Usually the foreclosing mortgage lender buys the property at sheriff sale. Sometimes a third party decides to outbid the lender and that's what happened on the case sitting in our office. Not only did a third party decide to outbid the lender but they immediately listed the property for sale and it went under contract BEFORE the sheriff's deed was recorded. So that's a pretty good indication that the property is worth more than the amount needed to make the mortgage lender happy. The third party stands to make a fast buck on the transfer, right? Well, maybe yes and maybe no because the property came through foreclosure with TWO title clouds.
The buyer hired our office to handle the conveyance and issue title insurance. We found an unsatisfied mortgage for a prior owner and we also found an installment land contract without resolution. The contract was signed by the folks who lost the home in foreclosure and it was recorded after their mortgage. We found no release or notice given to the buyer in the land contract.
We raised the two issues - unsatisfied mortgage and lack of notice on the land contract.
Turns out the unsatisfied mortgage had been missed by the foreclosing attorney's abstractor AND the third party's abstractor. That's odd but they did some research and apparently found the original satisfaction was sitting in a title agency file and are in the process of having it recorded. Okay, that's one problem fixed.
The lack of notice on the installment land contract is a bit of a sticker problem. You see, there is a letter in the sheriff's file showing that someone, perhaps the sheriff, raised the lack of notice issue with the foreclosing attorney. The letter is from the foreclosing attorney who agrees that they failed to notify this person, however, since the property was posted and they did send a generic "tenant/occupant" notice to the premises it was likely that this party had been notified as there was a good chance he was living there. Besides, the letter went on, any third party purchaser at the sheriff sale would be taking the property subject to installment land contract interest anyway.
Well, the third party who now is selling the house reads that letter as a green light. I read that letter as a cloud on title and am not willing to insure over the interest of the person holding an equitable interest under the land contract. The contract itself shows that he paid a substantial deposit so without specific notice, I think it's a claim waiting to happen.
Since our buyer is a cash buyer, the decision is theirs whether or not to close. I can close by putting an exception in their title policy for the installment land contract. If I were the buyer, I'd not do it, and I doubt that they will.
This third party - now seller - in my opinion will have to fix the notice issue or hope for a less than fully informed purchaser.
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