Not so difficult to understand....simply a function of people acquiescing in a nonpayment situation, and not enforcing their rights under the law.

The Plaintiff's claims in a law suit are property rights. An insolvent client may not be in a position to pay its abstractors, but if it has valid claims against large lending institutions which are still solvent, it could assign those property rights in those claims to the abstractors, and the abstractors become the plaintiff's in those claims. It is a long shot, but if the insolvent client is not able to pay the abstractors any other way, what else is there? I would question why there are unrecorded mortgages though. Recording expenses are usually contained in the closing costs, and there is an accounting for them on the HUD 1 sheet. Could nonperformance of contractual obligations be the reason for the lending institutions' nonpayment? It would seem that RESPA would require the lending institutions to pay on funding of the loan. Something does not sound right.

The abstractors can also sue the insolvent client and file judgment liens against the proceeds of any judgment from suits that the client may have pending against the lending institutions. However, if the client elects not to initiate suit, there are no proceeds to lien

If the client has filed for bankruptcy, there is not too much the abstractors can do except file their proofs of claim with the bankruptcy court. The abstractors probably will receive little if anything. The new bankruptcy law has made it more difficult for debtors to escape debt though.

Problems like these are often easier to prevent than rectify. Abstractors should not extend large amounts of credit to new clients. The clients should be kept on a short leash until they have established a credit worthy history.
Most abstractors are too anxious to get the business in the door without question. However, with smaller clients with whom they have never dealt it is a good idea to get credit references, including a bank reference. Don't be afraid to ask for it. They are asking you to do them the favor by advancing credit.