What about those liens discovered after closing?

Hi Diane,

I short sold my house in July 2011 and it was found in the County Tax Bill that the City had a Lien on the property for past due sanitary charges. I was not aware of the charges or lien. Chicago Title was used by the buyer for title search and they did not find any liens on the title either. Now the Title Company has paid the lien in full but are requesting me (Seller) to pay them the lien amount or they will use Attorney and collection and I will incur additional charges. I was always been told that if there are any liens found after the Close of Escrow it is the responsibility of the Title Insurance Company. Are they allowed per Law in the State of California to recover any amounts they paid for failing to find the lien prior to close of escrow. Please let me know what is your recommendation.

Thanks,

Anonymous

Hi, Anon:

From the perspective of the buyer who purchased the insurance, yes, the liens discovered post closing would be the responsibility of the title insurance company, however this insurance does not extend to the seller.

Even if you were unaware of the lien, the responsibility still rests with the owner of the real estate.  If a foreclosure had taken place, depending on the laws of your state this lien may or may not have survived foreclosure.  In Pennsylvania, the mortgage lender who foreclosed would have had to pay it.

So, in the short sale, only the mortgage lien was released.  Any other liens, even if found after closing, stay attached to the real estate.  For this reason, title companies insist upon warranty deeds and affidavits.  In these documents you would have given a personal guaranty of title.  It is the warranties in the deed and other affidavits you signed at closing would be the basis for legal action against you.  If you did not sign any affidavits or give a warranty deed, you might have a defense.  In either case, you may wish to talk with an attorney.  Some times the size of the lien determines how much effort the title company wants to expend in collection.  Having an attorney at your side does present a more formidable challenge.  

Good luck and I wish you well.

Diane 

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.  ;)

Diane

buyer caught up in a bankruptcy/short sale squeeze

We've been working for a homebuyer since June trying to close a purchase.

He thought he did everything right BUT you can't account for "out to lunch" sellers or their "not so helpful" bankruptcy attorney. [I'm being really kind with those quotes cause these folk have made lots of grief for everyone. More appropriately I might have said, "out of touch with reality - perhaps in a drug induced haze and don't give a darn" and "not really that busy but push everything on my paralegal anyway who isn't an attorney and shouldn't be fully managing my caseload but I couldn't care less"]

Okay, our buyer knew the sellers were in trouble and facing foreclosure. The sellers had purportedly discussed a short sale with their lender and so the buyer made an offer and made his plans.

First of all, let's remember that anytime you hear the phrase "short sale", no one should make plans, okay? What everybody should do is dot all the i's and cross all the t's, keep copious notes, plan to have lots of patience, then wait. If the sellers are already in foreclosure your short sale offer will have priority in loss mitigation, however that doesn't mean it will fly or move fast. It simply means that from the mortgage lender's perspective, it's a more important transaction. Everyone else is a lower priority.

In this case, the sellers had NOT disclosed that they were in bankruptcy. We discovered this little helpful piece of information when we did our title examination. It's a Chapter 7 and not yet discharged, SO we ask the attorney to get a court order approving the sale.

Mr. Lazy Bum [being kind] Attorney won't lift a finger because he's been paid and doesn't care to assist anyone. We report this to the real estate agent and word gets back to Mr. LBA and he runs to embrace the broker who is a buddy and say it isn't so, this bankruptcy will discharge in less than 30 days so why force me to do this extra work. We talk with the trustee who says it will discharge in 60 days. Nobody wants to believe us and so they wait.

The 30 day mark passes and now we are believed but still Mr. LBA says not gonna help and sellers can barely hold a conversation so buyer decides to wait for 60 day mark. Rate lock will expire on the 60th day, but we'll make the effort and get everything ready.

In the interim, we have gotten preliminary approval for the short sale.

Yesterday was the 60th day. It didn't close though lots of effort and fancy dancing took place. I must say I was impressed by the patience of the buyer and his ability to jump in and team effort the hurdles we needed to work out.

The lender provided documents and funds. We had a last minute snag on the short sale final letter. The preliminary approval called for final okay on the final HUD and though we submitted it 24 hours in advance, the lender told us at the last minute that their attorney had to bless it and he was "out" and "it ain't gonna happen today" and as you know the rate lock was expiring so....

While we waited for the discharge to show up in Pacer - online access to bankruptcy data - we worked like mad dogs trying to find a friend and a solution. Trying to reach a supervisor in loss mitigation got me a rude hang up by some bloke who said "You have to talk with the attorney." Getting nowhere trying to work up the chain, I decided to go down from the top. I did alittle research on Google and found a contact - EVP and some other folks. Shot off the HUD and a polite e-mail hoping for a reasonable response and WE GOT IT! The EVP impressively cared and put me in touch with a senior officer in collections and interestingly as I was in e-mail chats with him, our buyer had him on the phone. We were both working any angle we could find and we both found the magic guy. He helped but the short sale was of course subject to a court order approving the sale or discharge of bankruptcy.

We kept checking Pacer - nothing. Our buyer had found a contact - the actual person who would type the discharge into the docket. [I'm telling you this buyer is resourceful and a pleasure to work with.] The trustee's office couldn't figure out why the discharge hadn't posted but they really couldn't directly help. Through the trustee, I was able to talk with the case manager. The case manager gave me bad news. Mr. LBA had filed an additional document after the sales agreement for the real estate which bumped the entire discharge process back another 23 days.

Mr. LBA - You stink.

Mr. LBA - You can't get off your lazy - whatever - to ask the court for approval for the sale.

Mr. LBA - You won't responsibly perform your duties to your clients, you lied to us, you lied to the Realtor and you can't manage the "100 files" I heard you yelling about in the background while your secretary tried to lie for you and say you were with clients.

Mr. LBA - We'll still close this transaction. You are causing hardship to people but I know you don't care.

Mr. LBA - Your demeanor and methods - as a former underwriter and someone who is trained in fraud prevention - smell like trouble to me. Someone ought to visit your office and take a peek at those books.

Anyway, this post turned into a novel - so sorry, but I do think discussing real cases is helpful.

As an aside, I should note that the buyer's new mortgage is VA. The house had the ole "doors to nowhere" problem, you know, sliding glass door in the wall but nothing on the outside of the house. That's a safety concern for the VA and so they require that you either put a porch out there or make the doors unusable.

Early in the transaction I happened to find out that the buyer was moving forward to put a deck up BEFORE closing. I said, look, you have no idea if this transaction will close. As a former VA underwriter, I suggested he ask if a simple railing/bar installed over the door would pass muster. He argued that he wanted to put up the deck and didn't want to spend the extra cash to put up a railing that he would be taking down later. I said suit yourself but putting up a deck is a bunch of money and what if somebody dies or what if the house burns down - you never know what might happen to prevent a closing. In risk management, you must always consider the worst case scenario before making decisions.

He did the railing. ;)

One more thing.

I love my job.

short sale and arms length notice

I just examined title for a cash transaction - $38000.00 - on a fast track to close before month end.

Title indicates the buyer is the brother of the seller. He sold her the property in 2000 for $43000.00. Sister is now in foreclosure and the lender is seeking close to $40000.00 to cover costs and interest.

At face value, I would say these folks are likely negotiating with the lender for a short sale.

I'm okay with that so long as the lender acknowledges that they are aware that the purchaser sold the property to the current owner for $43000.00 and that he is her brother.

With that info in hand, I am totally okay if lender wishes to avoid additional expense and sell the property now.

Why do I care? Well, these folks are asking the lender to take a $2000+ hit. It's entirely possible that the property may be worth more if it was offered for sale on the open market to parties who have no vested interest. My job is to give the lender the facts. They make the decision.