A hot button issue right now in loan servicing transfers is faulty source documents. If there are breaks in the beneficial chain between loan origination and the current sale, you need to know about it. During the initial inspection of a file, problems may not materialize for a number of reasons. Watch industry expert Michael O'Connell of Nationwide Title Clearing explain how a comparison of land records to collateral files can help with due diligence.
A common example where faulty collateral documentation occurs is when large files have additional documents that never make it to the imaging process. Another example would be where a loan was in and out of default and the attorney prepares assignments and fails to notify the servicer. In order to process a transfer seamlessly, a thorough review is required at the county level to validate what is on record. After an inspection has occurred, it is also important to verify the integrity of the documents in the portfolio as well.
For a document to be considered valid, it must accurately reflect the transfer of ownership from one entity to another. The assignor and assignee data must be cited exactly as they are listed as a registered company otherwise the beneficial rights could end up in a nonexistent entity.
Foreclosures have been held up for extensive periods of time due to incorrectly prepared documents stemming from faulty collateral files. For all of these reasons, it is vital to verify ownership during the transfer of beneficiaries to ensure that there are no breaks in the chain.
Reasons to inspect your collateral files:
- Breaks in the beneficial chain can hold up foreclosures.
- Crucial documents are sometimes only found in the collateral file because they were never imaged.
- Loans in and out of default can have attorney-prepared assignments that were never brought to the servicer's attention.
- All documents should be verified for integrity.
- In order for a document to be valid, it must accurately reflect the transfer of ownership from one entity to another.
- Faulty source documents can create a string of incorrectly prepared paperwork.
