Finding Help Fixing Title Defects with HAFA
In conjunction with efforts under the Making Home Affordable Program, a new initiative called Home Affordable Foreclosure Alternatives has been employed to help eligible borrowers who were not able to complete a permanent modification under HAMP or other alternative home retention options.
The purpose behind this initiative is to give borrowers additional alternatives to foreclosure and to help borrowers transition into more affordable housing in the form of a short sale or a deed in lieu. Completion of HAFA short sales and deeds in lieu will also help stabilize communities and neighborhoods.
HAFA is effective Aug. 1, 2010. An initial title search is necessary to determine whether or not the title to the subject property is clear. Since HAFA includes a $2,200 incentive fee for a short sale completed and a $1,500 incentive fee for a deed-in-lieu completed, it may be in the servicer's best interest to assist the borrower with resolving title defects. Moreover, servicers will likely see an increase in volume for short sale and deed in lieu requests from borrowers because HAFA also pays the borrower $3,000 to assist in relocation expenses.
With this increased short sale and DIL volume, servicers will find more title defects which may hinder their ability to get their deals completed within the required timeframes. The HAFA program requires that the borrower convey clear, marketable title to the mortgaged property.
Timing is everything when curing title defects and the sooner all parties involved get to work on clearing the title the better. Filing a claim with the underwriter that insured the property at origination is one way to cure a title defect. With an increase in the number of claims submitted to title companies due to the increase in the number of foreclosures, servicers are likely to encounter a lengthy investigation process conducted by the title company's claims center and be required to produce much documentation. So the question is: how much time is enough time and how can the time frames be cut?
The minimum marketing period for the mortgage property in a short sale is no less than 120 calendar days from the HAFA short-sale agreement. If a short sale contract is accepted, the closing must occur no later than 60 days after the contract execution or approval by the servicer, whichever occurs later. HAFA requires borrower authorization to close a property in less than 45 days of the contract date. In the case of a DIL, the property must have been listed for sale at market value for 120 days or more, which could be waived if certain conditions are met.
Once a title defect is revealed in a pending short sale or DIL transaction, the servicer should get a copy of the loan origination title policy and contact the agent that closed the loan. Typically, your local title agent would like to keep the integrity of their product intact as well as provide customer service to the servicer in the hope that that the servicer will do business with them again.
Generally, the title agent can correct the title defect faster than a national claims center because they are closer to and often familiar with the parties necessary to fix the title problem. For example, if the title defect is a prior mortgage or judgment, the title agent might be able to quickly talk to a local contact they know from previous closings to obtain a release. In a case involving interest rights, the title agent may know the heirs who can get affidavits or deeds to resolve the problem.
If the title agent is able to remedy the outstanding issues, they stand to gain the short-sale closing should a contract be accepted or gain the REO closing after the completion of a DIL. Should the title agent not be able to fix the title issue, they might be able to provide marketable title by insuring the mortgage property again without exception to the title defect on the title policy (thereby assuming the risk themselves). Alternatively, the agent could shift the risk of an unresolved title issue with an indemnity from the original underwriter.
The second party the servicer should get involved is the listing real estate agent. The agent's incentive is a commission should this property close, so soliciting their help might move things along more quickly. If the title defect was a defective acknowledgment, for example, the local real estate agent might know the notary or might assist with the legwork by locating the notary through research at the Secretary of State's website or local notary office to obtain a notary affidavit. Real estate agents are a great asset to utilize in curing title defects since they are local, persistent, and stand to gain from their efforts.
If the property is already in foreclosure, the foreclosing attorney would have notified the servicer of the title defect and may be able to assist in remedying the defect. It is beneficial if the servicer can provide the entire loan origination file so that the foreclosing attorney can contact the national claims center with all the documentation on the front end.
The foreclosing attorney might also have relationships with the local title agent that insured the property at loan origination and be able to work in conjunction with them to fix the title issue. In addition, the foreclosing attorney can research and find persons with an outstanding interest in the mortgaged property to negotiate deeds as well as research and find judgment holders to negotiate releases.
Servicers should also get the borrowers involved. Since the servicer is communicating with the borrower regarding the transaction, it is best to inform the borrower of the title defect to enlist their assistance. The borrower may still know the person from whom they purchased the property or other persons who retained an interest in the property. They also engaged (and paid) the local title agent at the original closing, and should be able to request their assistance in curing a title defect.
It is also advantageous for servicers to use title and closing companies with expertise in foreclosure from their experience in closing REO properties. Your foreclosure counsel should be able to recommend knowledgeable companies. These closing companies should also be more up to date with the most recent HAMP programs and foreclosure law changes.
The more resources available and the quicker the process is started make it more likely that the title defect will be resolved in time for the HAFA short sale or DIL to be completed. Since there are incentives for most of the parties mentioned above as potential resources, it should be worth the time invested to resolve the title defect and end up with a successful short sale or DIL.
Jennifer Wilson-Harvey is partner and chief operating officer and Maria Yoder is the supervising attorney of the foreclosure commitment and claims department for Wilson & Associates PLLC, Little Rock, Ark.