Real estate development often requires substantial capital investments which makes finance the primary issue in the real estate investments. The complexity of the sector and intensive investments require proper, reliable and valid financing. Financing in real estate is therefore governed by terms and conditions that ensure the validity and consistency of the finances to see through the development operation. The whole process of real estate development is reliant on the consistent availability of financing. Sourcing for reliable finance, therefore, is a burden that weighs on the developer. Real estate is funded through equity capital, loans, mortgage funds, debenture and contractor financing among others. (Ezimuo, Onyejiaka & Emoh, 2014). Each source of funding as it processes prior to getting the capital and the processes play significant roles. A look at some sources of funds and the processes sheds light on their relevance to the capital acquisition process.
Financing real estate through loan requires one to go through the loan process to determine ability and willingness to pay the loan. The loan processes also authenticate the ability of one to get the loan by ensuring the validity of the documents supporting collateral properties. Qualifying a title is part of the loan process 5that takes place at the closing stages. Qualifying a title means verifying the legality of ownership of the title free of fraud, claims or other legal issues. The process is necessary to avoid conflicts after the closing and ensure legal transaction. Qualifying a title involves checking public records such as divorce settlements, mortgages, wills and any other relevant documents that may affect the title to the property. Qualifying the title identifies issues such as debts owed against the property and determines what is transferred with the title and what not is (Title Closing Group, n.d).
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The loan process also includes title insurance as part of qualifying a title to reinforce loan security. Title insurance refers to the documents that ensure that the seller is the legal owner of the property in the transactions. The Title insurance gives the buyer safety in their acquisition and protects them from any parties in future claiming ownership of the property. Title insurance eliminates the existence of claims, liens or pending issues against the property. The title insurance document is given during the closing process. Lenders require title insurance when offering loans as a confirmation and security over the collateral the title offers. The company responsible for drafting and issuing the insurance is expected to conduct thorough legal research on the property and hence assure the lender of absolute security. Usually, the lenders' policy is a requirement but for extra security in case issues with lien or fraud arise after closing, a owners policy necessary (American Financing, n.d). Title insurance is a confirmation of the borrower’s complete ownership of a property and security against third party claims and fraud for the lender.
The process of examining, verifying and qualifying titles is a tedious involving process that consumes time. Title deeds are documents subject to controversies and complex issues that make them vulnerable to fraud and errors in the verification process. Therefore there is a need for accuracy and certainty in title verification which makes the process complex. An invention from South Australia the Torrens system revolutionizes the process of recording land ownership making the process easier. The Torrens system makes the register conclusive to ownership of a property to the registered person. Therefore the registered person becomes the owner by registration excluding any other claims of ownership. The Torrens system is instrumental in title qualification as it eliminates the basis for litigation. Torrens system also plays a great role by minimizing costs of property transfers and voiding the repercussions of lost certificates among others (REISA, n.d).
Problems with the titles to property occur in real estate and have a detrimental impact. A common title problem in real estate is the mechanic's liens. Mechanic liens are rights to keep possession of a property filed by contractors working on a property to ensure compensation for their services. The contractor releases the rights after they are compensated. However, contractors may fail to file a satisfaction of the lien leaving it hanging on the title. In other cases, the lien might be challenged. In such cases, it is the responsibility of the title company to the determined correct filing of the lien. The process becomes tie consuming especially in cases where the contractor has relocated. Consequently, the real estate development is delayed until the contractor can release the lien. In severe cases where the lien was not fulfilled the development cannot take place until the lien is satisfied (Gadow, 2016).
In conclusion, loan capital is one of the many sources of real estate financing. The loan process is substantive and includes verification of all legal documents regarding the property as well as its ownership. Titled deeds are the legal documents that show ownership of real estate properties such as land. Titles documents are however susceptible to fraud and legal issues such as claims or shared ownership rights among others. For the transaction to take place, such issues have to clear to provide absolute ownership to the transacting parties. The process, therefore, requires validation of the titles before releasing the loans. The process of verification is made easier by innovations such as Torrens system. Title related problems can cause a significant problem for real estate developments from delays to completely preventing the development from taking place. Therefore, there is need to deal with all title related issues before commencing the development project.
References
Ezimuo, P. N., Onyejiaka, C. J., & Emoh, F. I. (2014). Sources of real estate finance and their impact on property development in Nigeria: A case study of mortgage institutions in Lagos metropolis . British Journal of Environmental Research, 2(2) , 35-58.
Gadow, Sandy (2016). These common title problems can snag your home closing. Washington Post . Retrieved on 26 June 2018 from https://www.washingtonpost.com/news/where-we-live/wp/2016/06/20/these-common-title-problems-can-snag-your-home-closing/?noredirect=on&utm_term=.cfc9bf49b99d
American Financing. (n.d). The mortgage process . Retrieved on 26 June 2018 from https://www.americanfinancing.net/purchase/mortgage-loan-closing-process
Title Closing Group. (n.d). The closing process. LORAC marketing . Retrieved on 26 June 2018 from http://www.titleclosinggroup.com/closing-process.html
REISA. (n.d). Torrens title explained . Retrieved on 26 June 2018 from https://www.reisa.com.au/publicinfo/general-tips-and-traps/torrens-title-explained
