Taking the stress out of distressed assets
20th November 2009
by Graham Waller
In the current economic climate, the availability of portfolios of properties placed in the hands of receivers is increasing. Whilst the anticipated deluge of distressed assets did not materialise in 2009, it is looking increasingly likely that necessary disposals will increase in 2010.
Whilst the initial offer price might be attractive, the receiver will not provide the usual warranties on title, and in the case of portfolios containing a large number of individual assets, a time consuming and potentially expensive due diligence process may be required in order to satisfy a potential lender of the quality of the security.
Offering a First Title policy as part of the overall proposition, the sale of a property portfolio can be made more attractive to potential purchasers and their lenders. By providing comprehensive title insurance through the creation of a bespoke policy, we can enable the legal due diligence element of the complex transaction to take place more quickly and efficiently. The policy will overcome the lack of vendor's title warranties in a typical sale by an administrator or receiver by guaranteeing title for the purchaser, the asset manager and its shareholders - which has the additional benefit of enhancing the value of the portfolio. The cost of the policy may also be treated as an allowable cost of recovery.
Title insurance allows lawyers, property owners, lenders and others with an interest in land to work with us to manage the transaction, to limit the amount of due diligence to what is necessary without incurring additional risk. This approach works best when the insurer works in partnership with the law firm; the legal team conduct a sampling exercise across the portfolio, from which First Title can assess the level of risk and offer policy terms. Our indemnity is based on loss rather than (as with normal professional indemnity cover) fault. Our intention is to produce a solution that saves time and money without compromising security.
In addition to the potential speed and cost benefits, it also gives a clear transfer of risk with a simpler route to compensation - all policies oblige the insurer to provide a defence against challenge to the insured interest without extra cost. Once in place, cover can be extended to subsequent transactions (such as refinancing), thereby streamlining future due diligence.
When the portfolio approach is combined with specific cover for known risks, title insurance can provide a solution that allows financially attractive deals to complete on time, or simply to complete where title problems might otherwise prevent this. We have significant experience in dealing with these types of transactions and our policies have facilitated the prompt disposal of a variety of distressed assets, improving transaction speeds whilst providing the purchaser with a risk managed solution.
First Title as a wholly owned subsidiary of First American Title Insurance Company (part of the First American group, a "Fortune 500" company) has access to exceptional insuring capacity with minimum delay and formality, backed by our parent company's financial strength.