By the end of 2020, more than 2.8 million homes in America were in active forbearance, according to data analysis firm Black Knight. But, just as the mortgage forbearance programs came close to expiring this month, the newest COVID relief bill threw out a lifeline and extended the measures through June.
Still, the question remains: how many of those borrowers will end up in default? Some industry analysts are predicting a wave of foreclosures once the forbearance program comes to an end. This would create opportunities for investors, developers, and others poised to make a move on distressed properties. But the current situation also brings a unique set of challenges and risks.
What’s Happening: Searches are Bogging Down the System
The extended relief provisions apply only to homeowners with government-backed mortgages, which accounts for about 70% of all mortgages in the U.S. According to the Center on Budget and Policy Priorities, an estimated 10 million households are not caught up on their mortgage payments.
As a result, many banks are coming to grips with the state of their portfolios, assessing which loans are likely to default. When banks see properties heading toward foreclosure, they start getting their ducks in a row.
Similar to the financial crisis of 2007-2008, the first step is that people begin researching properties. In just the last couple of months, bankruptcy and foreclosure searches have ramped up significantly. Between the high volume of searches (thanks to low interest rates) and extra-slow courthouses (thanks to the pandemic), the title search community is currently bogged down.
How it Affects You: Slow Offices Mean Slow Info
With COVID safety measures still in place, recorders’ offices are painfully slow right now. If searchers are even given physical access to the office, social distancing reduces the number of people allowed in at a time. The hours for many recorders’ offices have also been impacted, and some may have staffing issues as well.
As you’ve likely already seen, you can’t just pull a property search out of thin air. The issue right now is that, with everything moving so slowly, you can’t quickly get a picture of what’s going on. But you don’t want to be caught without the information you need, when you need it.
What Actions You Need to Take
Given that title searches are slower and more difficult, we have a few recommendations to help ensure you don’t get caught out with unexpected costs:
- Take an honest look at your portfolio. There’s nothing wrong with pulling a search on a property that may be a problem, so you can right the ship before issues turn into major problems.
- Act now. If you’re looking to research the state of an asset, you need to order something sooner rather than later. Trust us, it’s going to take a while.
- Pick the right person to get the info you need. If you’re dealing with a title company that’s never handled these types of searches before, they could easily order the wrong type of search. Super liens, for instance, don’t show up in a title search—that’s why you need a title partner who’s been through this before.
- There’s a reason Certified Abstract goes all the way back, the full 60 years, to make sure everything was taken care of before a closing happened. When you receive a search, don’t be shy about going through it with your title company. Ask if they’ve covered the bases:
- Did they pull the bankruptcy info?
- Did the search go back as far as needed?
- Did they search for quiet liens that don’t show up in a title report?
- Identify conversational items, like if an owner hasn’t been filing state taxes. It’s better to talk openly about things that are happening in real time, instead of taking on the penalties later.
No Time for Mistakes
If you’re involved with properties coming up for foreclosure, you need the support of an experienced title partner who is committed to your best interests. There are too many hidden pitfalls to take chances with your title search. And in the current environment, with increasing search volumes and slowed-down courthouses, you don’t have time for mistakes.
We’d love to help you get the information you need to ensure you can move forward in your transactions with confidence. Contact us today for a free consultation.