One Centralized Approach To REO Title Issues
Instead of working with thousands of state and county offices, foreclosure departments have seen higher efficiency in working with one office who knows their client's needs for the whole nation, thus allowing for better service and a sense of urgency.
If asset managers took a survey of the No. 1 problem holding up the resale of a nonperforming asset, it would be REO title issues, according to the C.J. Gehlke, president and founder of REO Nationwide in Newport Beach, Calif.
In fact, 30% of all REO closings are held up due to title issues that need to be cured, she says. The most common issues include that the borrower is still in title (including the foreclosing mortgage and all other junior liens because the foreclosure deed is not of record due to lengthy recording times by county recorder offices) and senior liens that have been paid are still of record, including indemnity agreements.
Other issues include problems like the fact that the foreclosing beneficiary/assignment chain is broken, the tax lien certificates and assets are being wiped out by tax sales, there are probate proceedings and improper recording documents, including the foreclosing mortgage was never recorded. There are different state-by-state recording requirements regarding foreclosure deed language and affidavits. Some mobile homes are not affixed to the land and are considered personal property. Time delays can also result when dealing with requirements through the Bureau of Indian Affairs in California, Arizona, New Mexico, Florida and Montana, adds Ms. Gehlke.
"Time is of the essence," she says. "These problems usually make foreclosure and REO managers feel as if they are constantly firefighting because dealing with all of the above so often makes them feel as if they are surrounded by many, many problems."
Although these problems may seem independent of each other, there are strong links of cause and effect between them, which means REO managers have to deal with the many problems because at the core there are only one or two causes.
"In other words, underlying any given situation there are actually only one or two core problems that are the cause for all the others which are really undesirable effects or unavoidable derivatives of the core problem," she said. By solving the core problem you in turn solve all the undesirable effects associated with that core problem.
When dealing with these REO issues, the core problem is time. All can be solved if time wasn't an issue, but the fact is, the faster the foreclosure and resale take place, the sooner the lender/investor can lend more money or buy more portfolios, which is what they are in the business of doing and not property management and real estate liquidation."
The current process of many lenders and servicers in handling their nonperforming assets is the foreclosure department and REO department do not normally work with each other. The foreclosure department orders the foreclosure title from one vendor and the REO department orders resale title work from another. The REO department usually receives a commitment showing a lot of the above issues, which should have been eliminated during the foreclosure proceeding.
"Since time is of the essence and the property has been listed with a broker, time to deal with these issues is limited and 30% of the time will postpone the closing. The system results in the extra cost of two different title searches, time spent curing issues, and the dollar value associated with time loss in closing delays."
So what is the system that gives more time to cure, eliminating the above title issues and saving money? A system by where a "cradle to grave" approach is implemented between foreclosure and REO, whereby one title vendor is utilized, observes Ms. Gehlke.
The foreclosure department orders a full search foreclosure report for the foreclosing attorney/trustee to conduct their foreclosure.
This report is updated along with the foreclosure process and because a full search was conducted, curative issues will be shown, thus allowing the title vendor to offer and conduct curative service during the foreclosure process, which has a longer time frame than the after-sale REO process. Once the foreclosure sale is complete, the attorney/trustee draws up the deed and then sends the deed to the title vendor who issued the foreclosure report, who then can use a date stamp copy of the foreclosure deed to vest through immediately into the servicer and issue a clear REO commitment.
Cost savings result from ordering only one title report with small update fees from one title vendor, which saves the cost of an additional search at the REO level. Outsourcing the curative piece to the title vendor saves the servicer from having to staff up with title experience people and results in faster closing times. And having the foreclosure report title vendor record and use date stamp copies of the foreclosure deed, instead of waiting for lengthy delays from county recorder offices, again minimizes curative issues and in turn results in faster closings.
This person should have experience nationwide and offer one point of contact with a nationwide network of offices, preferably one with more direct operations to coordinate any or all of the default process from loss mitigation, foreclosure to REO, including default title ordering, tracking, status tracking, title curing, recording, closing and most importantly issue resolution.
These services should be provided electronically online and be integrated with servicer's in-house systems.
A title vendor with a nationwide one point of contact acts as a vendor management company for their offices nationwide, which the servicer and attorney/trustee can deal with alone. Instead of working with thousands of state and county offices, they work with one office who knows their client's needs for the whole nation, thus allowing for better service and a sense of urgency.