I believe that the actual lender would still be able to sue on the note and take a judgment, however, this remedy would only be available when (or if) the borrower defaults.  Typically, ones home is the last loan they default on.  Therefore, by the time the lender could take advantage of this remedy, there could be other liens.  They may lose their priority in the event they have to foreclose as a judgment creditor.

And, since this loss of security arose after their title policy was issued, they will not likely have a valid claim.  It this type of thing catches on, it could be very costly to lenders.  Personally, I like the strategy. 

Best,
Robert A. Franco
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