Many may not have know what title insurance is unless they have started buying property but many are surely about to title insurers as they get dragged into the foreclosure paperwork mess. And as title insurers push for a blanket agreement with banks, banks remain adamant refusing to sign such agreement.

As of late, everybody has been reading about foreclosure delays and state attorneys general investigation for the buzz created by banks’ admission that there might have been some employees signing off foreclosure without verifying the accompanying paperwork. This has led housing market insiders to talk about how much financial damage the banks will encounter if proven that some homes were indeed wrongly foreclosed. Lawsuits from wronged borrowers just may overwhelm not just these banks but also title insurers.

Operating in obscurity up until now, title insurance is a necessity when buying a property. It protects a home buyer against claims of former owner still legally owning the property. If the housing market is flooded with lawsuits on wrongly foreclosed properties, title insurers will have to defend these claims.

This is the reason title insurers are trying to come up with a blanket agreement that will pass foreclosure mess legal costs to banks. But banks and lenders seem reluctant, saying signing off on such agreement is like admitting that they indeed did something wrong. This reluctance has made some title insurers to pull back on their demands.

It’s a great risk that banks are taking by refusing to cooperate with title insurers. Title insurance is helping wipe out the bloated inventory of distressed properties in the market. If title insurers decide to withdraw from protecting distressed properties, a lot of foreclosed homes in the United States may remain unsold.

Fidelity National Title, First American Financial, Stewart Information Services, and Old Republic International are four of the largest title insurers and are in control of 90% of the market. All four have hinted on a want for lenders to sign agreement before writing policies. The title insurers say they are ready to insure foreclosed properties given that representing institutional lenders follow all applicable legal processes.