No surprise at this statement: When the real estate mortgage nears the ditch, the lien priority of the loan and the status of the title (such as easements, deed restrictions, access rights and lien priority) all come under scrutiny.
One important point of inquiry is the title policy covering the loan. An “audit” or review of the title policy should be done.
Here’s a quick (albeit incomplete) list of things that should be investigated (in no order of priority):
- Is there a title policy? (Don’t be shocked if you don’t have a title policy—this is one of those “details” that can get “lost” during the post-closing\servicing process.)
- If it is a construction loan, was a policy purchased or is a “binder” merely in place? (If a binder, can or should a policy be purchased? Is this possible or even desirable?)
–What is the current coverage amount?
–What is the date of the last down-date? - Do you need to put the title policy insurer on notice of a possible claim? (Read the title policy for “how” to do this.)
- Do you have a complete copy of the title policy, the title policy exception documents and the title policy endorsements? (You’ll be amazed at how many loan files fail to contain all of this.)
- Does the title policy:
–Continue to cover an affiliate of the lender that takes the title at foreclosure or a transfer
in lieu of foreclosure?
–Correctly describe the insured land?
–Contain the correct amount?
–Have the correct title policy form with all endorsements?
The next posting will cover UCC issues, zoning endorsements and creditors rights exclusions.
If you have any questions or some thing to add, please post a comment.