Author Archives: Dave

Big money sources are pouring billions into real estate in the past 90 days. CNN reports that financial institutions are aggressively jumping to real estate investment. “Hedge funds and private equity firms have been rushing in to buy up companies and assets in every part of the housing supply chain, including undeveloped land, homebuilders, and foreclosed homes” Private equity firms are also getting in on the game. Blackstone Group spent $2.7 billion last year to buy 17,000 single family homes, post-foreclosure, around the United States and plans to continue ramping up those efforts in 2013.”

At the same time the Wall Street Journal says that markets are up in many markets. “More and more markets post gains in median home sale prices. The National Association of Realtors reported Monday that the U.S. median home price rose 10% between the fourth quarter of 2011 and the fourth quarter of 2012. That’s the biggest yearly gain in the median price since the fourth quarter of 2005.”

Mortgage News Daily reports that inventories are decreasing as lenders dump foreclosure property into the pipeline. “The unsold inventory of existing homes was at the lowest level since January 2001. “

At TitleSearch.com the volume of foreclosure related title work is up 45%, with many investor clients scrambling to buy properties as many deals are showing up at auction. Foreclosure.com CEO Brad Geisen  is observing a similar trend. ”A lot of investors see a short window of opportunity where there’s good inventory on the market at bottom market prices,” said Geisen. “No one knows how long it will last, so these investors are trying to buy as much as they can right now.”

The worst case scenario on a title search is missing a lien. So how does it happen? One of the most common reasons a lien is missed is because of using “online” sources for title information. I don’t mean ordering a legitimate title search from a website, I mean trying to shortcut the search process by using data to piece together a search, or “online records” as a replacement for an official property title.

Even major title companies run into trouble on this. Several title insurers have been sued for missed liens when their electronic searches failed to discover liens which were actually on file in paper documents in the official land records. In some cases the searches were deficient because all the names or sources were not checked either.

Three examples of missing liens using “online” title databases:

“a title examiner at Guaranty Title, performed a title search of the Property (the “Second Search”) using the Orbit search engine. Id.at 8:3-9:10. Edgeton’s title search did not reveal the federal tax lien, nor did it reveal the four judgments and the state tax lien found by West Title.” Link to case.

“Columbia failed to report the earlier sale to Dr. Khan in the commitment or the policy.  Cambridge and Columbia in performing the title search and failing to discover and report the Khan deed,” Link to case.

“The land was burdened with an easement that was publicly recorded but was not indicated on numerous versions of a title commitment issued by Chicago Title Insurance Company” Link to case

A thorough title search uses official land records to abstract the title, and industry best practices to run the search.

The videos below describe how liens can be missed on title searches as well.

The reality of real estate title fraud is not over.  There are still criminals out there committing fraud on real estate title documents, and being prosecuted. The problem is that even after prosecutions the title defects remain for the legitimate property owners. Liens, wild deeds, and false transfers can create clouds on title and problems for owners.

In one example, over 10 homes in Missouri were found to have documents who’s signatures had potentially forged notaries.  One notary compared here records with the title documents on file. “I don’t know what’s going on,” said a stunned Victori Vessel. “Obviously, someone is doing something with my stamp and my signature because if they were here to get something notarized, it should have been in this book.”

A California investigation is working on uncovering other mortgage and foreclosure frauds on consumers. “Many people think that these are civil problems that have to be sorted out in court,” investigator Karl Anderson said. “While that is sometimes the case, other times these people truly are the victims of a crime.”

For decades these schemes have been appearing in title forensics investigations. It does not look like they are going away.

As more foreclosure properties are released from inventories, new opportunities exist for investors. At TitleSearch.com our investor clients are seeing increased volume of available deals and even higher margins on purchases.

However although foreclosures are priced much cheaper than retail/Realtor/MLS deals, they come with the responsibility to perform appropriate due diligence before bidding at auction or dealing with REO’s. This can include a proper title search, inspection of structure, and legal analysis of the purchase.

Not only will the due diligence reveal any remaining liens on the property, it will also show if the foreclosure is on a primary debt or subordinate instrument. If a bidder wins an auction but later discovers that the sale was for a second mortgage or other secondary lien, the property is still subject to priority recordings. In one recent case, a buyer purchased what turned out to be a homeowners association lien at auction, and was still subject to a first mortgage from Wells Fargo.

According to the Miami Herald article on risks of buying at foreclosure, “Establishing clear title and control of the home, which some cash buyers have never set foot in, can mean sorting through a thicket of foreclosure filings, fraud allegations, bankruptcies, other mortgages, association liens, creditors and combative tenants.” In one example from the story, a foreclosure buyer found that the delinquent borrower was properly foreclosed, but was using a complex set of legal maneuvers to avoid eviction. The court filings, emergency motions, and bankruptcy should have been discovered in the due diligence and would have cautioned the buyer to determine how to resolve the issue before purchase. Now the buyer has a house he can’t access because the foreclosed owner is still living in it.

The buyer is in a difficult situation.  He thinks the prior owner is finding ways to stall eviction so she can live rent-free in the investment property. “This is a sophisticated squatter. She’s playing the system,” he said. Attorneys say more horror stories come from the clerk’s foreclosure auction in Miami-Dade, a county where there is a backlog of 53,000 foreclosure cases.

The problem comes in when the new owner goes to pull another permit and now has to deal with getting the prior permit closed before the building department will issue the new permit. To close the old permit, typically a new contractor will have to inspect and possibly fix the old work, and the building department will have to come out and inspect. This can cause quite an expense for the new owner and it will become your headache after you move in.”

Higher profits come with foreclosure properties, but investors need to do the extra leg work of performing good due diligence, and having a team of qualified professionals to get them good title info, property research, and legal advice.

Is it a good idea to sell or damage fixtures from a foreclosure property? For a borrower facing foreclosure, selling off appliances and mechanicals before eviction may seem like a money making idea. In almost every major city there are dozens of classified ads for appliances, AC units, and building materials to be removed from foreclosure properties. In some cases, damage to a distressed property occurs intentionally. A borrower may not see any downside to these actions, especially in a non-recourse scenario where a deficiency claim is prohibited.

There are some limits on deficiency defenses, particularly where the losses were increased due to bad faith. When the lender can show that a portion of their loss originated from bad faith waste of property value, the defaulted borrower may not be protected from that portion of the deficiency. In a recent CA case, Fait v. New Faze Development, Inc., a property owner demolished an existed building on the collateral property in order to make way for new construction. When the borrower was then unable to build the new structure the property was foreclosed. The lender sued for deficiency on the additional loss of value due to the demolished building.

“The court ruled that the note holder is not barred by the antideficiency statutes from suing the former owner and others for waste and impairment of security based on their demolition of the building, and seeking as damages the loss of value in the property that resulted from the destruction of the building.”

This ruling extends additional liability to borrowers to act in good faith in maintaining the value of a defaulted property, and at least creating no additional harm.  Deficiency protection is valuable to defaulting borrowers. It may not be a good strategy to risk its protection for a relatively small gain.

Motivating both buyers and sellers to participate in market activity is proving difficult. The rate of homeownership has fallen in past years, and Fannie Mae expects it to fall even further.  Fannie Mae’s Multifamily Research Group predicted today that the rate would fall another one to two points by 2015
The forecast calls for an additional 1.7 million new multifamily renter households between now and 2015 as the result of recent declines in homeownership related to economic stress and high foreclosures.  “Currently, most industry practitioners, including us, expect overall economic growth to be slower than the long-run average. Given this outlook, we forecast that the homeownership rate will continue to decline to around the 65 percent level, which implies 3.1 million new families or more than half of total new households will move into rental units. Consequently, multifamily demand will be solid with a total of 1.7 million net new renters from 2011 to 2015. Considering that the current multifamily construction pipeline is around 200,000 this year, this scenario suggests continued strength in the multifamily market,” the forecast said.

At the same time, sellers are reluctant to put homes on the market in hopes that prices will be higher in future years. Online broker Redfin released a survey which revealed the mindset of prospective sellers.  Of sellers, 83% believe that they would get a higher price for their home by waiting one to two years, up from 80% in the third quarter, suggesting increasing confidence about the housing market’s future. Sellers are becoming more confident about their chances on the market according to the survey results. Interestingly, more sellers also indicated their intentions to price their home above the sales price of comparable properties.

From LinkedIn:

“Thought you guys might get a kick out of this…auctions.com

A caller who had won a property on auction. com called to order a title search. Bank of America was the seller. Winning bid was $120,000 cash. I read the auctions.com contract and the property was being conveyed via Quit Claim Deed, no title insurance and 3 pages of disclaimers and hold harmless. Odd? When The search came back, it showed an open , unrelated first mortgage not named in the initial foreclosure action. The Certificate of Title was issued to the 2nd lien holder who had not, either intentionally or unintentionally named the 1st loan in their action. I was blown away. Point is, though auction.com contracts i have seen in the past did provide title insurance, they seem to be tagging on quit claim deed riders and no title insurance riders for a very good reason? The buyer cannot even select a title company to close it.”

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Yvette B.

1. Ohio court rules that incorrect legal does not make mortgage invalid

The title search order volume for foreclosure properties is increasing, and we are seeing long time search clients   chasing foreclosures as the home market heats up. This is confirmed by larger economic news reporting that investment firms are putting together portfolios of single family homes for cash flow and appreciation. “Investment funds and real estate trusts have been scooping up thousands of foreclosures across the U.S. in the hopes of managing houses the same way large real estate funds hold apartment complexes and office buildings.” The accelerating trend is generating business in the title search industry as investors do their due diligence looking for liens and encumbrances which may affect their title. Lien priority, mortgage assignments, and hidden HOA or mechanics lien claims are the most commonly discovered clouds on title in a certified title search.

“We’re in unprecedented times,” said Don Cogsville, chief executive of The Cogsville Group, an investment company that bought the Chicago houses. Until now, his firm has focused on distressed commercial properties and multi-family housing complexes.

Confidence in the real estate market is high for home builders as well, according to the Wall Street Journal.  ”Residential construction picked up momentum in September and now is running at its highest level in four years, a turn that could have a positive effect on the jobs market and the broader U.S. economy.”

A property owner expects that their ownership of their property to be secure and free of defects. Real estate industry activity in the past decade has created scenarios where property rights have been lost due to errors made in the transaction process. Mechanics liens and tax liens are much more common in the current economy, while at the same time budget constraints makes discovery of these clouds on title more difficult. One national insurer said that “There has been an increase in defalcation claims by agents, and claims because of theft and fraud, mechanics liens and tax liens.” He goes on to say that finding these liens require a more intensive title search. county and local governments falling behind on indexing title records and reduced hours of operation. “Some counties are broke and in bankruptcy, which causes layoffs in the county clerks’ offices. As a result, it can take a long time to get search work done.”

In one example, a woman purchased a property and paid almost $70,000 in mortgage payments only to later discover that the title was not in her name. A title search was never performed to discover this title defect until years later. Even after discovery the mortgage bank demanded continued payments even thought the new title search showed an improper closing. “For almost four years, she made payments of $1,657 per month to the bank, thinking she was paying off a mortgage and building equity. She didn’t know, and says no one told her, about the shortcomings of the closing.” The attorney who handled the closing has since been prosecuted for fraud and has moved out of the area – leaving in his wake a flurry of escrow and financial irregularities.

Another home buyer purchased raw land in Utah, only to discover soon after that an oil and gas claim existed on their property. A mineral rights and oil title search revealedthat El Paso Oil Company intended to exercise its right to extract oil and gas from the Property by setting up drilling operations on the land.  The buyers did not view a title search prior to the sale, but relied on a title insurance policy. Hidden in the text of the policy was a claus which provides that the policy “does not insure against loss or damage . . . which arise by reason of . . .[a]ll rights, title or interest in oil, gas or other minerals of every kind and description underlying the surface of the land.” The property owners have sued the title insurance company, escrow firm, and attorney but the case was recently dismissed by a judge.  El Paso Oil Company’s extraction plan is to remove a portion of the surface land and all of the subsurface estate, effectively removing that portion of the land from Plaintiffs’ use. According to Plaintiffs, this was the first time they learned of this significant encumbrance on the Property.

Why was the title insurance not sufficient to protect the property owners? According to the case; “The court explained that one who purchases a title insurance policy does so to guarantee a certain position in the chain of title, not to discover the title’s status. Id. It noted that a title insurance company’s function is generally confined to the practice of insurance, not to the practice of abstracting.”

These cases demonstrate the need to view a professional certified title search in addition to relying on attorneys advice and title insurance.