Due Diligence Firms / Investors / Hedge Funds – Unrecorded municipal code violation fines and liens create potential negative equity positions. HOA organizations, especially in super lien states, create potential for negative equity or collateral loss.
Default Servicing: Foreclosure – The process to determine foreclosure sale bids and the decision to “foreclosure or not to foreclosure” does not take into consideration possible code violation liens, HOA demands, and potential negative equity positions.
Default Servicing: Loss Mitigation – The loan modification process requires borrowers to be able to qualify for lower monthly payments which include real estate taxes. Servicers are required to pay real estate taxes on vacant assets and thus must carry these expenses through the asset disposition process.
Default Servicing: Short Sales / Deed in Lieu – Short Sale and Deed in Lieu transactions have inherent risk with unrecorded fines and liens, as well as potential HOA liens. These also pose a loss severity risk if not proactively disclosed in the negotiation process.
Default Servicing: REO Management – REO outsourcer fiduciary responsibilities include managing asset risk, minimizing loss severity, and improving REO timelines. Proactive management of code violations lessens REO loss severity.
Property Preservation Firms – Loan servicers often request field service organizations to complete property registration services. Turnkey registration compliance (full understanding of statutes and specific municipality requirements) and document processing (ensuring all support documentation such as NOD, deeds, lis pendens, POA, hazard insurance is provided) is usually beyond the scope of a field service organization’s expertise.
Loan Originators / Servicers/ Underwriters – Tax reassessment can lower monthly taxes and potentially benefit borrower’s PITI, DTI ratios and their ability to qualify for a loan.
Loan Originators / ALTA Lender’s Policy – Coverage under the ALTA Lender’s policy excludes the following matters: Any law, ordinance or governmental regulation or police power relating to building, zoning, occupancy, use or environmental protection except to the extent that a notice of defect has been recorded. This can create tremendous exposure for the Loan Originator / Lender.
This issue goes well beyond default closing and affects potentially all residential title transactions with extended coverage policies.
Title Insurance Providers / ALTA Homeowner’s Extended Coverage Policy – Coverage under the ALTA Homeowner’s Extended Coverage Policy exposes title providers to potential liability from numerous sources, due to the nature of the extended policy coverage combined with a lack of proactive due diligence on unrecorded municipal violations, permits, and zoning.
This issue goes well beyond default closings and affects potentially all residential title transactions with extended coverage policies.
Real Estate Buyers / Escrow & Closing Companies / Real Estate Agents – All entities in
a residential real estate transaction are exposed to liability due to unrecorded municipal code
violation fines and liens. Sellers, buyers, agents, and closing companies face exposure and
liability if code violation fines, liens, zoning or permit issues arise post-closing.
PMI Providers – Private Mortgage Insurance providers manage loss severity in REO on transactions without disclosing potential loss exposure to unrecorded municipal code violation fines and liens.
