Guest Commentary By Brent Melton, Vizaline
Ensure Accurate Property
Descriptions Partner Vizaline
The banking industry audits almost everything. Historically, however, banks miss auditing their largest investment — real estate loans. Banks audit for appraisal, credit, cash flow, compliance and title work but fail to audit the one thing that is the foundation to the entire loan — the legal description of metes and bounds properties. Why does this happen? Many assume the descriptions are correct, and survey orders can be expensive and time-consuming.
Between 15% and 18% of metes and bounds loans have errors in their legal descriptions. Tese mistakes affect the loan amount, loan-to-value, title insurance and bank loan policy. What is the property worth if the legal description is incorrect? How much will it cost to correct it?
Banks have shared their experiences with incorrect legal descriptions. Do these case studies remind you of similar experiences that you have experienced in banking?
CASE STUDY NO. 1
An elderly woman went to her local bank to borrow money on 250 acres she owned free and clear. During the process of the loan, the attorney informed the banker there was a problem
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with the metes and bounds legal description of the property. Te attorney could not determine how to correct it and if there were other problems with it. Te customer was going to leave the property to her two children, and a survey would cost $15,000 — money she would have to borrow. What was her solution?
CASE STUDY NO. 2
A homeowner went to the bank to refinance the amount leſt on the current mortgage. Te customer had owned the home for 15 years. During the refinancing process, it was discovered that the legal description actually described a piece of land with no improvements about a mile down the road. All this time, this individual was living in a home that the homeowner didn’t own. What’s the solution for this customer?
CASE STUDY NO. 3
A bank made a mortgage loan in a rural community with a metes and bounds description and sold it to Federal National Mortgage Association, also known as Fannie Mae. Five years later, the customer defaulted and went into bankruptcy. FNMA audited the loan and ordered a survey because one had not been completed. Te survey revealed there were three parcels of land that encompassed five acres. Two of the parcels sat on top of each
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