Monday, March 07, 2011

subdivisions, outsales and foreclosure

TWO....TWO cases in one week with the same situation, well almost.

I've had two transactions cross my desk in one week that involve subdivision, sale of a portion of a mortgaged parcel which later went into foreclosure.  In both cases, the attorneys who handled the subdivisions and conveyance out of the mortgaged parcel overlooked getting a release from the mortgagee.  What were they thinking!

In one case, the foreclosure is over.  The foreclosing attorney didn't notice the outsale and so no notice was given to the owner of the outsale parcel.  I discussed it with my underwriter who raised three issues.  He wanted the outsale to have its own tax assessment identification.  It does.  He wanted the new mortgage lender to have given the outsale no value in the appraisal.  It's a cash deal, so no lender.  He wanted us to make certain our proposed insured buyer was fully aware and agreed to an exception for the outsale.  We provided maps and surveys found on record.  The buyer visited the property one more time, no problem.  Now all I have to do is make certain an exception shows in the deed so our insured doesn't have complications moving forward.

In the other case, the foreclosure process has just begun and our transaction is a short sale.  If the short sale goes through and our buyer is fully aware of the outsale, I see no problem.  On the other hand if the short sale does not go through and the property does go to sheriff's sale, if the foreclosing attorney does their job correctly and gives notice to the outsale owner, they would have to go and outbid the lender at the sale in order to preserve their ownership in the parcel they acquired without having gotten a release from the mortgage lender.  I'll bet that'll be a big surprise.  The listing agent and I chatted about this today.  There's no sense telling the neighbor to go for a release now.  I can't see any motivation for the mortgage lender to consider it when the property is in foreclosure.

Remember folks, if you buy a piece of property, even is it's just a sliver from a neighbor, you had better insist upon full title examination by a competent provider.  In both of these cases, consumers relied upon attorneys who took shortcuts.  It is possible that they advised their clients of the risk of buying without a title examination, or perhaps not.

Be a smart consumer.  

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