REAL PROPERTY RECORDS

On June 15, 2010, in Blog, by sieditor

The Bubble Equals Fraud Trouble.

 

In reading the papers and following the news, it seems that real estate is a hot topic right now.  Real estate prices have fallen sharply in many parts of the country, particularly in California and Nevada.  Foreclosures are at an all-time high, and projected to continue climbing. Many home buyers in the past five years have seen their property values fall below the amount borrowed, leaving them with “negative equity” in the home. In other words, they are “upside down.”

What does this all have to do with fraud and investigations?  Simply stated, as financial struggles increase, fraud increases.  There are already signs of it in the homeowners/property insurance business. One well established homeowner’s carrier that we work for has expressed concerns that the homeowner’s insurance market in California will not be as profitable in the future, due to rising fraud, and may result in homeowner’s carriers leaving the state.

However, other industries will also be adversely affected by the real estate woes.  For example, many homeowners who are at risk of losing their homes, may resort to “torching their ride” due to increased costs of gas for their SUVs or other gas guzzling vehicles, and use the insurance proceeds to “downsize” to a less expensive more fuel efficient vehicle—saving their home in the process.

In order to better understand how real estate impacts fraud, it is important to understand real estate, and the investigative sources available to the public.

Real Property Sources

Over the years, I have developed a number of valuable real property sources.  In my opinion, the “mother” of all real property sources is a source called “Data Tree” who has a database called DocEdge.  This is a nationwide database that can search all available real property records nationwide (by name, county or state).  They can also provide “involuntary lien” searches (notices of default, abstract judgments, mechanics liens, tax liens, and others) on nearly any property in the U.S. The BEST part is that you can also obtain copies of the documents associated with the property (e.g. involuntary liens, loans, deeds, transfers, etc.) directly from the database.  No more running down to the County Recorder’s office and spending hours doing the research, then standing in line and purchasing the documents.  The down side is that they require a minimum monthly fee of $100. Their website address is: http://www.datatree.com

For those looking for something less expensive and/or free, try the following websites:

http://www.Merlindata.com which is a fee based database company that has excellent real property search capabilities (especially in California);

http://www.zillow.com allows you to determine the worth of a property using a special home value calculator;

http://www.foreclosurefreesearch.com allows you to find foreclosures anywhere in the U.S.;

http://www.netronline.com is a fee based real property public records online database with some “freebies” for those who don’t have the volume to do the monthly fee (buyers beware: I have never used this one);

http://assessor.lacounty.gov/extranet/Datamaps/Pais.aspx the County Assessor’s office in Los Angeles has a very good database involving real property records.  Many counties in other states may have a similar website.

However, all the real property sources in the world will NOT compensate for the lack of understanding basic real property documents and lingo.  The following is a quick  “home” study guide to assist in understanding a small part of that world:

Real Property Records:

Real property transactions are probably the most paper laden of all industries-from realtors, appraisers, lenders, home inspections, escrows, title companies, to sales.  However, the most essential real property public records are stored at the respective county level where the property is located.  In California, the real property records are stored at the County Recorder’s office and are available to the public.  All “legal” real property transactions are “recorded” in the form of “documents” that are identified by a specific name and document number.  The following are the most common documents recorded:

Grant Deed: This document is the official property deed, which shows the name of the seller (grantor) who sells (grants) the property to the buyer (grantee).  This document will contain a legal description of the property and other basic data;

Trust Deed: This document is the official mortgage deed, which shows the name of the lender (trustor) and the borrower (beneficiary).  The document generally provides the loan terms, amount borrowed, property description, and other data;

Quitclaim Deed: This document is the official property deed in which the property is generally transferred from the owner to another party without an actual sales transaction (e.g. husband transferring property to wife during a divorce, etc.)

Reconveyance: This document is recorded when a mortgage is paid in full.

There are too many other “recorded” real property documents to mention. For example, the County Recorder’s office also stores Notices of Default, Trustees Deeds, Trustees Deeds Upon Sale, Abstract Judgments, Tax Liens, mortgage transfers, and other transactions affecting real property.  However, they do NOT record loan applications/documents, home inspection reports, escrow documents, and other relevant real property records. Those records may only be available from the property seller, buyer, lender, escrow company, realtor, and so forth.

Adverse Real Property Transactions

As mentioned above, the County Recorder’s office also records “derogatory” document transactions.  The most common are:

Notice of Default: This document is the official record of a lender’s “notice” to the borrower that they are delinquent in their mortgage payments (usually recorded after 60-90 days).  The delinquent amount and length of delinquency is generally listed.  The borrower is then given up to 90 days to remedy the delinquency;

Trustees Sale: This document is the official record of a lenders “notice” to the borrower that they intend to foreclose upon the property if the borrower does not remedy the delinquency (usually recorded after 5-6 months of delinquency).

Trustees Deed Upon Sale: This document is the official foreclosure “notice”, with details of the foreclosure sale.

Abstract Judgment/Lien: These documents are recorded after a judgment is obtained in civil court, or tax lien is filed by the respective government agency (e.g. Federal, State, County, and/or City).  These recordings would affect the property owner’s ability to sell the property UNTIL the judgment(s)/lien(s) are paid in full. It is possible that other judgments have been obtained against an individual property owner, but not recorded.  In that case, the judgment would NOT affect the property owner’s ability to sell the property BEFORE the judgment is “satisfied” (paid off).

Credit History

So other than the above “official records,” how could one determine whether the property owner is, or has been, delinquent on his/her mortgage payments?  The BEST way to determine this is by running a credit report on the subject (must have legal reason for doing so). Every mortgage transaction is reported to the credit bureaus and shows a monthly payment history, amount of monthly mortgage payment, and amount remaining on the loan.  If an individual is, or was, behind on payments, the credit report will clearly show the delinquency (past and present).

Equity Evaluation

So let’s assume that the subject of an investigation is NOT behind on their mortgage payments, but is most likely “upside down” on their mortgage to the point that he/she has “negative equity.”  Simply put, the property is worth less than the subject owes.  This is a pretty common circumstance in today’s real estate market, particularly with homes purchased in the past five years.  For example, the subject purchases a home for $500,000 two years ago (we’re talking California), and pays 10 percent down ($50,000).  At the time of purchase, the property was “appraised” at $500,000, leaving the subject with $50,000 equity in the property.  Two years later, the property value has now declined substantially, and now is estimated to be valued at $400,000. With MOST of the first two year’s payments going toward interest, that leaves the subject with “negative” equity of around $50,000, meaning that they would still owe money to the lender(s) if they sold the property.  This same situation could occur with longer time property owners who took out home equity loan(s), and the total amount borrowed vs. the current equity is a “negative” value. In either case, the subject may be in a “nothing to lose” situation and is at financial risk in the near future, particularly if any other financial hardship occurs.

CONCLUSION

In summary, the importance of accessing and reviewing real property records will take on an increased importance when investigating suspicious insurance claims, criminal activity, civil litigation, and other financially motivated questionable activities. It may well be the “real” (property) motivation for the next case that crosses your desk.

Richard Harer
Manager

 

 

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