Madison Title Manages Bulk REO Transactions
In response to the sharp increase in distressed asset and REO transactions, Madison Title in Lakewood, N.J., has launched REO Solutions Group and Bulk Transaction Management Services, targeting this complex sector of the real estate industry.
A nationwide agency, Madison Title has a long history of working on the commercial side of the business with a large scope of different services but the brainchild of REO Solutions was born out of some relationships the company had with investors on the residential side. These investors entered the market for purchasing bulk real estate-owned assets from lenders and servicers.
“They needed help and to be frank, they didn’t even know how much help they needed,” said Dov Shimano, director of strategic business development for Madison Title, a division of Madison Commercial Real Estate Services. Mr. Shimano, who heads the program, brings more than 15 years of title and real estate operational experience.
“I see the war stories every day of what it’s like to put these transactions together and to make them flow. That is where we have injected ourselves. It started out helping some of these investor groups that are purchasing a couple hundred or a few thousand assets at a time, and now we are managing a few thousand assets ... managing all aspects of the transaction. We are assisting them as well as the sources where they are buying the product from, the lenders and servicers.”
Madison offers back-end support and facilitation for both buyers and sellers of distressed assets. From bulk acquisitions to dispositions and closings, Madison’s REO team handles asset tracking and reporting, due diligence and volume search reports, high-volume document preparation, deed and transfer documentation preparation and recording, disposition channel management, title and foreclosure clearance, and national escrow, closing and settlement services.
The one area the company doesn’t deal with is the physical aspect of dealing with the REO property. It can refer field service companies to clients. “We prefer to leverage our expertise in everything from due diligence to high volume document prep. It’s a challenge when you buy a thousand REO properties. You have some tight timelines. And the groups that are buying need a lot of help managing the title clearance and document intensive aspects of the transaction,” said Mr. Shimano.
The seller might need compliance certificates, a couple of hundred of them from a specific city or the seller requests 500 settlement statements prepared for the bulk buy in 24 to 48 hours. “You need to have a certain level of expertise as well as the backline to produce that type of documentation in a short timeline.”
Madison helps its clients implement different disposition strategies, which could include interacting with Realtors and brokers to have their own sales force or leverage an auction process. “We help them all along the way to interact with their end-buyers,” he added.
“If the end-buyers need our help with the closing and the title, we provide that directly. In many cases, they will use their own local title company and we will interact with them to get whatever information they need.”
REO Solutions has evolved since its inception and the client has changed as well. Madison now has more contact with lenders and servicers as well as with auction providers and others in the REO disposition chain.
“The challenge out there is to be hit in such a relatively short amount of time as the volumes have increased. The lenders and servicers have very good people and experienced people,” stressed Mr. Shimano.
“Either they don’t have enough of them or they may not have the specific experience relevant to dealing with this part of the REO. They may know everything up to, 'OK, now we own it, now we have to sell it in a bulk or through an individual sale.’ How do we deal with problems relating to deed transfers and clearance issues?”
While Madison already sees large volumes of foreclosures and REO, the company expects more ahead. “There has been something of a lull in specific areas, chalk it up to the moratoriums on foreclosures. It may just be an opinion. But when I read about how behind the lenders are or how unsuccessful they’ve been at pushing through the loan mods, and then when you read the statistics of how many of the loan modifications area actually successful six or 12 months down the road, and you look at the foreclosure numbers in the millions, you have to expect the flow will continue if not increase. And that’s just on the residential side.”
David Tesler, chief executive officer of Real Diligence LLC, an affiliate of Madison Commercial Real Estate Services, says the reports are true and more commercial delinquencies are coming.
“When retailers start going dark and property values start dropping and maturity dates on loans start arriving, that’s when the problems start,” Mr. Tesler noted.“If you look at any big shopping center with any of the large boxes that went out of business whether it’s Circuit City or Linens N Things, their cash cows just went dead almost overnight. All the other tenants ... their obligations might be affected by another tenant going dark. Then it just has the domino effect on rents and income. It’s a nightmare on owners.”
He says lenders have to think outside the box, but they don’t really want to get creative. Until now they have not been moving on their distressed assets in terms of large-scale foreclosures and selling them off to distressed purchasers. “One of the primary reasons is become there’s still a lot of lack of clarity as to what these assets are really worth. The lender has a lot of loans on their books. You can only imagine how much time the lender has spent with each and every property, not a tremendous amount of time. So they don’t really know them very well.”
Real Diligence re-introduces the property to the lender as if they are the owner. “We provide a three-dimensional understanding of the asset and the surrounding neighborhood. We’ll provide a workout proposal to benefit our client and the lender. Idealy, we want to reduce the principal of the mortgage."