Caution When Closing on REO Properties

A recent posting by a well respected local real estate professional expressed some concerns about using so called “title mills” for real estate closings.  The most common instance of the use of title mills (i.e. title companies generally engaged by lenders to handle closings on a bulk basis), is in connection with REO transactions.  We have written about this before, and have strongly encouraged buyers of REO property to attempt to control the closing, to the extent possible, and if not, to hire a real estate lawyer.

To provide some assistance in guiding buyers through the decision-making process,  the following are some issues that buyers can potentially experience with closing agents of REO transactions when a buyer elects not to control the closing process or otherwise have a real estate lawyer protect them:

  • Attempting to charge buyers certain fees (sometimes exorbitant) that were not contemplated by the contract;
  • Attempting to shift fees to the buyer, although the contract required the seller to pay such fees;
  • Performing inadequate or incomplete title searches/title examination;
  • Failure to satisfy the requirements in the title commitment necessary to deliver marketable title;
  • Failure to properly review the foreclosure file to insure that the foreclosure by their client was handled properly;
  • Failure or outright refusal to deliver marketable title;
  • Inserting exceptions to title coverage that either negate title coverage, or drastically impair title coverage;
  • Unwillingness or inability to correct title issues prior to closing;
  • Failure to order and/or properly review surveys;
  • Failure to conduct municipal lien searches, open permit searches, and code violation searches;
  • Inadequate closing document preparation;
  • Insufficient document execution;
  • Poor communication;
  • Very little control over the closing time frame and location;
  • Failure to timely record documents post closing; and;
  • Failure to timely issue title policies.

Remember, these closing agents represent the seller, not the buyer.  And in our opinion, many appear to take the position that their responsibility is to merely close the transaction at any cost, regardless of whether or not the buyer is getting good title. And remember, a buyer will not know if they received good title until they go to sell the property, so many of these issues might lie dormant for years. For this reason, it is imperative that one use great caution when permitting the seller to select the title agent in any real estate transaction, particularly with respect to REO transactions.

As always, should you have any questions regarding the foregoing, please consult with your real estate attorney.


Berlin-Patten, PLLC

This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.

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