Lending

Streamlining Nonbank Real Estate Transactions

• by Amy Kame, Jonathan Gearhart
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Engage with Reliable and Thoroughly Vetted Industry Partners By Amy Kame and Jonathan Gearhart In the nonbank lending industry, the successful closure of a loan heavily relies on a number of stakeholders to work together to achieve a common goal. Borrowers, lenders, brokers, real estate agents, law firms, and title companies all depend on one another, and these entities play pivotal roles in ensuring transactions are executed efficiently and securely. Together, they form a partnership that safeguards the interests of all parties and ensures a smooth, secure transaction process. This collaboration is essential in a market characterized by its swift pace and complex transactions. Private Lender Law — Identifying a Problem  Private Lender Law (PLL) is a leader in the nonbank lending industry, offering an extensive array of legal services tailored specifically for private lenders. Operating from New York City and New Jersey, PLL has carved out a niche as the go-to national law firm for lenders across the United States. Their expertise encompasses a wide range of areas, including foreclosures, loss mitigation, and efficient closings. With a client base of over 100 lenders nationwide, PLL is dedicated to delivering personalized and dependable legal solutions in all 50 states. During the loan closing process, PLL finds itself working with the key stakeholders through phone calls, emails, and, in some cases, as many as 50 or more communication touch points to close a loan. Given the importance of each deal to all involved, it is imperative that everyone clearly understands their role in the closing process, and of equal importance, the nuances of private lending. These transactions are unique and require experience to close efficiently. As the team at PLL grew its business and worked with more of the private lending community, a pattern began to develop. One stakeholder in the deal increasingly caused more friction than the others, and the lack of private lending experience too often kept deals from moving forward. That stakeholder was the title company. Why Title? The title company guarantees that the property title is clear of any encumbrances or liens that could jeopardize a deal. Title companies can be relatively small, having 3-5 employees and working in one market, but also large organizations employing hundreds and operatingin many states. The title companies most often seen by the PLL team in their daily work are those working in a single market, often mirroring the borrowers who most often use private lending for their real estate financing needs. The “1 market” title company often does not operate at scale and makes traditional purchases and refinances along with the occasional private lending deal. Experience is limited, and the PLL team often must explain and re-explain lender requirements for title. This slowed enough deals down over time that the PLL team had to explore a way to better service their clients, enter Private Lender Title. The Creation of Private Lender Title Private Lender Title (PLT) is a distinguished provider of title and settlement services specializing in the private lending sector. With extensive experience and a focus on the nonbank real estate lending industry, PLT provides comprehensive title searches, issues title insurance, and manages the settlement process. Their expertise helps streamline closings and safeguards lenders and their investments against potential legal issues. This support system is vital in today’s real estate market, where the accuracy and speed of title services can significantly impact the success of transactions. Private Lender Title is strategically positioned to transform the title service landscape for private lenders through its collaboration with Private Lender Law. This alignment ensures a seamless integration of legal and title services, enhancing the support system available to lenders throughout the loan process, not just at closing. Drawing on the extensive experience of Private Lender Law, which has worked with thousands of title companies across all states, PLT has crafted a title workflow designed to mitigate inconsistencies and inefficiencies in our industry. Addressing the Persistent Threat of Fraud The Private Lending industry faces challenges from the persistent threat of fraud and operational risks posed by insufficiently vetted partnerships. Recent developments involving major title companies like Riverside Abstract and Madison Title have brought attention to issues within the title industry. According to a memo from Fannie Mae’s deputy general counsel, Jeff Goodman, both companies are prohibited from participating in any Fannie Mae-related mortgage loan closings due to their involvement in fraudulent real estate closings orchestrated by Boruch Drillman, as deemed by the Department of Justice. This highlights the importance of engaging with reliable and thoroughly vetted partners in the industry. The ongoing issue of fraud further complicates the landscape, as detailed in the FundingShield Q1 2024 report, which underscores a sector with vulnerabilities. Nearly half of all transactions exhibited potential fraud risks, with common forms including identity theft, fake loan applications, and counterfeit documents. The report revealed that problematic loans averaged 2.22 issues each, signaling a lack of adequate controls by closing agents and lenders to identify and correct these discrepancies. Additionally, 9.2% of transactions were flagged for wire risks, and there was a 9.8% incidence rate of issues in CPL (Closing Protection Letters) validations, pointing to sophisticated and evolving fraud techniques that pose significant financial risks. The repercussions of partnering with entities that fail to uphold legal and ethical standards are severe, affecting not just the immediate transactions but also the broader credibility and operational capabilities of lenders in the market. As the industry continues to evolve amidst these challenges, the role of reliable partners who can ensure that transactions are executed with proper due diligence is more vital than ever. The Role of PLL and PLT in Enhancing Efficiency and Security The demand for a streamlined, secure transaction process has never been higher. Together, Private Lender Law and Private Lender Title create a partnership that anticipates the needs of lenders facing the dual challenges of a fast-paced market and increased fraud. This section describes how PLL and PLT collaboratively enhance both efficiency and security in real estate transactions, providing support