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.