Allodial Title LLC is dedicated to providing compliant REO services and helping ensure marketable as well as insurable title is provided to our clients and their purchasers at REO. Foreclosure offers a strong opportunity to resolve title issues but can also present an equal opportunity to create title and legal headaches if not properly handled. The experience gained in maneuvering properties through various moratoria over the past months will be helpful in handling REO properties going forward. Still, that experience might not fully address the possibility of challenges presented by new regulations from the Consumer Financial Protection Bureau (CFPB) in setting loans up for smooth processing at REO sale or transfer to a loan’s insurer.
The main compliance points with the regulations are as follows:
- Servicers must make contact with borrowers to determine if they are experiencing a COVID related hardship and discuss forbearance and other loss mitigation options.
- Servicers must make contact withborrowers prior to the end of a COVID forbearance period to discuss forbearance extensions, repayment options, and other loss mitigation options.
- Streamlined COVID loan modification options are specifically outlined and approved by the CFPB.
- Foreclosures may resume if:
- The property is vacant/abandoned;
- The borrower was more than 120 daysdelinquent as of March 1, 2020; or,
- The borrower has been unresponsive for more than 90 days after good faith efforts to contact the borrower were made by the servicer.
Servicers may see title underwriters looking for evidence of compliance with the CFPB regulations in order to find foreclosed properties insurable. For each of the criteria for proceeding, underwriters might take the position that title may not be insurable unless the following or similar documentation is available in conjunction with a request to initiate a foreclosure or continue foreclosure activity:
- An inspection report; a written statement from the servicer or attorney/trustee; or a finding by the court that the property is vacant or abandoned at the time, that demonstrates vacancy or abandonment prior to proceeding;
- A loan statement reflecting 120 days of delinquency as of March 1, 2020; or
- A history or statement of the attempts to reach a borrower.
We anticipate that failing to have this documentation readily available may create difficulty in insuring REO properties. While marketability is the standard rather than insurability, handling loans that are insured by the FHA, VA or Fannie Mae may be scrutinized for CFPB compliance as part of determining marketability of title during the claim process. Documenting this compliance early and clearly will minimize any potential for these issues to materialize.
Please note Allodial Title is one of MDK’s affiliated companies, offering services that support our legal work.