Illegal Foreclosures Could Make "Proof of Product" Mandatory

Well we all knew that sooner or later there would be a price to pay for the "fast and loose" practices in the REO business. There are now concerns that some foreclosures could be illegal. This recent article indicates that homeowners are fighting back by disputing whether the lender is the legal note holder and therefore capable of foreclosing on a property. As many of you have heard me say, we've gotten away from selling real estate and have begun to sell spreadsheets. The main reason is that investors don't want to spend money on title reports and title insurance, both of which would help maintain a clean "chain of title" to a property. This added expense would create higher acquisition and exit prices and would put REO buyers in more direct competition with banks that are trying to sell inventories at closer to current fair market value.

In my opinion, now more than ever, sellers will need to be prepared to provide, up front, proof of product as evidence of their titled ownership of the assets being offered for sale. If not, they may need to "hold harmless" the buyer from potential liability should clear title not be available.