underwriter requested "proof" of free & clear ownership ???

[Derek Sperzel]

So we're trying to complete a cash-out refi on a rental we bought and rehabbed last year (BRRRR), and everything was going well until today. I got an email from the Broker, and the underwriter is asking for documentation on all investment properties proving we own them free & clear (a couple are mortgaged, but they know that). The underwriter suggested a letter from our insurance agent should suffice, but they have no idea if we have loans on certain properties, unless they collect policy premiums from escrow. I don't understand what I could provide to the underwriter to satisfy this request, and any thoughts would be much appreciated.

[Tim Johnson]

How long ago did you purchase the properties, you could provide the copy of the check from the purchase, or note showing no liens

[Scott Mac]

Hi Derek,

Why not just call the underwriter on the phone and ask them what they want.

It might be as simple as bulleted list signed by you, or they may have a form.

Good Luck!

[Eric Veronica]

@Derek Sperzel The declaration pages of your insurance should answer that question because if there was a mortgage the lender’s mortgagee clause should be listed. 

In my scenario the borrower had no insurance either but that’s another story for another day.  

Another way to prove this is schedule E of personal tax returns or form 8825 of s-corp tax returns.  If the rentals are free and clear then Schedule E or form 8825  should also confirm that there is no mortgage because there would be no interest deduction.  

[Shaun Weekes]

Originally posted by @Derek Sperzel:

So we're trying to complete a cash-out refi on a rental we bought and rehabbed last year (BRRRR), and everything was going well until today. I got an email from the Broker, and the underwriter is asking for documentation on all investment properties proving we own them free & clear (a couple are mortgaged, but they know that). The underwriter suggested a letter from our insurance agent should suffice, but they have no idea if we have loans on certain properties, unless they collect policy premiums from escrow. I don't understand what I could provide to the underwriter to satisfy this request, and any thoughts would be much appreciated.

 They're probably asking for the home that you're doing a refinance on.  On the mortgage application your loan officer should have disclosed that your other properties have mortgages on them.  Take a look at your 1003 on page 3 and look under liabilities.  

This shouldn't be a big deal unless someone didn't disclose all the information on the mortgage application.  

[Saravanan Saravanan]

@Derek Sperzel

If other properties have loan; in some instanced; they are listed on your credit report and shows as part of debt income ratio.

When the loan is on property A; whey would they want to know about other properties that you own? Many lenders focus only on the property they are giving the loan to and not worry about your other properties. 

[Yvonne H.]

I get the same request every time I refi. Usually what works is a letter signed by you stating it’s owned free & clear, combined with insurance docs for those properties showing no mortgagee. If you don’t have insurance on them then you also have to write & sign a letter about that, too.

[Derek Sperzel]

Thank you all for the feedback.  We have insurance on all properties (some only liability), but none of the insurance decs state anything regarding ownership.  I'm going to ask the underwriter if a written and signed statement form me would suffice.  Thanks again!

[Ken Jernigan]

This is kind of a screwy request--they're asking you to document a negative, that is no deed of trust is filed on the properties. Normally, you'd submit a signed schedule of real estate owned disclosing all debt on the properties, and the lender would conduct a lien search pre-closing.

[Russell Brazil]

Insurance document will show who is insured. No lienholder to pay means its owned free and clear. This is a common request

[Mike Flora]

@Derek Sperzel doesn’t each Property your refinancing have a Pre Lim title report showing no liens/mortgages on your free and clear properties??? That should be sufficient I believe?? Never refinanced a free and clear but this should be enough proof.

[Matt M.]

I am just starting the process of refi’ing a free and clear rental. I’m guessing this will come up for me also, but if my realtor can search for loans on a property, why can’t a mortgage company?

[Derek Sperzel]

@Matt M., @Mike Flora, @Russell Brazil

I requested a letter from our insurance agent, and basically they stated, "we insure properties located at X,Y,Z, and to the best of our knowledge, they are owned free and clear."  The underwriter also stated they could review the schedule E from our most recent tax returns to determine any interest fees deducted.  I'm not sure why this wasn't done in the first place, since they have copies of our returns already, but at least we're moving forward again.  Thank you for all your help!

[Jay Hinrichs]

@Mike Flora  this is weird  pre lim or title commitment is all they need.. to me insurance may not be accurate. 

they make mistakes on dec pages all the time. 

[Thomas Waddle]

@Derek Sperzel, talk to your local title company. They will likely have a product called an Ownership & Encumbrance Report. They are inexpensive ($5-25) and will show that a property is unencumbered via a limited title search.

[Jay Hinrichs]

when i am going for construction loans and the lender wants to know what i paid for the lot and that i truly paid cash for it. i just send them a copy of the settlement statement were i bought.. that works.