It is common knowledge that real estate purchases and refinances are in much lower volume today compared with just a few years ago. The volume of interested buyers has evaporated, and the number of borrowers qualified with credit and equity are both a fraction of what they once were.

For some individual title abstractors, this has resulted in a lower volume of search orders in the marketplace. To make matters worse, an additional obstacle to completed transactions is becoming more commonplace. When a willing buyer or borrower has executed a sales contract or loan application,  met the qualification criteria of the lender, and the property appraised, it was usually likely that the transaction would close.

More frequently,  loan underwriters are throwing last minute stipulations back at the borrower. Loan officers and appraisers are reporting that lenders are suddenly requesting specific items before funding.

Recent examples have included a letter from the borrower explaining why his income went from $70,000 in 2007 to $68,000 in 2008; a notarized letter from a borrowers employer verifying their job title; a 3rd review of appraisal by a 3rd appraiser; and copies of insurance policies on a separate property, one not being financed. These were on separate transactions. In addition, parties to the transaction figured that the lender had all of this confirmed earlier in the approval process.

In the current lending environment, it is certainly reasonable for mortgage lenders to request these verifications. However, title abstractors should be aware that if their arrangement with their client is to only be paid for “closed files” that they be aware of this accelerating trend. More importantly, it is another good reason for any abstractors who still maintain this arrangement to seriously look at transitioning clients away from it. In the worst case, abstractors should not be afraid to ask their client about how solid the deal looks, and if they think the lender will have any additional last minute conditions to be met. It may not help if the current deal falls apart, but it may let your client know that you are keeping abreast of developments in the industry, and have them think about managing their future title orders more closely.

One real estate agent in South Carolina has seen an increase in the number of “dry closings“. The parties all sign their documents but everything is held in escrow until the funding arrives from the lender, after the last-minute condition is met. There is a number of reasons why these can turn into problems, not the least of which is when one does not ever get funded. In addition, the accruals and per-diems can change, making the prior HUD inaccurate.

It used to be that the vast majority of non-closed files were eliminated in the approval process, before title was ordered. In more cases, condition requests from loan underwriters are coming at the last minute. To date, many of these can be met, with the only consequence being a delayed closing. There is a definite uptick in the number of deals that fail because of these issues, however. In one case, a borrower lost his job in the week it was taking him to get a reappraisal. As it is not likely that this trend will decline in the near future, which may even result in closing agents to try and install the practice of paying for closed files more frequently.

It is tempting for individual abstractors to look for any new business that comes their way, but taking bad business is even worse in a bad economy.

- Dave Pelligrinelli

AFX Corp., LLC