Have you ever heard of anyone collecting title insurance? Perhaps none; yet if you are going to buy a home or refinance a mortgage, a title insurance gets the largest chunk in the itemized estimate for closing costs and fees. Though most home buyers and refinancers don’t bother to question this anymore because of the tiresome process of asking and shopping for better insurance providers, the recent buzz on foreclosure freezing by some banks and mortgage providers bring to light the immense importance of title insurance.

A title insurance is supposed to cover a home buyer from cases wherein other people turn up after the house has been bought and claims rights to the house. Title insurance providers run a title search and sift through government filings related to the property prior to it being bought to lower the chances of insurance being claimed later on. But if the insurers miss something and someone else do turn up later on, insurers would have to provide legal counsel or settle with whoever is claiming.

Sounds like title insurers are indeed champions of home buyers and refinancers, right? Not really; the truth is, they are more concerned about lenders, real estate agents, and lawyers who can give them more business. Though kicking back money from companies and brokers who send insurers business is technically not allowed, there’s nothing much everybody can do since title insurance is required if there’s mortgage involved.

Now, amidst reports of GMAC Mortgage, JPMorgan, and Bank of America halting foreclosure proceedings because of sloppy paperwork allegations not just the homeowners who have bought foreclosed properties are worried but the title insurers as well. If the people who lost homes through foreclosures are able to convince a judge to overturn the decision of foreclosures, then title insurers would have a lot on their hands.

Old republic National Title Insurance Company seems to know this already. On October 1, the company has released a notice to agents and employees, forbidding them from issuing new insurance policies to homes recently foreclosed by wither GMAC or Chase.

The whole thing really is a mess and there’s nothing anyone can do but wait. For those looking at purchasing a home, though, there’s still some hope for you: as much as possible, stay away from foreclosed homes until the whole thing gets settled.