|TITLE INDUSTRY INSIGHTS
You learn something new every day, these days, several new things a day. Recent developments in title insurance are few and somewhat old news. Taking the Creditor's Rights Endorsement off the table has caused quite a stir in the past year. Both of my underwriters still offer it, but with heavy scrutiny and a price. The federal government passed sweeping reform to the Real Estate Settlement and Procedures Act (RESPA), which went into effect in January 2010. In order to provide necessary disclosure to the consumer, we have installed new software and spent countless hours training to provide borrowers with a new HUD closing statement. Now, even we can't figure out what we're charging. While this only applies to residential sales, those of us in commercial shops have had to dust off our HUDs when working with large bank sellers of foreclosed properties. That's it for title news, the rest of this article will discuss types of transactions that we have increasingly seen coming across our desks.
Note Sales - Direct or By Auction
Not for the risk adverse, these transactions involve a sale of the promissory note or the debt on the property, not the property itself. Banks who want to be out of the business of managing non-performing assets and conducting foreclosures sell the note to a buyer, who steps into the lender's shoes. Termed "loan to own", the buyer then forecloses on the note, or continues the foreclosure already initiated by the original lender, and either ends up with the property or is paid off. Even though these transactions do not directly involve the sale of real estate, that is the ultimate goal. Getting your title insurer on board early is important. At the very least, you should have a title search done before you sign anything to determine what is outstanding on the property and whether the parties are involved in litigation. As the buyer, you may be jumping into a fight with the owner, subordinate lenders or lien claimants and need to know what you're up against so that you can include appropriate legal fees and expenses in your proforma. Taxes and assessments on the property should also be researched as should vacant building fees and licenses you'll need to operate the property. We have closed note sales for cash, and have also closed them in escrow subject to the expiration of the buyer's rights of redemption. Last week, Jones Lang Lasalle auctioned the notes for eight local apartment buildings. Earlier this year, Meritex Enterprises bought the note on the Lexington Corporate Center and became the owner when the borrower deeded the property back to them in lieu of foreclosure. Individual note sales are difficult to find, but talking to bankers and indicating interest is a good first step.
Sales of properties and notes by auction has become increasingly common this year. Whether by trustees in bankruptcy, lenders or individual owners, the auction has primarily been used to dispose of distressed commercial properties. Some auction companies will provide a title commitment with their offering materials. Be sure that title commitment is from an insurer that you trust to do a thorough report and with whom you can discuss concerns, request extra research and obtain copies of documents. If not, hire your own company to do the research. Before the auction is the time to get a handle on as many variables as you can. There is plenty of room for surprise in the condition of the property, title should not be the unknown.