Title Reports Complement REM's Menu
Most title searches are done in connection with the origination of a mortgage loan, but one firm has found a niche providing title reports to lenders managing distressed mortgage loans.
REM Corp., based in the Chicago area, provides appraisals, market valuations and portfolio valuations along with REO marketing and sales. The company added title searches to its menu of products because many of its mortgage servicing clients want that information as well in evaluating options to pursue a foreclosure alternative.
REM, which has been around for nine years, started out as purely a valuation company. Company president Jim Klima of REM said the firm has created a focus working with loans that are delinquent or in foreclosure. While loans in foreclosure may only account for a small percentage of a lender's servicing portfolio, they often find the burden of managing calls and billing related to valuation services to be a distraction from their core servicing work. Hence, they hire an outsourcer like REM to manage the process.
But the home's market value is not a lender's only concern. When evaluating a possible loan workout or short sale option, lenders need to find out if the property "has any skeletons in the closet," as Mr. Klima puts it.
"They really need to get a snapshot of the property and where their risk position is," he said.
For that reason, a current title search is done to verify who is actually the current owner of record and find out if there are any encumbrances affecting title to the home. The goal is to avoid finding out about any "surprises" that might affect whether or not the borrower qualifies for a short sale or other workout strategy.
The search gives the lender the book and page where the deed is recorded, then it lists out liens on the property and mortgages.
"The loan workout group wants to verify all existing liens and their positions," Mr. Klima said.
The search may reveal any number of unexpected issues. For instance, a plumber or a home improvement company may have placed a lien on the property for work that was done, but the owner has not paid for. Taxes are also an issue. The lender wants to make sure that they have been paid.
In some jurisdictions, such as Illinois, if a property is sold via a tax sale, then the acquirer who pays off the back taxes can sue to take ownership of the property wiped clean of previous liens, including potentially the first mortgage.
Laws involving tax sale of property vary from location to location. But if someone has already bought past due tax records, the report will reflect that.
Mortgage servicers need to make sure they address the issue before it reaches the tax sale stage. If a lender takes it, they've got to make sure liens gets satisfied. Having a full legal description of the property helps in that process.
The title search will also uncover judgments related to the property. Court decisions reflecting an IRS claim or a divorce are sometimes attached to the home.
The full legal description included in a title search also can help prevent, or clear up, mistakes that might mar a simple broker price opinion, Mr. Klima said. He recalled one case in the Las Vegas area where two BPO estimates came in with widely different values. It turns out, the BPOs involved different properties, both with the same owner's name and address, but located in different counties.
"The legal description describes the property. The address is just a label," Mr. Klima said.
Often, mortgage servicers leave the job of researching the title records on a property up to foreclosure or bankruptcy counsel. But REM allows companies to obtain that information before referring the case to a law firm, probably saving some money in the process.
"We are able to do it as an option rather than having an attorney do it," he said.
REM's title work dovetails nicely with REM's other services.
"That's one of the reasons we have gotten into the title business. It was a need we saw our customers have. It wasn't much different than field representation," Mr. Klima said.
As more and more lenders become national in scope, they also appreciate having standardized reports, he said. That allows staff to quickly glean pertinent title information in a predictable place on each report.
When a loan goes to foreclosure, REM's customers have many tasks to manage. Mr. Klima said REM's mission is to make those tasks a easier by providing appraisal, BPO and title services for clients. REM works with network of 13,000 real estate professionals to handle these reports.
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