Stewart Title is suing the couple demanding that they pay $4.2 million to cover its losses on a loan received by the swindler Stern. Never mind that the court documents show that a signature by Mr. Rose, executed in Florida, was on the same day he was in a New York City hospital having heart surgery.

The troubles began as early as 2009, when Rose and Starr started receiving foreclosure notices from institutions claiming to hold mortgages on properties the couple had owned outright. They thought it was some kind of mistake.

If only.

Michael Stern, aka “The Swindler” had left Florida for Uruguay, and had stopped paying on the mortgages. Now the banks were coming after Rose & Starr. “Michael Stern was smooth and we’re not that perceptive,” Ms. Starr said. “He played us.”

Last October, Michael Stern was sentenced to five years in prison for swindling Dwight Freeney, a linebacker for the San Diego Chargers, out of $3 million. In California, Mr. Stern went by the name of Michael Millar. He will soon face prosecution in the Florida matter, said the prosecutor in California.

But the federal indictment didn’t end the troubles for the couple.

They could lose all their properties and also be on the hook for millions of dollars. This is because Stewart Title, the company that insured the fraudulent mortgage loans — and whose policies require it to cover all the losses on the loans arising from forgeries and other defects — has refused to make a settlement on most of the properties.

And Stewart Title is also asserting, in another court venue, that one of its own agents helped Michael Stern secure bogus loans. It is suing that agent.

Shouldn’t the title insurer step in to payoff these fraudulent mortgages to prevent foreclosure?

Stewart Title has settled with Rose and Starr on three of the fraudulent loans, returning the properties to the couple free and clear and absorbing the loss. But the title company has refused to settle with the couple on the 12 remaining loans.

Moreover, it has turned around and hired a foreclosure counsel to sue on behalf of the entities that hold the notes backing the properties. If the couple lose these suits, those entities will be able to take ownership of the properties and Stewart will not have to pay out the roughly $8 million in title insurance that it has written on them.
Moreover, because the properties are now worth less than the dollar amounts that the swindler Michael Stern received on the fraudulent mortgages, Rose and Starr could also face lawsuits demanding them to make good on the difference, known as a deficiency. Their lawyer estimates that the deficiencies on the properties could reach $5 million.

Bewildered by Stewart’s legal tactics, Ms. Starr said: “I don’t know how they could try to collect millions of dollars” for other people’s behavior “and try to take our properties, too.”

What do you think of Stewart Title’s actions in this matter? We’d like to hear from you.

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