As is the case with forward mortgages, a reverse mortgage lender must order title insurance to complete the transaction. Title insurance protects the lender (lender’s policy) or the buyer (owner’s policy) against any loss arising from disputes over ownership of a property. There are thousands of title insurance companies and title insurance agents in the United States. Unfortunately, the reverse mortgage is as new to a majority of the title companies as it is to mortgage lenders.
There are a few title insurance companies that have become experts at issuing title insurance and closing reverse mortgage transactions. The title company’s responsibility should be to instruct and educate the loan officers and processor on the necessary steps to clear title issues that could prevent a transaction from reaching a successful completion.
The title company should strive to make the transactions work for reverse mortgage companies and understand that there are going to be more challenges with title clearance issues than are seen on forward mortgage products.
The reverse mortgage industry requires an approach based on education within the industry. The title company’s role is no different than the mortgage company’s role with respect to education. The educational process is a continual one that has to be of the utmost importance to your title company.
This industry is one that requires a personal touch and hands-on approach with the borrowers and lenders. As the industry grows and consistently exceeds previous marks it is important to find the people that have a passion for the industry. This passion needs to be seen in every aspect of the transaction including your title insurance company.
Some of the common issues that a title company should be prepared to handle in completing a reverse mortgage transaction include, but are most certainly not limited to, the following:
Probate law issues. There are times when the spouse of a senior borrower has passed away. This brings about additional issues when attempting to clear the title work. In many cases, the borrowers have not consulted an attorney and the title remains vested or owned by both the borrower and the deceased spouse. Some of the key factors in correcting these issues are to understand whether the decedent passed testate (having a will at death) or intestate (not having a will at death).
If there was a will and the will was probated or the estate was probated by a court of law the documentation from the probate is crucial to determine the distribution of the estate assets, including the property. If the decedent does not have a will, the property would pass based on the laws of intestacy and be distributed according to statute. In many cases the borrower and deceased spouse held the property as ‘Tenants by the Entireties’ meaning between husband and wife and therefore the survivor of them would gain full rights and ownership to the property.
Family law issues. Some borrowers may have been married more than once or have a previous divorce that can bring about additional requirements for insuring the transaction. In such cases, it is important to obtain information from the borrower regarding prior spouses. In the event that there was a divorce, a complete copy of the divorce decree would be required in order to determine if there are any proceeds owed a former spouse granted by the court.
The divorce decree can, at times, act as a conveyance of the real property in the event that the ex-spouse did not execute a conveyance instrument to your borrower. For the divorce decree to be an effective conveyance of the property it is important for the divorce decree to contain the legal description of the property to be conveyed. The legal description is how the property is identified and having a property address is not always the correct especially in the cases where the county or city has changed the names of the street.
Criminal law issues. If the senior borrower has pledged her property in order to post bonds for children or grandchildren this can cause additional title clearing issues.
Real property law. In some cases, there are issues that have to be addressed regarding adverse possession, ingress and egress to the senior’s property, foreclosure issues and the most prevalent issue of old liens and encumbrances against the subject property. Adverse possession is the acquisition of title to real property for a statutory period of time under certain conditions.
In some cases the borrower was provided a deed conveying the property to them however they failed to have the document recorded at the county recorder’s office. An important thing to remember is that a conveyance of real property is effective when the document is drafted and delivered to the borrower. However, the recordation of said conveyance makes it “known to the world” who owns the property. Ingress (the act or right of entering) and egress (the path or opening which a person goes out) refers to access into and out of the property.
In most cases, property that is land locked (without ingress and egress) will not be able to be encumbered. A survey of the property can provide information necessary to determine ingress and egress to the property. Foreclosure is the act of taking a person’s real property for failure to meet a financial obligation that was secured by the real property. A foreclosure proceeding can stop a transaction from closing. It is imperative that the information relative to the closing (i.e. attorney or law firm information, date of the foreclosure, all monies owed, etc.) be conveyed to the title company. The main challenge that is presented on reverse mortgage transactions are old liens or encumbrances that have been paid-in-full but were never released of record in the county records. These issues can usually be cleared with a lien paid affidavit signed by the borrowers at the closing table.
Tax liens. Tax liens are a big problem when dealing with any real estate transaction. In most cases tax liens will be superior to all lender liens filed against the property. Each state has its own statute of limitations for tax liens or state liens against the property. Federal tax liens do attach to the real property owned by the borrower wherever the property is located. It is important to remember that the IRS does not issue a release of a federal tax lien. The federal tax lien contains language that allows the lien to be released if not re-filed by a specific date. According to the IRS Code, the IRS has three (3) years to file a lien against the property and ten (10) years from that date to enforce the lien.
In dealing with senior borrowers it is important that your title company be prepared to spend more time, money and effort to assist in completing the transaction. The reverse mortgage industry is not comparable to the fast-paced refinance market and the senior borrowers are in most cases not as familiar with the reverse mortgage product prior to the relationship with their loan originator.
The loan originator and mortgage company need to ensure that they have an open communication with the title company and provide the title company with as much information about the transaction as possible. This information, although may not seem relevant, allows the title company to work the transaction in a more efficient and effective manner for the mutual benefit of the title company, lender, originator, and certainly the borrower.