How Do You Experienced Investors Handle Missed Liens By Your Title Co.?

[Ibrahim Hughes]

We're working with a title co. we've used for years on a deal we have that's in foreclosure. We always do our own unofficial 'title searches' before submitting an offer and/or putting a property under contract.

So I know for a fact that the property is in foreclosure, a lis pendens has been filed and that there may have been a couple of judgments missed by my title company (not sure because my state seems to have two different databases - one for civil cases opened or closed and the other for closed cases that turned into docketed judgments. Not to mention that the owner's last name is sometimes spelled with just one 'n' instead of two). So it looks like my title company missed the LP, mortgage and (again) maybe a couple of judgments.

Do you guys notify the title co. of their error? Or allow the property to be insured as is? I thought this would sort of come under 'moral dilemmas' however on a recent deal my attorney suggested we keep quiet when the buyer's title company missed an irs tax lien on a seller whose property we assigned to an investor (we'll be doing the same on this deal). And I was a little surprised as my attorney is pretty 'by the book' in his practice. But I also know that he was under no legal obligation to alert the title company to the IRS lien.

My thinking is that unless our end buyer uses his own title co. (happens sometimes), then they may likely catch the LP and mortgage.

Your thoughts?

[Ibrahim Hughes]

I meant to tag K. Marie Poe and Rick Harmon in this thread specifically but please - all are welcome to comment. Thanks in advance for your input.

[Bill Gulley]

You don't have enough faith in your title company assuming that they missed anything just because they didn't mention it, they probably did thier job and are ready, willing and able to cover any liens shown of public record to the date of examination! I just don't go digging into title issues I have them do it and besides, I might find something and miss a release and think they screwed up. ;)

[Ibrahim Hughes]

Originally posted by Bill Gulley:

You don't have enough faith in your title company assuming that they missed anything just because they didn't mention it, they probably did thier job and are ready, willing and able to cover any liens shown of public record to the date of examination! I just don't go digging into title issues I have them do it and besides, I might find something and miss a release and think they screwed up. ;)

Yeah Bill I have been guilty of this and am learning to fall back and let the title co as well as my attorney do their jobs. Only step in when and if necessary. Thanks for your input.

[Wayne Brooks]

Is there enough equity to cover everything? If not, maybe you ask your end buyer, because exposing them may blow up the deal, or he may be willing to go in eyes wide open then use the title insurance to deal with it. Personally, I'd disclose. I don't know title insurance exceptions well enough when it comes to misspelled names, aliases, errant recordings, etc.

[Bill Gulley]

No offense, but it's not necessary as I'd say they know what they are doing and if either makes a mistake, it's covered.

The notice of legal action is irrelevant if you're buying it. Any lien you found may not be valid any longer, it could have been cleared through the courts and not released yet, they can verify that and it (sounds like you're a little cloudy on the court systems), so that might be why they didn't mention it.

It will depend on the spelling issue with one N as to the last transaction and what those issues are. They can, at closing have that guy do a Same Name Affidavit in closing, it doesn't need to be on your title committment but can be a closing requirement.

Consider to that the title company will do a final check before filing a closed transaction. If anything is not right they won't file it until it is corrected.

Can't see why any Realtor or buyer (who has not worked in a title plant) could ever believe that thier input would be necessary, especially when they aren't insuring title. :)

[Wayne Brooks]

Just my habit of delving where I don't belong I guess! I'm no title search expert but I do a lot of my own searches when looking at foreclosure auctions, tax feeds and potential short sales. I just had one short sale where I was representing the buyer, and checked on how many mtg.s, liens, etc. before making an offer. Lo and behold, we get an approval but the buyer needs to contribute $3,000 to help satisfy the second. They actually sent me a prelim HUD to this effect. Problem was, I knew there ain't no stinking 2nd. It was the negotiator trying to collect and hide a negotiation fee. After an FU email, the 2nd mtg. issue "went away". This was one of the many title co.s who process short sales "for free".

[Bill Gulley]

Wayne, I understand that in Fl. the mortgage fraud capital of the country. :)

[Ibrahim Hughes]

Wayne was this in 'Fraud Lauderdale' perhaps? Lol - Good catch. Yeah I find my ability to do my own title searches INVALUABLE in countless ways while working this biz.

[Hans Restuccia]

If I am aware of what I think is a problem with the title I would absolutely let the title company know- we have had claims and they play games, we have had to sue them for the coverage, this can be costly and time consuming and can hold up a sale.

I would always inform the title company of any issues I perceive because of the hassle of filling a claim- I would rather avoid it in the first place, especially if I am on notice.

Just my 2 cents!

[Wayne Brooks]

Yes Bill, south Florida probably invented the straw buyer. It constantly amazes me how the title co. officers, appraisers and "buyers" in these deals thought they possibly wouldn't get caught. Now, we just file a fraudulent deed transfer and mortgage satisfaction simultaneously, then sell it quick, and buy tickets to Costa Rica :)

[Bill Gulley]

LOL, yes, I recall when FL was cutoff funding by wholesale bankers in the secondary, they just left. We had a MB from FL set up shop here, scamming fees, I told an FBI client and they nailed her, she flew the coupe back to FL, they caught her there and off to jail she went!

Hans does make a valid point, if you really do know of a lien or mess, it is best to bring it up and avoid issues. My point was, you may only think you know how to search title. Title examination goes beyond land records and liens, into probate issues, divorce cases, suits and judgments, zoning and use restrictions, plat issues and the list goes on. I can search land records and many other aspects of potential issues, but I'm not qualified to give a title opinion or insure title and there is only one on BP that I know of who is and he is an attorney in the title insurance business! Point being, you don't know what you don't know and you really shouldn't rely on what you might not know in title issues, I don't. Just gt it insured. And yes, a claim can be hard to collect on, been there. :)

[Hans Restuccia]

Right on- I agree w/ bill as usual! Lol

[Deirdre Brown]

Ibrahim S Have you seen the commitment (binder)? The judgments, foreclosure, etc. may be listed as exceptions to title.

You should let the title company know about your suspicions about the lis pendens etc., because it could become a problem later. Your end buyer may not be able to close or they close and can not re-sale because title is not clear. These types of situations can lead to law suits where everyone involved is named in the suit, including you. I know you said that you have used this title company for a long time, so maybe they did not miss it. If they missed a lis pendens or foreclosure or a deed of trust - you may want to look for a different title company. Yes, there is title insurance and e&o insurance, but claims and lawsuits can cost you time and money.

[David Krulac]

Ibrahim S

You know we also do our own title searches, been doing them for years and a lot of our properties have some unique features.

I just had one where the official search didn't show a specific lien, I told the title co. to look at this and it was indeed a valid claim against the property. We sold the property if we had let it settle with the lien in place, I think that is just asking for a lawsuit from the buyer.

I had another one go the other way also recently. There were 2 mortgages and only 1 satisfaction. Only by pulling the docs and reviewing was it discovered that the first mortgage had a typo that the second mortgage corrected and there really only was 1 lien and therefore only needed 1 sat piece.

[Ibrahim Hughes]

Interesting everyone - especially about the problems with filing claims and lawsuits by the buyer. I will be discussing this issue with my attorney on Monday. But as Bill Gulley stated (as well as David Krulac in his experiences) I've been there where a title binder would come back and I would run off chasing down judgment holders, lenders, debtors etc. trying to clear a title issue only to have my attorney say "well I'm pretty sure the title co. will omit this". Or to have the title co. say that because the borrower was deceased at the time the judgment was filed and the creditor didn't name his estate as a defendant, they were going to omit it. So I no longer play lawyer or title problem hero anymore. Thanks again everyone.

[Rick H.]

It's helpful to understand how title companies operate and how their information may differ from county recorder's.

First off, most title companies run off their own, independent property databases, that they refer to as title plants. Several title companies may share the same title plant due to contractual or reciprocal agreements. What's key is that the data is close but not identical to the recorder's general index. It works for the title industry because it's more efficient that tapping into the general index. Is it perfect? No, far from it. however, they manage to make it profitable and will likely continue the practice.

In my state, CA, title preliminary reports still require a statement of info that gives them enough info on persons with record title interest, and they use this to run those names through the county general lien index for AJ's, etc. This is why you'll occasionally have a deal that title discovers a lien or defect at the last minute, despite a prelim being prepared months in advance.

We solve this problem with ours deals, due to long ownership periods by decedents and the kinds of challenges that life gave them (judgments, bail bonds, etc.), by submitting the S.I. up front and insisting that the T.O. run it through general index upon opening the order. That gives us extra time to deal with surprise liens and decide if it's bad news or can be turned into lemonade.

Lastly, most policies have weasel clauses that require the insured to notify them in the event that you know something that they missed. They also are insuring against loss, not assuring that you are going to make your intended profit. Alas, you are now playing the other man's game.

[Ibrahim Hughes]

Thanks Rick Harmon.

[Deirdre Brown]

Rick Harmon's response is quite interesting. However, how title companies operate must be dependent on the state.

I am familiar with the standard of practice in MD, VA & DC. Most of the larger and reputable title companies, including the one I work for, do not operate that way. We do not use title plants, or independent databases. I am not sure if anyone locally does. In this area abstractors are used. Some title companies contract out, some use in house abstractors. The abstractors search the local court records, local land records and federal court records. We do a 60 year search for purchases. I do not know how they do it in New Jersey. But this is why I was so harsh in my response before, because I made the mistake of thinking that this was the standard operating procedure everywhere. When you abstract the local and federal records, it is difficult to miss foreclosures, deeds of trust etc. Unless you just did not look for it, how could you miss it. Our abstractors send us any and all name combinations, my processor must then rule the lien in or out based on identifiable information or by calling the lien holder. People who have common names, are the most difficult to clear.

I have only seen major liens missed when they were recorded during the "gap period". Abstracts are only good thru the search date, so the period between search and closing is a "gap period". This is why, if closing is delayed too long, we run an update on the abstract before closing.

It would be interesting to know how title companies operate in New Jersey.

[Ibrahim Hughes]

Deirdre Brown - we operate the same way in NJ (independent abstractors used, 60 year searches etc.). Hard to miss a foreclosure as they are both marked and recorded in the county database for deeds and mortgages (so 2 indications that a foreclosure was initiated exist) and the complaint is recorded in the same civil database as judgments. One would have to miss 3 chances to see it. So not sure what happened here but I'll find out. Thanks for your input.

[Account Closed]

Ibrahim S Hopefully you've already made a decision and closed this deal. The issue for me with my title companies is a possible claim if a problem shows up down the line for the buyer. As a seller I have to fill out and sign a Statement of Information that includes known loans and balance info. So signing that when I believe there is an open lien would be a problem. The title companies here will do everything to get out of paying a claim and will look to that statement. Additionally, I want my title companies to be on my side and insure over complicated things when I need it. So having them end up with a claim that could have been prevented on one of my policies would not be helpful towards that end.

I'm really curious if this was a mistake on part of title, or were they able to eliminate the lien with info you don't have or don't see?

[Ibrahim Hughes]

Yeah it was a mistake. Apparently the name is sometimes spelled with one 'n' versus two of them. I saw that on my own search so I'm not sure how they missed it. In any event they're running the search again. Thanks again all.

[David Krulac]

Ibrahim S

I had one just this year where the person's name ended in ....man, several mortgages were recorded against this person with a mis-spelling of ....mEn.

Another one this year, the mortgage was recorded twice because the first time their was a typo. When the sat piece was recorded there was only one and no reference to the other mortgage. One search showed the second mortgage was being unsatisfied.

[Ibrahim Hughes]

David Krulac - those sort of make sense. What's crazy here is that the system in this particular county is so antiquated it's not online and most of the mortgages are indexed in huge, heavy and old books. So when they're searching for the name they HAD to come across the other spelling as well and straight ignored it. Must have had a new guy doing it or something.