Resolving Title Issues in Distressed Real Estate Transactions, 0313 SCBJ, SC Lawyer, March 2013, #4

Author:Michael A. Graham.

Resolving Title Issues in Distressed Real Estate Transactions

Vol. 24 Issue 5 No. 20

South Carolina Bar Journal

March, 2013

xA0xA0xA0xA0xA0xA0xA0xA0xA0 Michael A. Graham.

xA0xA0xA0xA0xA0xA0xA0xA0xA0It looks like your deal is finally going to happen. Your property is in a good location, it is vacant and is in fairly good condition. The brokers have done their job, financing is approved and now the transaction moves to closing. In preparation for closing, you have a title abstractor search the public records for any information that may impact the property or the transaction. The title examination reveals that there is an improper property description in a deed in your chain of title, and the entire deal comes to a screeching halt.

xA0xA0xA0xA0xA0xA0xA0xA0xA0What does this mean? No one who earns a living in the real estate industry wants to hear that a property has a "cloud" on the title that must be resolved before closing— that means time, and time is money. Unfortunately, problems with title, especially on distressed assets, are a fact of life in about 38 percent of real estate transactions according to a 2010 member survey by the American Land Title Association (ALTA). ALTA says that this number is up from 25 percent in 2000.1

xA0xA0xA0xA0xA0xA0xA0xA0xA0The good news is that the National Association of Realtors recently reported that July 2012 saw the highest level of pending home sales in two years. Further, they believe existing home sales are expected to continue to rise well into 2013, with prices anticipated to follow suit. The not-so-good news is that also in July 2012, according to Realtytrac, one in every 536 housing units in South Carolina was involved in foreclosure.2 So, we can reasonably expect to see some sort of problem with the title to the property that someone has to clear up.

xA0xA0xA0xA0xA0xA0xA0xA0xA0All parties involved in the closing process, from the sellers to the servicer to the broker to the lender to the eventual buyer, whether investors or first time home buyers, are all better off the sooner the closing can occur. Being familiar with the common problems that can arise regarding title, which may slow this process down, is the first step to better managing the risks associated with this transaction.

xA0xA0xA0xA0xA0xA0xA0xA0xA0Those of us involved in real estate transactions used to concern ourselves with real estate owned (REO) sales from foreclosure and deeds in lieu of foreclosure. The economy has created many situations in which owners of property borrow money to finance the purchase of the property and are then not able to make the payment on the debt. The lender may then "foreclose" on the mortgage, resulting in the court foreclosing the owner/borrower's interest and selling the property at a public sale.

xA0xA0xA0xA0xA0xA0xA0xA0xA0Unless a third party bids an amount sufficient to pay off the indebtedness,...

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