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Private Lending (6) – Key Points of Examining Property Rights
Continuing from the last post, another key point in title check is examining the property rights. This is quite interesting. The question I’m asked most often is: What if there’s duplicate mortgages? I was puzzled at first, and the person asking seemed surprised that I didn’t know. It turns out, in some countries, this situation can occur due to their national housing system not being centralized/electronic. However, it’s almost unheard of here because of the centralized registration system. Duplicate mortgages are impossible unless there’s malicious fraud and title issues were not spotted from the beginning. Even if such a situation arises, there are lawyer insurances and property insurances to cover the lender. So, it’s not a major risk for lenders in North America. Title check mainly involves the following:
– Is the property title consistent with the loan applicant? Sometimes, after all the inquiries, it turns out the property isn’t even theirs. 😂
– Is the title clean? Are there any liens, judgments, or other messy issues? Many cases look good on the surface, but upon checking title, it doesn’t add up.
– Are the existing debts and amounts on title consistent with the information provided by the borrower? If not, it’s crucial to directly confirm in writing with the debt holder. Even if they verbally assure you, always rely on the amounts on the title and avoid wishful thinking.
I’ve seen all sorts of weird and bizarre things while checking title, including personal lawsuit debts, outstanding car payments, construction liens, special annotations linked to other stakeholders, parts of divorce agreements, and so on. Each case requires specific analysis. Ok, we’ve covered the basics, and next time, we’ll start discussing the most crucial step in underwriting, which directly determines whether to proceed, how much, and how to proceed.