Title Firms Can Assist With Modifications
Despite tough economic times, many companies in the real estate services industry are finding new business opportunities to assist the embattled real estate, finance and banking industries. In particular, title companies experiencing declining revenues tied to stagnant real estate markets are bringing their expertise to help borrowers and lenders with the restructuring of their mortgages.
According to Bloomberg, beginning in 2007 to the third quarter of 2008, bank losses exceeded $500 billion, which leaves a great deal of delinquency and loss mitigation to facilitate. Data from Loanworkout.org and the Foreclosure Working Group suggests that servicers' loss mitigation departments are severely strained in managing the sheer number of delinquent loans. The Group further said servicers, investors and government officials should work together to develop a more systematic loan workout system to replace the intensive, individual, "hands-on" loss mitigation approach.
Consequently, companies with experienced title, mortgage banking and origination services sales professionals who specialize in loan workouts and modifications are now at a premium in the industry. The skill set required for this type of work includes a deep knowledge of the mortgage, credit and collection industries as well as the ability to understand the legal landscape of the loan restructuring process. It also requires an innate business style that lends itself to sensitivity and integrity in transactions that are often contentious and highly stressful.
Currently, loan workout services are needed in both commercial and residential lending markets.
Over the past 10 to 15 years, when times were good in the real estate industry and credit markets more widely accessible, there was little to no demand for workout or loss mitigation expertise. But with the deflated real estate market pulling borrowers and lenders into the red, or at least close to it, the lending industry is looking to the title insurance industry to assist them with the title aspects of mortgage modifications and loan workouts.
Residential vs. Commercial
The primary difference between residential and commercial loan workouts is complexity. Most residential mortgage workouts, for example, involve only one property.
But on the commercial side, the restructuring process can introduce myriad variables related to mortgages that involve multiple institutions and multiple properties located in different states and sometimes even different countries, making each situation vastly different from the next.
Fortunately, title companies are especially skilled in handling the title aspects of these complex real estate transactions. They work closely with attorneys who are representing the borrowers and lenders involved in loan workouts providing updated information from the land records concerning any new liens, encumbrances and changes in the title that may have occurred since the recording of the mortgage.
Title professionals also make sure that the modification and any lien subordinations and/or releases are properly recorded in the land records.
When all is completed, the title insurance company issues a new policy (or an endorsement to the policy which insured the original mortgage) insuring the lender against loss or damage that it may sustain by reason of: (1) the invalidity or unenforceability of the lien of the insured mortgage upon the title at the date of the new policy or endorsement as a result of the recording of the mortgage modification; and (2) the lack of priority of the lien of the insured mortgage, at the date of the new policy or endorsement, over defects in or liens or encumbrances on the title except for those shown in the original policy or any prior endorsements and those which may have arisen between the date of the recording of the original mortgage and the date of the recording of the mortgage modification which have not been released or subordinated to the lien of the mortgage as modified.
Since it takes time to conduct an updated title search and to obtain releases or subordinations from other parties who may have mortgages or other liens that were recorded after the original mortgage was recorded, it is suggested that lenders or their attorneys who are involved in loan workouts and mortgage modifications contact their title insurance company as soon as the decision is made to restructure a borrower's loan.
Bruce Hawley is a senior vice president and senior underwriting counsel for Stewart Title Guaranty Company.