Wednesday, March 28, 2012

query via email: discharged debt with an underlying lien survives bankrupty

I'm one of the many thousands of Americans who have been hit hard by the economic hard times and have been forced to short sale my home. Long story short....
I have a buyer who is an investor. He started working on the house before it closed and now has $15k invested into rehabing the house and we have hit a snag in the closing process.
A "lien" was found on the property that should have been found back when the house was refi'd. On my HUD Settlement Statement it shows I paid for a title search and it shows a charge for title insurance as well.
This lien holder was a secured loan taken out back in late 2004 to consolidate my medical bills. I eventually filed a Chapter 13 Wager-Earner plan and this account was included in the bankruptcy. It was reported to the credit bureaus the account has been closed, and shows a zero balance as paid through the bankruptcy which was discharged in 2007. My bankruptcy was discharged and paid off, along with a grant program I used to make home improvements and THAT lien WAS found and paid off, along with the bankruptcy when I refinanced the property.
When I refi'd the property, the original mortgage company was [redacted by dc]. They sold the loan to [redacted by dc] who subsequently was taken over by [redacted by dc]. I refi'd the property in 2007 to pay everyone off in my bankruptcy at 100% and was discharged after doing so. Keep in mind, this company has been reporting to the credit bureaus this account has been closed, has a zero balance AND was paid off through the bankruptcy. I even have a letter from this company's attorney stating the account has been closed and was discharged through the bankruptcy.
In trying to close this deal, the current title company performed a title search and FOUND this lien which should have been found and paid off in 2007 when I refi'd. They are refusing to remove the lien and are NOW in the first position ahead of [redacted by dc] and are stopping this short sale from going through. It's some little hole in the wall finance company and are extremely incooperative.
I called my attorney and he states the title company who handled the refinance are responsible for this. We have to place a claim with the title insurance company because it was the title company's mistake for missing the lien. As a result, my house may now foreclose and it will be put on my credit report as such.
The investor, shame on him, is upset with ME because I won't call this little finance company who SAYS they've been accruing interest all these years on an account that is reported to the credit agencies as closed AND their own attorney says has been closed. He wants ME to call them and negotiate a settlement amount and acknowledge I still owe them money just so the lien will be released and he can close on the house. My attorney has said I'm not responsible AND if HE wants to purchase the house HE should call them and negotiate a lower price to cover what is owed to get it released and close on the house. My attorney says it's his own fault he has invested money in a property he didn't even own yet.
Nevertheless, how do we find the title insurance company and underwriter to file the claim when the title company who closed on my refi deal has closed up and gone out of business to file a claim?
Any assistance would be greatly appreciated....

Wow.  This is a dilemma.  Let me divide the matter into two issues.

First, the buyer's problem is that he decided to work on a property BEFORE he owned it and BEFORE it was clearly proven that the title was clear.  I know you understand that I am not offering legal advice on this because I'm not an attorney but your attorney is correct that the BUYER created his own problem and unless you also made some kind of agreement to reimburse him for his imprudence, then I wouldn't worry about it.  Set that aside and concentrate on the other problem which is to clear the title to your house.

You have the second matter which is one we often find after bankruptcy - a discharged debt with an underlying lien or judgment which survives the bankruptcy,  It is my personal opinion that bankruptcy attorneys who fail to provide the extra step of asking the court to vacate the lien are doing a disservice to their clients.  When I have raised this matter with these attorneys they either know the lien will survive and don't care or they were ignorant of the law.

Your situation is compounded by the fact that the title agent who vetted your property in the refinance either missed the lien or didn't understand that it survived the bankruptcy. 

So, the truth is that two providers whose services you paid for allowed a lien to stay attached to your house and the reality is that the refinance title insurance was a loan policy and will offer no direct source of help and you need to fix this one yourself.

That is the heart and truth of the situation.  You would have had to deal with it at the time of the refinance if it had been discovered so this is just a delayed resolution.

As with any foreclosure, the lienholders expect to lose money and it is in their interest to make a short sale deal unless there is so much equity in the house to cover the foreclosure losses when the house is eventually sold after they go through all of the trouble - take it and then market it.  This will help you but you must also keep in mind that the title insurance you bought in the refinance insured your MORTGAGE lender that they have FIRST position.  This means that if you default and they have to move forward and foreclose, they will have to process a title insurance claim to deal with the finance company and get them out of first position.

The starting point moving forward is to acknowledge you are alone - no help from the old bankruptcy attorney or the title insurance company who insured the refinance.  Your job is to find a negotiated settlement for both lienholders and your buyer.  Hopefully they will all be motivated to mitigate damages and the deal you are offering is better than going through the title insurance claim process followed by foreclosure.

I am not saying this is easy but if the reality is that avoiding foreclosure or in the case of the finance company getting money now rather than later is the preferable alternative then you should be able to make a deal.

Either you or your attorney need to use good negotiating skills to pull it all together.  If not, then everybody except the finance company loses. 

I am sorry that I don't have better news but sometimes I think just clearly seeing the hand you are dealt does help.  Now you just have to play it and I do hope you win.

Your attorney sounds like a good one.  ;)


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