There are two times when demands for title searches are at an all-time high: when rates are low and when the economy is down. Low interest rates will send an influx of people into the market to purchase residential and commercial real estate. And a troubled economy will cause an increase in foreclosures.
2020 saw record-low mortgage interest rates and a flurry of purchase and refinancing activity. 2021 will likely see a similar amount of activity in the real estate industry, but potentially very different reasons.
Distress continues to hang over the real estate market. Businesses struggle to maintain footing during the COVID-19 pandemic, and this will eventually take a toll on commercial real estate.
Impacts on the Commercial Real Estate Market
While some businesses folded quickly as COVID-19 hit the United States, others were able to scrape by. Some of this was through government financial relief, such as the Payment Protection Program. Others started with strong assets, and these businesses could weather the storm for a while.
However, some of the impacts on the commercial real estate market are delayed. Property owners are now facing tenants who cannot pay rents, hotel rooms that remain empty, and retail spaces that are closing their doors. All of this will come to a head with mortgages on these properties.
As a result of a distressed real estate market, there will be an increased demand for title searches. Banks are already bracing themselves for the stress on their borrowers. Some have already seen slow payments or begun work-out plans to help their borrowers survive.
Some experts predict failures and liquidations to begin in Q1 and Q2 of 2021. This is when there will be an increase in the demand for title searches to handle the fallout.
Purchasing Commercial Real Estate
There may be some commercial real estate for sale as owners try to unburden themselves by offering a low price. Investors may see these as an opportunity but should also be cautioned to do a title search.
While title searches are a normal part of the closing process, investors might be wise to do title searches in advance. It is more likely than in “normal times” that the property will not have a judgment or other encumbrance that would make the property less appealing. Smart investors will do the title searches before making an offer so that they can use the information to negotiate further on the price.
Foreclosures, Judgements, and Liens
While banks may not want to foreclose, it may reach a point where there are no other options. Their borrowers may be operating at such a loss or unable to find new tenants to fill vacancies.
Small businesses are being hit especially hard, without a lot of cash in reserves. Even those that have quickly shifted their business models may not survive. While they are maintaining operations, if they are at break-even or less, they cannot sustain long term – certainly not long enough to return to pre-pandemic levels.
And with continued high unemployment, landlords face difficult choices. Without collecting rent, they cannot make mortgage payments. Evicting the tenants means a potential vacancy if they cannot find a replacement.
In some cases, the tenants may never return to pre-pandemic levels. With significant numbers of people working from home, some businesses may opt to never go back to their full rented office space, leaving continued vacancies that can negatively impact the market.
As the United States faces defaulting commercial real estate loans, there will be a rise in foreclosures. Banks will turn to their attorneys to handle these foreclosures, which will include title searches. Law firms may also be representing other lienholders or investors during the foreclosure process.
By the time the loan reaches foreclosure, property owners may have received tax liens or other judgments on their properties. A thorough title search will find these so that the lienholder and attorney know how to proceed.
Streamlining the Title Search Process
With an increased demand, you want to be able to provide your clients with fast and accurate search results. Some of the searches requested may be more complex than usual. Having a good process in place will ensure that you can meet your clients’ needs.
As you review your completion and delivery of title searches, you can ask the following questions:
- Do you have an efficient means of placing orders?
- Can you track the status of each order and know which searches are completed?
- How quickly can you turn around title searches to your clients, and can you handle an increase in volume?
- Do you have a way to organize completed searches to retrieve them later?
- Can you keep track of outstanding invoices?
- Is your communication centralized?
Bottlenecks in any of these steps can lead to decreased turnaround time. For example, if you handle a high volume of orders, you need the means to import these or manually enter them quickly. If you cannot process invoices expediently, you will be delayed in payments from your clients.
If you are handling title searches in different counties or states, you need to be able to communicate effectively with abstractors. Part of your process should include a system that notifies you of potential issues. You need to be able to identify what needs attention and what issues have been resolved.
The Right Tools for Title Searches
The impacts on the commercial real estate market will likely linger for years. Even with COVID-19 under control, some industries have had a permanent shift. Others may take a long time to return to pre-pandemic levels.
Your own workplace may have shifted, along with so many other businesses. Since work no longer takes place only in an office, you may need a title search tool that is accessible anytime, from anywhere.