4000 - Advisory Opinions
Exception to Section 332.1 of FDIC's Regulations Prohibiting the Guarantee of Real Estate Titles
February 10, 1983
Todd E. Norton, Regional Attorney
In response to the enclosed memorandum from * * *, we have reviewed the attached warranty of title which the bank has given in connection with a sale of real estate. The examiner essentially asks whether such a warranty violates section 332.1 of the FDIC rules and regulations, in that the bank is making a guarantee of an obligation. For the reasons that follow we have concluded that this warranty will constitute an exception to section 332.1.
The bank acquired the real estate which is the subject of this warranty through foreclosure on a mortgage lien which they held. The foreclosure was handled under the state law provisions for forced sale; the property was sold by the sheriff at public auction and the buyers acquired legal possession. The bank indicates that, in order to save the buyers the expense of title insurance under the circumstances of the foreclosure sale, they undertook to give the warranties ordinarily associated with a warranty deed. The attached warranty of title appears to provide no greater warranties than those ordinarily contained in the standard warranty deed.
Although the correspondence files of this office reflect no prior opinions exactly on point, we would analogize the situation here with several other instances where banks have been afforded an opportunity to "guarantee" certain obligations by exception to section 332.1. Such similar situations would be: where the bank guarantees the loan of an ESOP for the benefit of its own employees in order for the ESOP to purchase bank stock, or where the bank guarantees the loan of an individual or other corporation to purchase the real estate on which the bank intends to locate a branch. In both of those cases, as here, the bank has a personal stake in affording the guarantee. Here the exception is particularly appropriate, as the bank is selling land which it owns, and in this sale is affording no greater warranties than are typically given in any other real estate transaction. A warranty of title is not title insurance as that term is used in section 332.1. Accordingly, we find that these circumstances do not constitute a violation of the cited regulation.